Earnings call transcript: Starbreeze Q4 2024 highlights positive cash flow

Starbreeze AB, with a market capitalization of $13.1 million, reported its Q4 2024 earnings, highlighting a slight increase in net sales and a significant improvement in EBITDA compared to the previous year. The company also reported a positive cash flow from operating activities, supported by its strong cash position at year-end. According to InvestingPro analysis, the stock is currently undervalued, with a strong free cash flow yield of 67%. The earnings call detailed strategic initiatives and product updates, including the launch of new game content and collaborations.

Key Takeaways

• Q4 net sales reached SEK 46.4 million, marking a slight increase quarter-on-quarter.
• EBITDA for Q4 improved significantly year-on-year, reaching SEK 19.7 million.
• Positive cash flow from operating activities amounted to SEK 64.9 million in 2024.
• The company announced new content for its popular game Payday 3 and strategic collaborations.
• Workforce reductions and organizational streamlining efforts were undertaken for efficiency.

Company Performance

Starbreeze AB showed resilience in Q4 2024, with net sales of SEK 46.4 million, reflecting a slight quarter-on-quarter increase despite a year-on-year decrease. The company's EBITDA of $8.36 million improved significantly compared to the previous year, indicating effective cost management and operational efficiency. With an impressive gross profit margin of 45.8% and an EV/EBITDA ratio of 2.96x, Starbreeze's strategic focus on expanding its cooperative multiplayer games across platforms has positioned it well within the competitive gaming market. For deeper insights into Starbreeze's financial health (rated GOOD by InvestingPro), subscribers can access the comprehensive Pro Research Report, which includes detailed analysis and peer comparisons.

Financial Highlights

• Q4 Net Sales: SEK 46.4 million (slight increase quarter-on-quarter)
• Full Year Net Sales: SEK 185.9 million
• Q4 EBITDA: SEK 19.7 million (significant year-on-year improvement)
• Cash Position: SEK 192 million at year-end
• Positive Cash Flow from Operations: SEK 64.9 million in 2024

Outlook & Guidance

Starbreeze plans to continue investing in its flagship game Payday 3 and the upcoming Backstop game, targeting a release in 2026. The company expects a reduced burn rate in 2025 and is exploring potential expansions into TV and movie adaptations. With the stock showing strong momentum (up 13.02% YTD) and trading near its 52-week range of $0.08-$0.16, InvestingPro subscribers can access exclusive ProTips and detailed valuation metrics to better understand the company's growth potential. Starbreeze remains focused on community-driven multiplayer experiences, aiming to expand its franchises beyond gaming.

Executive Commentary

"Our core ambition as a company is to make cooperative multiplayer games with a focus on our community for a long time ahead," stated Mats Juhl, Acting CEO. He emphasized the company's commitment to innovation and content updates, saying, "We will continue to make improvements and release more DLCs and content for Payday 3."

Risks and Challenges

• Market Saturation: The competitive gaming market presents challenges in retaining player engagement.
• Workforce Reductions: Streamlining efforts may impact operational capacity.
• Macroeconomic Pressures: Economic conditions could affect consumer spending on gaming.
• Strategic Execution: Successful expansion into new media requires careful planning and execution.
• Technological Advancements: Keeping up with rapid technological changes is crucial for maintaining a competitive edge.

Full transcript - istar Inc (STAR) Q4 2024:

Martin, Moderator/Presenter, Starbreeze AB: Hello, everybody. Welcome to this presentation of Sabre (NASDAQ:SABR)'s fourth quarter and full year 2024. Today's presenter is Mats Juhl, acting CEO and CFO. And with that introduction, I leave it over to you, Mats.

Mats Juhl, Acting CEO and CFO, Starbreeze AB: Thank you, Martin. And welcome to everybody, and thank you for listening in to our presentation on our fourth quarter and full year numbers for 2024. Let me run through some slides, and then there will be time to answer questions after the presentation. And please keep in mind that you can also send in questions during the presentation. And we will try to answer as many as we can before closing down.

So let's get into it. Our fourth quarter key takeaways. We have had a great quarter when it come to Payday franchise and both leveraging our IP, but also Payday three as a game. Regarding our IP, we announced our fantastic collaboration with Krafton. We are making a payday game in the PUBG Battlegrounds platform.

That's going to be an amazing opportunity for us and that we can explore that large platform of players and also introduce so many new players to Payday. So we're really looking forward to see that game out live. And the project is a work for hire, as we communicated earlier, and I can talk a little bit more about that later. We also announced that we are letting payday make a reappearance on Roblox. It's a Payday experience done by notoriety.

He's created made a great version of Payday on that platform. We see great attention on that as well. It's already out there, a little bit for everybody to play. We also released the new content and functionality to PAIDI three, for instance, VOIP and ServerBows in October, and lately the popular heist, First World Bank, that we released in December, specifically for PAIDI three. Our next game, Backstop, we are in full production, progressing according to plan and with the ambition to release the game during 2026.

We also have a playable demo that we're actually showcasing now and letting potential partners play. And we are getting great feedback and a lot of laughs during those sessions. It seems like, yeah, it's not only us that likes that game, how it looks and how it's coming together. So the team has made really great progress with the game, and it comes together as a true g and d experience as we interpret it within service. So, I'm looking forward to show more about Baxter (NYSE:BAX) going forward.

But at the moment, we focus on showcasing it to potential partners before announcing more details out of the game and to the market. But bear with me, it will come. As you know, then, we have three games on the market. So that's include RoboQuest that we publish. And as you've seen, RoboQuest continues to perform really well.

And we are looking forward to see the game on PlayStation in a couple of months. So that's also a good expansion for that game to remain very popular. And we see good revenue from that game to establish this front. We do also continuously review our organization, our investments and our efficiency, and have during and after the quarter made several changes to make improvements both financially and operationally. I will mention a little bit more about that later in the presentation as well.

And last but not least, we continuously have a good cash position and limited debt. So those two ensures that we can continue to deliver on our strategic plan. So by that, let's get into our strategy, where we are today and looking forward a little bit. So looking into the years to come, our strategy remains intact as we communicated before. We aim to build Starbase both stronger and better through self publishing of our own games based on our own IPs.

So as I said, we have several games on the market driving revenue and at the same time increasing stability and reducing risk. We will continue to monetize on all the titles we have published and will publish going forward. And we have the ambition to expand our franchises both to more platforms as well to, to other entertainment areas and beyond games. So this is something we really intensify now going forward. And we'll communicate more about that in the coming quarters.

Our core ambition as a company, as we've mentioned before as well, it is to make corporate in multiplayer games with focus on our community for a long time ahead. The model for doing so differs depending on market demands and type of game, but it remains our foundation of the company. So we still have the strategic platform that we work according. So if you're looking on the Payday franchise and a little bit beyond that, during the quarter, as I partly mentioned already, there's been a lot of activity on the Payday franchise. We launched our first year edition with multiple new features, and also the well received high stamp first quarter bank.

And now lately also the very popular character jacket with over 90% in steam ratings. So a fantastic achievement to get that out on on on Payday three. A fun character, and you should try it. On top of that, we also see that Payday three is one out of three games. That's actually the game of the month on PlayStation Plus.

A good opportunity for us to increase our player base long term. And we see great attention from players on PlayStation, but also on other platforms at the moment. We see CCU numbers and down numbers at levels that we haven't seen since the launch of the game. We will communicate more about that in a q one presentation as well. But this as well is a great achievement by the team to actually get the game out there.

And based on all the improvements that we've done over the last year to make the game a better playing experience, but also more content has really improved the game over time. And that will continue. So we will continue to make improvements and release more DLCs and content for PETA three, both over the month to come, but also over the years to come. So the ambition is to continue to grow the game experience as well as making it more profitable. I already mentioned a little bit about the collaboration with Krafton and notoriety, which is expansion of our franchise and payday as an experience.

So now we reach a lot more players compared to what we did before. So that will be a huge expansion of the franchise when Graften decides to release the PAPI experience. Also worth mentioning is that we have a cooperation with the Swedish developer, The Gang. We will publish a game together with them called Unseen and continue to monetize also on Robocast, as I mentioned. As I also said, looking into our efficiency and cost structure in the company, this is something that we always need to monitor and do our best with.

So even if it's an ongoing activity continuously, over the last couple of months, we pay some extra attention to the matter. And we actually made a strategic overview looking into our current and future projects in order to strengthen the company long term. So we have initiated a process to build a state of the art tech team based in Sweden. We also review the organization in terms of needs and competencies. Unfortunately, that involves some reductions in workforce to meet the needs we see going forward.

This is primarily impacting our marketing organization and publishing organization. To further reduce cost and complexity within the company, we're also evaluating the possibilities to close down part of our foreign entities in line with that's part of our strategy to build Starbase stronger in Sweden with this the head office here and having Stockholm as a base for the company. We will still have, of course, employees and great developers around the world as we do, because we recruit based on competence and not location. That's the most important for us to have the best team that we can. All this together, of course, will strengthen us both financially and operationally and ensure that we continue to deliver the great gaming experience that our players expect.

So the impacts of the changes we do will be visible going forward in the coming quarters. If we go into the financials then for the quarter and for the full year, net sales for the quarter amounted to about 46,400,000.0, a slight increase from previous quarter but a decrease compared to last year. And obviously, we released P3 late in Q3 last year. So we saw an impact of that also in Q4 last year. Our EBITDA for the quarter amounted to 19,700,000.0, a great improvement compared to last year, where we saw high cost.

Based on our depreciation plan for Payday three, we depreciated $71,600,000 2 hundred and 20 thousand dollars So it's decreasing slightly quarter by quarter. We do continue to invest into our game, both Peder and Baxter, as I mentioned, and we report the loss of the tax of 49,200,000.0 in the quarter, driven by these investments, of course, as well. Our cash flow for the quarter was flat, which is an improvement from previous quarter with about 15,000,000. All in all, this gave us a healthy cash position in the end of the quarter of about $192,000,000 And also worth mentioning about the cash position and our burn rate going forward. Of course, that's always a concern if we have enough cash to continue to develop the projects that we do, and we definitely do so.

And since we're reducing cost and also have the work for hire contract going on currently, that generates revenue going forward, which we haven't seen the full impact of in Q4, but we'll see the full impact of in Q1. Our burn rate will go down during 2025. If we look on the full year numbers, net sales amounted to $185,900,000 and our EBITDA amounted to NOK 97,600,000.0. Our cash flow for the first for the year was positive with NOK 64,900,000.0 from operating activities. If we look on our cash flow over time, we closed the year 2023 with the cash position of $348,000,000.

Due in 2024, we have a positive cash flow from operating activities of almost 65,000,000 then. And as I mentioned, we continue to do gaming investments. And we invested into our games about $228,000,000, out of the total investment of $245,000,000 Part of our revenue related to Payday three is recognized as financing related to development of content not currently released. That together with IFRS adjustment sums up to $25,000,000 in positive effect. And as I mentioned, we closed the year with a cash position of nearly $192,000,000 And even though we continue to invest into our games in 2025 and up until the release of Baxter and onwards after that as well, of course, we also see that the cash generated both from the games that we have out on the market and also the work for hire that we have with Krafton, generating positive cash injection into the company every month going forward.

So as mentioned, the cash position we have remains enough to actually deliver on the ambitions we have. If we're looking into expenses, our underlying expenses are decreasing as mentioned to a more long term healthy level. We are continuously monitoring and reviewing the expenses and priorities to make sure that they are we are as a company as efficient as possible. Direct cost amounted to 80,400,000.0, and the decrease compared to last year mainly relates to lower depreciation of intangible assets. The depreciation recognized as the direct cost in the quarter amounted to 65,400,000.0.

Recognized under direct cost, we also have the revenue share related to robust and payday of about 7,600,000.0. Selling and marketing amounted to 6,700,000.0, which is in line with previous quarter. Expenses mainly relates to cost for personnel working with marketing and PR activities for our games. Administrative expenses amounted to 9,800,000.0, which is a decrease compared to previous year of about 12,000,000. We had about 186 employees at the end of the period, end of the year, which is a decrease with about 700 people compared to the same period last year.

And if we're looking into our balance sheet, which is very clean at the moment and have been for quite some time now, so our intangible assets, amounts to 191,000,000, consists mainly of capitalized expenses for game development and IP rights. PPE, which is property, plant and equipment, amounts to 26,000,000, of which rights to US assets for office lease amounts to 18,000,000. Our current assets amounts to 170,000,000, mainly relates to prepaid expenses and trade receivables. As mentioned, our cash position is 192,000,000. And furthermore, our external noncurrent liabilities have been amortized previously, and the remaining part mainly relates to lease liabilities for office and tax.

And our current liabilities of 122,000,000 mainly relates to accrued expenses and trade payables. So on and all, a very clean and healthy balance sheet as well. Yeah. So back to the key takeaways and to sum up the quarter. I think we have a good split of sales between our different games.

Payday three, still not where we want it to be. But we see a strong positive trend and looking forward to releasing more content going forward. And on top of that, we see the full impact of the work for hire in Q1. We do have the solid cash position, as mentioned, to further invest into Payday three and Baxter and also other projects going forward. And we also see the expansion done on the franchise that will impact us positively going forward as well.

So looking forward to presenting the next quarter as well. But we have a we're leaving 2024 strong and very confident and with full energy to make the best of 2025. And by that, I think we open up for questions.

Martin, Moderator/Presenter, Starbreeze AB: Yes. Then let's see here. We have quite a few questions to go through. The first one here is, you communicated that you hoped to be able to show more from before year end. What is the current status there?

Mats Juhl, Acting CEO and CFO, Starbreeze AB: Yes. I think I said so during your previous presentation where I talked about Baxter and said that I hope to be able to present more about the game before year round. We decided to prioritize our partners or potential partners that we hopefully work with on Baxter going forward. So when we have done that and continues to talk to them for a while, then we have the opportunity to actually disclose more, both in game footage and hopefully some videos and stuff like that for the game as well. So I want everybody to get the feeling of how great the project is.

But it needs to take time. And I leave that in the hands of the publishing or marketing department to decide when we go public with more information. But hopefully, we can showcase more going forward.

Martin, Moderator/Presenter, Starbreeze AB: Right. So the next question here, do you have any plans to release or make the Payday three base game more for free like you did with Payday two and move over to more of a DLC model?

Mats Juhl, Acting CEO and CFO, Starbreeze AB: That's a good question. We are continuously evaluating the pricing strategy for Payday three. There are no plans to make Payday three a free game or free to play game in that sense. And Payday two is not free. What we have done on Payday two is to give away free copies in periods, which is a marketing strategy that you can use to increase the player base and then monetize on DLCs.

At the moment, we are more working with discounts and sales. So, but as I mentioned, it's something that we're always evaluating. At the moment, there's no plan to make PD3 free, totally free. But we will continue to work with discounts and so on to increase the play base. And as I mentioned before, being on PlayStation Plus is a great first step in increasing the play base.

So with the large play base that PlayStation have and the huge amount of players that are actually trying payday three now for the first time, I hope to see that we have an ongoing play base that are significantly bigger than before that we can monetize when it comes to DUCs and other content. But that's a good first step. And then we see going forward how we can further increase the play base.

Martin, Moderator/Presenter, Starbreeze AB: Do you have any plans to develop a pure single player game instead of a co op? The example here in the question is the Riddick games that Starbase once developed.

Mats Juhl, Acting CEO and CFO, Starbreeze AB: Fantastic games. So we have done that historically. At the moment, our focus is and of course, ranked as a company is to do cooperative games. But I would never say never that we would evaluate the opportunity if it is there on the table, so to say. It could be a good opportunity to further build competence in the company.

But at the moment, our strategy remains intact. And it is cooperative games that we do with a long lifetime and full focus on the community.

Martin, Moderator/Presenter, Starbreeze AB: Can you give us any update on the payday TV series or movie did? Yeah.

Mats Juhl, Acting CEO and CFO, Starbreeze AB: It's an ongoing discussion. It takes time. We are looking into do as a fantastic deal as possible regarding a movie and TV series deal. We have partners working on that, and we are continuously evaluating different opportunities. We haven't decided on how and when we will progress with that.

But it's, it is a good opportunity to further expand the franchise and make Payday available in different formats. So we're definitely pursuing that opportunity. But I don't have anything more to say about that today. We will disclose that once we have signed a contract and are ready to go, so to say. But it's absolutely in the works and not something that we have put on hold in any way.

Martin, Moderator/Presenter, Starbreeze AB: Will Starburst communicate any sort of roadmap or detailed plan for Pedi three's second year on the market? For instance, the pace of new game updates, what kind of game updates and also planned releases of new functionalities?

Mats Juhl, Acting CEO and CFO, Starbreeze AB: Yes. We will do so. And we are currently in the works in setting the plan for the full year. And at the moment, we have a release release packet now, and now we focus on the PlayStation Plus activities. But there will be more coming out, and we will announce that in due time.

But as I said before, as well, I leave that to our marketing and publishing department to work that out together with our co publishing partner PlayOn on how and and when to communicate that. But there's definitely more content coming out, and and we will talk more about that going forward and hopefully be able to present a full year plan.

Martin, Moderator/Presenter, Starbreeze AB: PD3 revenue declined quite rapidly quarter on quarter. Was this expected from your side?

Mats Juhl, Acting CEO and CFO, Starbreeze AB: It varies also over time depending on when we release content. So of course, there are, that really drives the revenue quarter by quarter. And the First World Bank that we released in December was a free update, so we didn't charge for that TOC, which is part of the strategy to increase the player base long term and keeping the community happy. And the next DLC that we will release will be a paid DLC. So that will drive revenue, of course, done in a different way.

Jacket is also driving revenue now in Q1. So it depends on how we release content and what we decide to charge for that content that we release. And the strategy historically has always been to have some of the content that we release is free as a giveaway for the community. But the vast majority of the content that we release should be paid. But in fourth quarter, there were very limited content that was paid that came out.

So we expected the decrease. But at the same time, we expect an increase in Q1 then. Both data are based on the I've got the PlayStation Plus deal, which will have a good impact in Q1, but also then related to the paid releases that we do.

Martin, Moderator/Presenter, Starbreeze AB: Pedi three has been available for free on PlayStation Plus since February 4. Can you share some insights into how this has affected player activity on the platform? Is it better than expected? Or can you say something about that?

Mats Juhl, Acting CEO and CFO, Starbreeze AB: Yes. As I mentioned also in the report, I believe, is that we see a player activity now both in DAO and MAUR numbers also in line with or not in line with but at levels that we haven't seen since the release of the game. And so we see a huge increase in both MAU our numbers and CCO numbers, which is a great achievement. So the interest for Payday as a franchise and for Payday three specifically is very big on that platform. Payday the PlayStation has always been good for us when it comes to sales since the launch of the game.

So the game has been attractive on that platform a long time. And now we finally then get the opportunity to distribute the game to all the PlayStation Plus customers as well. So of course, that has a huge impact. We haven't disclosed any numbers on how high the CCU numbers and so on are, but it's multiple the levels that we've seen over the last quarter. So it's a very good level.

And we're very happy about that.

Martin, Moderator/Presenter, Starbreeze AB: So a very financially focused question coming up here. What was behind the increase in other intangible assets? It went from SEK 85,000,000 to SEK 115,000,000 quarter on quarter, as well as the notable drop in ROU assets. Is the latter solely related to the impaired lease liabilities as you will move the head office?

Mats Juhl, Acting CEO and CFO, Starbreeze AB: Yes. We saw, that's correct. We have renegotiated our contract for the current office and decided to move to a different location, still in Stockholm and centrally located. But of course, since the current contract then was terminated, that has an impact on our assets then according to IFRS. And then the new contract will be visible in Q1 then instead.

And we're doing this for multiple reasons. I can just mention that as well. Of course, we will have an office that are fresh start for star risk and well situated and also designed in a way that really helps us to be both productive and creative. So I'm really looking forward to doing that move. But on the other side, it's reducing cost as well.

So it has also a financially positive impact going forward. That's not, of course, it costs them money to do an actual move as well. So the impact won't be visible in the in the third quarter, but you will see it for the rest of the year then, that we have a decreased lease cost than for Fabrice, which is good.

Martin, Moderator/Presenter, Starbreeze AB: More of a board related question, more of a board related question, but do you have any insight into when a permanent CEO will be appointed?

Mats Juhl, Acting CEO and CFO, Starbreeze AB: I have to refer that to the board. I know there's a process going, and they are continuously evaluating different candidates. And I'm sure the board will communicate more about that once they have decided to move forward.

Martin, Moderator/Presenter, Starbreeze AB: And the last question here, when will payday three be fully depreciated?

Mats Juhl, Acting CEO and CFO, Starbreeze AB: Payday three, the depreciation plan for payday three was that we depreciated one third first month of release and then two another third of the asset over the last twelve months after the release. And then the remaining third part is onethree is depreciated for the next five years then. So but the asset then, of course, will be much smaller than now from now on going forward since it's heavily depreciated up until now and we continue to depreciate the last one third going forward.

Martin, Moderator/Presenter, Starbreeze AB: Thank you very much. With that, we will end the call. We have our Q1 presentation on the May 13. Thank you all for participation, and have a great day. Thank you.

Mats Juhl, Acting CEO and CFO, Starbreeze AB: Thank you, everybody. Take care.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.