Enad Global 7 AB (publ)

Okay, hello everyone and a warm welcome to this Q2 presentation with EG7. With us today we have CEO and co-founder Robin Flodin and we're very eager to hear about today's result and also a bit on the transaction today. So with those words I will hand it over to you.

Thank you very much. So for everyone who don't know EG7 at this time, EG7 is a video games company listed here in Swedish stock market, make marketing, developing, publishing and distributing video games for console, for PC and now also for MOBA. This group also has one big feature to it, and that is that we have a buy and build strategy, which we think is a very important part of the company. And our specific approach to this is that we also try to really create strong synergies between the different companies and add a platform to those companies. We have a service branch that are not that common in the game industry combined with our game IP and development. This leads us to our latest acquisition that we did today, Big Blue Bubble. And with that, our 12 months up until Q2 on a pro forma basis would have been 681 million Swedish crowns in revenue and 95 million Swedish crowns in EBTA. So that's something we're super happy about being able to announce today. Jumping into the Q2, so we've had over 1,000% of net revenue growth from last year's Q2. Super exciting. We've also spent this time during Q2 to consolidate, sold out on petrol and all of the new businesses that have joined the company. and been ramping up our M&A strategy. We now have even more projects in the pipeline. We've signed new projects and we've also released some big projects together with Soldat, for example, No Straight Roads, which has already been profitable for the company. So that's something we're also quite happy about. And then petrol, who we were afraid would not perform as well as we expected due to some projects moving out with the COVID effect, has performed really well. And we're super proud of the team for working so hard on delivering that against expectations. And then we have... Also a stronger pipeline of M&A than we've ever had in the past. The pro forma numbers for Q2 is 189 million in revenue and 26.6 million in EBTA. And we also now have 270 employees, so quite a big jump. More developers, really exciting for the future of what we can do as a developer. So let's jump into the transaction and the company that we announced this morning. Big Blue Bubble. So Big Blue Bubble is a mainstay in the Canadian games industry. They have offices in London, in Canada, not in our other London office, and then also in San Francisco. This company has been around since 2004 and been starting out very much like Toadman, a consultancy studio that has eventually been able to grow their own IP but worked on over 100 plus titles. Some really major titles and work with Disney, Activision, Dreamworks and many other companies that you might have heard of before. This company is really good at free-to-play, but have their heart and soul also in console development. And this is one of the things that we really liked about this company. They have own IP that is generating profits, 2 million active users every month, and good revenue and reoccurring revenue and profits that are growing. And today, the company on a trailing 12 months would be a 12 million CAD and on the revenue basis and 3.5 million CAD on an EBITDA level. So for us, this was really a company that could have several really good fits for us. One was that we got IP that are generating profit, something we have promised to look for as an acquisition strategy since we acquired or raised capital, 119 million. This also improves and secures our other titles through experience. So free-to-play experience is something we really wanted to get into the company for titles like Evo, but also makes big blue bubbles launch where they don't really have a publishing unit or marketing unit in the way we do, and they have foregone this coming out as a premium title. we hope that these things really push together creates a super strong synergy situation especially as we have this very experienced team that we can help make sure that our games are better but also get this window now into mobile where we could probably move other ips into mobile and that's something people have asked us for and we always said that the only way we would do that is if we have something like this, where we have a company that gives us that experience, not trying to build that up from scratch, but have something that already works. So the transaction itself, 16 million Canadian dollars upfront, which represents 4.6 multiple on EBITDA, which we think is a very good price. And also, of course, an earn out that if they get it, we are very happy. And I think all shared holders should be, even though it is quite big. It also means they have delivered amazing results. And as you know, this is also active, reoccurring revenue, so that will be very, very good for the company. And we think that it's also very important to see that adding these 2 million active users also gives us an ability to cross-market and do many other things that will help the rest of the business. And the experience of those 100 titles, we think, also will secure even more with the Looking at things like Antimatter, here we have another studio that has many times delivered very high, critically acclaimed games to make sure that our titles internally are the best they can be. So let's jump back into EG7. So one big thing that happened in the second quarter was that we divided the company into two divisions. Traditionally we would have three. And why did we do this? Well, one was structurally. We wanted internally to be very clear about the different parts of the company, who is working for what. but also to make it more clear for investors, looking at the company, what is part of what. So you can see something like games, for example, where maybe we have heavy investment into games, then that lands in the games revenue segment, and then also profits from those games will land in the game segment. while services represents our services in the companies for example our consultancy or marketing which is quite a different form of business and that's why we thought it was very important for people to see this is how we've seen it for a while internally and now we've chosen to start talking about in these terms both internally and for investors and this has been part of our consolidation efforts And in this case, Big Blue Bubble ends up in the game segment, while some companies like Toadman or Soldout exist within both segments, depending on what part of the company we're talking about. Something else that I think is super important to understand with something like Big Blue Bubble, why would they be super interested in joining parts with us? It's not only because they have a charming personality, I'm sure. But I think that it's very important to look at our platform that we've been talking about. They saw the value in this, and this is our long-term goal, is that we want to be the biggest, smallest company in the world. This is about taking efficient companies and letting them take the scale of a bigger business, but remaining agile. That has always been the goal of the company, and it's something that many of these businesses love. We keep the culture, we let them run the business the way they are very successful at doing, but we add this scale that something like an Activision or a big company could give to them, and this is something we're scaling up to be even better at. And therefore, it's not only to them a view that, of course, they're transacting, they're getting shares, they're being part of the company, but they also have this vision feeling that they together with us will be very successful in the future. That's also very important to understand when we do this acquisition. We talk to them. If this is not what you're interested in, this is not the company to work with. But they were super excited about it. And then this is also in future transactions seen more and more as something that is unique if we compare us to some other parties that also do buy and build. So if you jump into M&A and so our company is really formed on the holding company level. The EG7 is really about this. So we support the businesses. We work really hard with that, integrating between them, finding ways that their knowledge can scale each other. But then also we are running faster than ever on new M&A targets. And we've added M&A team in the Q2. It's become more efficient and now we have more opportunities than we've ever seen before. So it's very exciting time for us. And we feel that as things are becoming more and more clear, I think investors will see that our platform is very efficient, both in excitement over adding these new companies, IP that we can generate profit from, but also increasing those profits with the help of our service platform. If we jump then to the next slide, we're going to see what is the result of this. And this is, of course, a massive revenue increase. Just in this quarter, like I said, 1,000% from last year's second quarter. The first quarter, 1,000% in revenue increase. We're hoping to keep this trend of being able to really push. And we've also added 30% EBITDA through this acquisition, which we're also very happy about, which I think should be mentioned. Then jumping into global view, I think it's very important in a business that is global where people play globally to understand a global business in a global way. And that's how we also feel about it. So we don't care so much where a company is, but that it fits with us. But we do like expanding into new territories because it teaches us a lot about the gaming space and opens up new doors into those spaces where there might be new interesting companies that gets the eye up for us as a business as well. and also understanding that local market in a better way. And this time it's Canada, of course, opening a new office in the US as well, in San Francisco, and then also getting two really great names, Damir and Claudette, who's the founders of the company, on board to help us become even more successful in the future. And this also, we can see, have now an even bigger track record than ever before, adding 100 titles and a track record plus our 50 that we had before, 150 titles. So this should be telling a story, I'm hoping, to investors that we are getting more and more experience and we're using as much of that experience to be more successful in the future. But it's not only about what happened in the past, right? So we also see that it's super exciting that we are getting more and more titles because this is an industry where even a talented team can have hardships, but portfolio play means that it's getting greater and greater option value for a big success. Before this call, we were talking about something like Fall Guys, and that's a great example. That can happen, and then all of a sudden, let's say one of these games that we have in this pipeline of 25 projects can multiply our revenues by more than we have today. And then we jump into 2020 so far, six months of the year. We've done some really good releases, which has resulted in this revenue. But also very recently, we released No Sweat Roads and it's been received quite well and both on a sales basis. And then also, of course, we've been profitable already, which we are very happy about. But like I said before, not only the past, but 2020 as it's ending and then 2021 and 2022. And, you know, in our view, 2021 and 2022, when, you know, Todman and Antimatter are getting out with their game, most of their games, we find even more exciting. That's going to be very big for us. And we are getting more and more projects signed out for sold out as well. And now also Big Blue Bubble, who's adding something like For Gone, which is a console title at the end of the year. If we look at DG7 as an investment, I think one thing that's really great right now is that we feel we have a great market position. We are not too big to be slow in the way we move ourselves, but big enough to really start getting that benefit of scale and getting more and more interest. We see that we have better than ever potential for M&A. There are a lot of IPs that we're looking at. And also, of course, we see a lot of opportunity for further digital investment through sold-out like-nose rich roads, both acquiring titles or investing internally in titles. Another part of investment into this company is that we, at least me, I find this as the biggest shareholder to date. I find it very important that this isn't a story about a management team that takes huge bonuses and walks away. This is a story about a team that really care about creating shareholder value. And that's everywhere from me to all of the management team and all of these companies that we have acquired. They have a strong vested interest in us being successful into the future and and 65% is held by management, these people and the board. So that's a very big part of the company today. So investing in this company, taking part of the gaming industry, growing trend, we have a lot to go. There's a lot of growth potential for us as a business. And I think that's super interesting. We have an M&A team that's shown over and over again that we're able to do deals like this and attract more and more talent into the company. And I think that this is going to prove over time to be some of the strongest reasons to invest in this company.

We have a bunch of questions here to ask you, both from us at Carnegie, but also from our previous conference call. So I guess we'll just get right into it. Yeah, jump in. You stop me if you ever get tired. So starting with, I think, on the M&A side, I guess that's the most interesting news flash of today, the acquisition of Big Blue Bubble. If we start with... the considerable earn out tied to this deal. And it's all, of course, conditional based if they succeed. Can you talk a bit on what kind of milestones do they have here? What kind of timeline are we looking at?

I would say we really viewed, so when we talked to the company, they really saw a massive increase in their ability to generate profits in the future with some of the stuff they're working on. And we said, okay, let's put that to paper then. So if they do as well as they think they will, I think all shareholders will be very happy with paying them that money. It will be a really good deal for all of us. If they don't, if they keep doing what they do today and grow at the rate of the end, we won't be paying that amount of money out, but we are still happy. So, you know, we really try to make sure that this is a deal where they feel really motivated to succeed as big as they think they will. But I don't think any shareholders should fear that this will be negatively impacting the company. In the other way, this is a motivation for them to perform better than ever.

Yeah, of course. Can you talk a little about this asset specifically, split revenue per game? What does the concentration look like in terms of their title base?

So their mobile titles is most of the revenue today, but that's also because console. So maybe they have 15 to 20% on console and then the rest is on mobile. And the biggest title is My Singing Monsters, of course, and some other auxiliary titles. Across that, they have 2 million active users. But of course, one of the reasons is they've done mostly mobile for a few years now while their history is in console. And now they're coming back into console as a strategic move that they've been sort of feeling this, that there's an intersection there. And that's something we talked about the team too. And we feel the same way that there is starting to become more of an intersection between these two areas. And so I think that we should also see what happens when these consultations come out in terms of revenue will of course be affected by that.

And talking a little bit about their historic performance, what kind of growth rates have we seen in this company prior to joining you today?

Maybe 20-30% a year in growth in both EBITDA and revenue. which has stayed quite static over the last three, four years in terms of margins and so on.

And do you want to say anything about how much you think you can scale this now joining your platform?

I'm of course hoping that they will get all the earn out. Let's just say that and then we can say what would that mean in a good multiple for all of us.

Let's continue then on M&A more on a general note. First, maybe on Big Blue Bubble, how did you come out sourcing this deal? And also maybe a background on how you typically source a transaction you find.

Yeah, so usually we source through network. This time we brought in a new team of M&A and they have been growing our pipeline by connecting both through their own networks. We had Chris Bergstrasser, who is the CEO of the company in the DG7 group, who has a strong track record of M&A in the past. from Konami to Sega, president of Sega Europe, and then MTG here in Stockholm, how we got connected with him. And he's used his network in some ways to find target, but then also through our team. There are several people there now that This is what they do. They go talk to these companies and try to get more companies in. And then, of course, my network and so on keeps using that. But then also the network effect of these companies. So these companies give us their network and say, hey, these guys are great to work with. Do you want to come on board? So that's also increased our pipeline quite significantly. The hardest part is just finding, you know, it's about timing. It's about working up these relationships. And then, of course, you know, we look through a lot of companies and they might not be the right fit. But then, you know, as the pipeline has been increasing, we see now that we're feeling very positive about the future of M&A, even more than before. Of course, we've been positive before as well. But I think this has increased. You know, the more we see, the more we will land in some really great deals.

And how many deals do you think you could, based on the current company structure, carry out every year? What are the limits that you see?

I would say that the limit is increasing as we are able to scale. At the end of the day, we don't want the M&A team to be most of the revenue of the company. So it's a little bit limited of people at the moment. We can't look at enough deals, to be honest. And we have more things coming in that we are able to negotiate internally. So it's really now a matter of the M&A team. to make sure we have all the people in place that we need for all of the stuff coming in to be able to do it in a better pace. But then, of course, I mean, we don't want to move in a place where we're not able to integrate and do the things internally as well. Because of the structure we have, we think we could do, I don't know, several more this year, possibly. But we're not going to do it if we don't feel that it's a great acquisition and that we agree on the deal terms that we think is favorable.

And how do you divide your time? I mean, you are arguably one of the most important people in this company in terms of looking at new deals versus deploying capital into the projects you're... Yeah, I wish I was the most important.

No, but I think it's important to see also that we are a team. And I think this is my most important role is to managing the team's directions. And I sometimes feel more like I'm the internal connector. I'm the person who talks to everyone, talks to different managers to run the different businesses and sort of make everyone agree on the vision and the structure and where we're going. and then sourcing their knowledge. That's something that's always been important to me. These are people that have been in the industry much longer than me and understanding I'm not the expert at everything. What I know is how to manage people and have them go in the same direction and believe in this sort of future that we want to achieve. And I find that super important. So I have actually, one part that has happened is that I have left my studio job that I used to do back in the day Maybe a year ago I would be very active in some of the studio management. Now I only work on the group level and I don't take part in that. I only focus on M&A or where we can improve the businesses in a significant way where all the teams have to work on their own. And that's worked really well. I'm very happy. It's hard to leave your baby, I think. Anyone who built a company could realize that that was a very tough decision to step out and say, hey, I'm not going to be the CEO of the games side anymore because my time, I have full time of just dealing with what happens on top of the company, dealing everything from board to different managers and making sure that we're in the right path. But that's also been super exciting.

When we look at, you've done a couple of deals now, where do you want to improve or strengthen your position? Is it in a specific genre you're looking at, geography, platform that you're currently not addressing? What would you say is missing in the company today?

We're always looking at different things, but there's some clear things we're always looking for. So we're looking for IP, because I think our platform has enough room to scale more content within there. But we're also looking at the service branch to be able to deliver even better there. And then on top of that, I think one thing that is sort of a way to think of the kind of titles that we're looking for is always long-term communities. So users that will be coming back for the games, and that doesn't really matter for us if it's My Singing Monsters in this case, or if it's an 83 but that's you know we're not very interested in maybe having the big hit that everyone leaves in a few months we're very interested in having users that we can keep growing year over year and this is something we saw with big blue bubble that's exactly their philosophy and this is the kind of companies that you could expect us buying in the future if we see ip that they have been able to sustain and grow their communities and have those very loyal fans

And on BigBlueBubble again, how much of the revenue is in that purchases versus ads, for example?

It's about 60, 40, 70, 30. I don't want to be too exact, but there's somewhere in between there.

So this was a step in the free to play direction. Is this also something you're looking into strengthening to move forward?

We were very much looking for it at least. I mean, we announced that we were doing Evil vs. Evil as a free-to-play game. It would be our first internally produced free-to-play game. So we felt that that was very important to secure. And this is really where we, you know, this is how we want to use this platform. We see that we're missing a knowledge. This is a risk for us, right? We don't understand it enough. You don't know what you don't know. So what we could get through this was also the ability to know something we didn't know before. It doesn't mean that everything is going to turn free-to-play. I think a game should be what it's best at. So, you know, 83, is that a free-to-play game? No, I don't think that's what the consumers there want. we are very happy to do that game the way they want it. So that's sort of the answer. I don't think, you know, the business model is not the most important to us. It is that it's profitable and that consumers are happy and that we have long-term committed customers that come back.

And again, on the M&A side, you're not alone to look to consolidate the market. There are other players doing it. At the same time, it's quite fragmented. Have you seen any changes in terms of pricing for the assets you're looking at or any changes in general in the last year?

in some ways i would say they've gone down with the multiples which you know from a swedish perspective might be very strange the reason for that is really because the bigger player so china and the us haven't been as active in m&a and so from our perspective we think it's very active right now but they haven't been as active which means that bidding wars have become sort of decreased, actually, especially China is moving out of it quite heavily due to, I guess, regulations. I don't know why, but that has, and they've in the past been quite high on multiples. And now, so now we're seeing sort of, you know, more normal multiples that we would expect these companies at, and that makes us very happy. I think that there's quite a lot of companies out there too, you know, as we're seeing a lot of them, we know that. So we think that it's a great market for us right now. And for the other, of course, here in Sweden. I think it's a good timing for a lot of these companies, including us, to be out there.

Speaking a bit about your release schedule, you have some near-term releases now. No Straight Roads has been quite successful, it seems, based on critic reviews, also what we see in terms of general activity on medias and stuff. Same with Descenders. Can you talk a little bit about the performance now in the first couple of days here?

I mean, those are very important for... So on pure performance, and I can't tell the future, right? So they might just drop off. But in a very short time, we're very happy with the sales that we've seen so far. We think that they are performing over expectations from what we calculated. But like I said, that's within a few days to know.

Do you have a budget for it? What do you think it could reach?

And of course, we have expectations telling me we don't want to go out with what, you know, because there's so big ranges usually. But we know we are profitable, which is always good.

You have a service division as well, and parts of it is as work for hire basis going forward. I mean, you're growing your project pipeline and base there. Do you see this going more into current projects and less towards external projects? And how do you see this development?

Of course, owning internal games is always great, but we've always loved our consultancy business because it gives us not only connections to businesses that might be potential targets in the future, but also for the fact that we learn a lot. It's very easy to get stuck in your own ways when you have your own team just sitting at home doing their thing together. and by jumping between projects and teams you learn so much about what's happening in the development what kind of new technologies are out there and that's to us has been very very good so i don't think and it is you know relatively to what we used to do is much smaller and that's been of course intentional as we invest heavier in the but removing it i don't think so not not what i know today

For these type of businesses, I mean, one could talk about utilization rates, for example. To what extent is that division fully utilized or at 50%, 70%, 80% to give us an idea of... 120%.

Maybe even more, to be honest. Yeah, they're so over. They need vacation. Yes. We pushed their vacation, I think, for some of the teams two months because they just had to get stuff done. But now they've had vacation. But yeah, it's actually we need to scale. But we haven't, you know, we haven't yet. The demand is there. Yeah, for sure. I think it's more than ever. There's so many companies who want talent, including ourselves. So that's why. And of course, you can't just hire. And that's one of the reasons why consultants are so great. You can't just be 200 tomorrow and think that that's going to work. These are teams that are extremely good at what they do, and they're hard to find. That's also good right now for us.

It's very valuable to have that inside the company.

Yeah, for sure. And that has helped. We've been able to utilize it internally already.

On the cash flows, what is the reason for the weaker cash flow or the working capital buildup in the quarter?

Yeah, so that's because of sold out and petrol outgoing stuff. For example, sold out, it's revenue payments going up. We have fluctuations in our cash flow. And this is, of course, you have to think this is a snapshot at the moment of the closing of Q2. And that happens all the time. It goes up and down depending on where we pay out and doesn't pay out.

On the gaming sector in general and digital businesses, we've seen, of course, an acceleration due to this pandemic today. Can you say anything about your player base and how that has behaved now? Would you still see it's on higher than normal levels? What kind of activity do you expect? for the general market and for yourselves?

My view is that there are sort of two sides to this. I think, you know, of course, they're going to be lower. The market is going to lower down as people open up in the term. So I would say that people have now been playing way more than they usually do. But on the other side, we've had a positive effect, which is that a lot of new people are coming into this that didn't use to play before. And I think that those players, because this is new to them and they're getting excited and they play the game for the first time, we can see that their retention rates are as high as other players' retention rates. I think a bigger hole for the, you know, one of those is an anecdote. But, you know, my sister, baby sister, she's 10 years younger than me, never loved games. She's a movie person. She doesn't like games. You know, I played games since I was a kid. She's like, ah, games. And she, you know, when Corona hit, she's like, oh, you know, can I get a Switch? What's a Switch? That seems awesome. Can I get some games? What games should I play? And that, to me, is an anecdote, but we can also see it in the data that, I think those markets you're going to see sort of jump into the future for the entire sector. So, you know, we've had the growth anyway, year by year. But now I think we might have been growing, let's say, 20% this year or 30% instead of 10% that we expected or 12% for the sector.

And now you have quite a number of titles under your belt. So you have quite a sizable back catalogue. Do you have any, I mean, adding to, I mean, of course, the M&A you've carried out, do you have any sense of the growth rate in this catalog now?

In the catalogue of titles, how many? Maybe you can rephrase the question. So do you mean how many titles we think we're going to have in the future?

No, in monetary terms, we're trying to find organic growth figures or growth figures on an all-else-equal basis now with the titles you have. Do you have any sense? I mean, some could be in decay, some could be... Really booming like your new title.

I really think that we so the there's really different parts of the business where we see, you know on Many parts of our business we are going on a year-over-year basis maybe between 10 and 30 percent depending on what title and game and or its publishing or marketing and then we have the titles that are being developed and there we sink a lot of money so that you can see that we are investing quite heavily into the titles internally and also coming out 2021-2022 and then we expect that to change to be very positive, depending on which one of those titles are the most successful.

Another question from the audience. Could you please elaborate on the new segments and how sold out and petrol fit into these segments?

Yeah, so I mean, the reason why we've divided it into these two segments is, like I said earlier, it's just a way for us to understand as well, which parts are our games, so to speak, you know, which is fully published or fully developed by us or owned by us in some way or form, where we have the sequel rights and so on, and which part of, you know, is just, you know, a service that we're giving to other people. how much of that revenue and how do we split that up and where that costs and so on. And also internally, so how we view it and have viewed it for the last few months since we restructured and talked to all the teams. So that's why you can see that some of the teams are split. Petrol is purely services, so lots with some stuff in services and a lot in the games and then Big Blue Bubble, completely their own thing. Anthematic, completely their own thing. Toadman Studios, both consultancies and... And then, of course, also own development.

And also comment on the releases of sold out during Q2. Did they exceed expectations?

I would say that they, I mean, it depends on from what view you see it. I think that they did well. That's my view. But then, of course, I mean, we were, of course, you know, hit by COVID. At the same time, they were doing better than we thought. So somewhere in between there, I would say that they hit sort of what we earlier expected.

And why was petrol so strong in the quarter and how do you see petrol in the future given the strong gaming activity due to the pandemic?

I think it's very positive for the future, but we were impressed with the team's delivery on the final sprint, especially as we had early signs of a lot of things moving out of the quarter because of COVID. So they were good at getting more jobs, I guess, and delivered well and worked really hard.

On Evil vs. Evil, what kind of launch window do you see here? And also maybe put in perspective to what kind of competing releases you may see. Will that affect the timing of this?

Of course it can. I've always said that for us it's very important that when we do a game, we do it right now. Of course, some games you might release them and say, okay, let's see what we can get back. This is not going to work. But on the bigger scale of things, this is a title we are very excited about, and we're going to make sure it works. And for that, we will see. We have not announced whether we're going to push it or not. And when we do, you'll know. But if we do, it would probably be related to the fact that we can make it better. And we believe that there's better market timing.

Where do you see EG7 in a three- to five-year perspective?

Well, I'm hoping that we're going to be one of the biggest game companies around. I wouldn't even say big, one of the more successful. I think it's more important. It's not only about scale, it's also about the titles that we produce. I'm really hoping that people are going to know the names of our studios for the titles that they do, even more so than they used to. And that we are very profitable on the bottom line.

Very good. Thank you very much for a good presentation and that concludes the questions.

Thank you very much and thank you everyone.

Thank you.