Enad Global 7 AB (publ)

Good morning. Thank you for joining us this morning. All right, so we'll start with a quick summary of EG7. EG7 is a global gaming group. We currently have multiple capabilities across both gaming development as well as services. On the game development side, we have new game development as well as live service with portfolio of live service games that we operate across PC console and mobile platforms. On the service side, we have Fireshine, our publisher that does digital and physical publishing and distribution. And we have Petrel, one of the best known marketing and branding agencies in the world in gaming, providing their marketing services to some of the biggest publishers in the world, likes of Activision, Blizzard, as well as Bandai Namco's of the world. In terms of our portfolio of live games, we have some of the most iconic brands in gaming. EverQuest, one of the very first MMOs to come out in the marketplace, going on its 24th year. Lord of the Rings Online just celebrated its 15th year anniversary this spring. And DC Universe Online, based on the number two comic book IP in the world. And Magic the Gathering Online, which is based on the number one trading card game IP in the world with Magic the Gathering. In terms of our geographic presence, we have 693 employees across 16 offices in North America and Europe, eight gaming studios with 458 talented developers. Our net revenue comes from 73% in North America, 21% in Europe, and 6% in the rest of the world. Size and numbers for the last 12 months and the second quarter, net revenue came in at $1.7 billion a SEC. that represents a healthy 93% growth over a comparable period, and adjusted EBITDA of 354 million SEC, representing 108% growth. Next slide, please. Highlights from the second quarter. We had a very nice quarter. We had net revenues coming in at 463 million SEC, representing 49% year-over-year growth. and strong organic growth, which was very notable with 41%. Before I go any further, just a quick note here. All our numbers actually do exclude Innova, which was disclosed as an asset that we're selling. So a lot of these numbers that we will be discussing today will be without Innova. Okay, adjusted EBITDA of 84 million SEC and solid cash flow that we generated for the quarter with 64 million of operating cash flows for the period. Some of the key takeaways, very strong results above expectations and we are continuing to consistently deliver and our growth is continuing to show very strong results despite the market uncertainties that the gaming industry as well as global economy is having to face, especially on the organic growth side. Next slide, please. Operational highlights for our service segment. Key figures here, net revenues came in at 192 million SAC, representing 103% growth. All of that was organic and the adjusted EBITDA of 26 million SEC representing almost 300% growth and service segment is operating at 14% margin. Some of the highlights that helped to drive this great result, Fireshine is continuing its strong performance. CoreKeeper, which released at the end of first quarter of this year, has now sold over 1 million units and helped boost second quarter results. And the Fireshine also released Sniper Elite 5 physical release, which topped the charts in the UK for the second quarter. And Petro is expanding its relationship with some of the biggest publishers, namely Activision Blizzard. They have been the lead agency responsible for branding and marketing for Call of Duty franchise for the last 16 years. Along with that, this year, they announced the Call of Duty Modern Warfare 2, which was one of the biggest announcements for that particular franchise with this highly anticipated IP game. And on the live service side, Call of Duty has a title called Warzone, which Petra also supports on the branding and marketing side. And then they're expanding the relationship beyond Call of Duty with petrol being tapped to help lead the global branding initiative for Diablo Immortal, which is one of the biggest industry hits this year and continuing to perform really well. Next slide, please. On the gaming segment, some of the highlights here financially, that revenues came in at $270 million, representing 25% growth. and 14% of that was organic. Adjusted EBITDA of 72 million SAC and that represented a healthy 27% margin. Highlights and the drivers for the quarter included My Singing Monsters, with this daily active user base increasing by over 2,000%, which is phenomenal, and that resulted in the best quarter in history for My Singing Monsters, and that momentum continues to carry on. We have Lord of the Rings Online, which celebrated its 15th year anniversary, and then resulting in the highest player engagement since 2016, further validating our differentiation, which speaks to the sticky, highly stable, and recurring revenue stream with their passionate player base that continue to play our beloved games. Dungeons & Dragons Online's seventh expansion pack came out in its 55th update, and Piranha continues to develop great content for MechWarrior 5, with the second DLC coming out in the quarter and performing really well. Next slide, please. At the group level, some of the highlights and updates, Innova sales update, we announced the sale in the second quarter in April. Still making progress towards that, and we expect to be able to close that transaction before the end of Q3. On the board side, we have a new board, updated board. We have Jason Epstein, the second largest shareholder of EG7, who has taken on the role of the chairman. He'll be taking a lot more active role going forward, helping to drive growth for the overall organization. And we also welcome Mr. Shum Singh, a leading advisor investor who has been focusing on the gaming sector for multiple decades. Shum brings a ton of knowledge and experience in the sector. that we expect to be able to leverage his knowledge and experience to help continue to drive great performance for the business. And on the investment side, insider investment, this quarter we had a significant investment from the leadership group, over 40 million SEC invested, including myself as well as Frederick and a number of the key board members, including Jason Epstein. And this was meant to be a firm indication of the leadership's belief and conviction in our business and our ability to continue to perform. Next slide, please. Okay, Fredrik.

Thank you. So, as Ji mentioned, we came in with a revenue in the quarter of 463 million, which is an increase from 311, the comparable figure last year. And this is a growth in the quarter of 49% and an organic growth, if we take out MAGIC, of 41%. And FX-neutral, then the organic growth is 24%. Looking to the right here, the net revenue in the last 12 months, a constant increase from one consecutive quarter to the other. By end of Q2, the LTM net revenue amounted to 1,716,000,000, which is an increase down from the comparable figure of 891 million last year, corresponding to this 93% growth against last year, mainly driven by organic growth and well-selected M&A activities. We operate our business with profitability, And the adjusted EBITDA margin amounted to 18% in this quarter, which is the same level that we had in Q4, but lower than the 27% reported in Q1. The LTM adjusted EBITDA margin has, during the last year, been trading around 21% to 22%. And given today's revenue mix and after divesting the high margin Innova business, this indicates a new normal level for us going forward. Innova was trading at 35 to 38% EBITDA margin before the Russian-Ukraine aggression. And between Q1 and Q2, we have some explanation for the variances in the margin there. So we have more revenues from the service segment, which is normally lower margin. Also boosted by this core keeper success and the sniper elite that they launched, which was a great success for Fireshine. We have a periodic effect with regards to MMO revenues, where we have a spillover effect from one active quarter like Q4 into a less active quarter, which is Q1. We did not see that effect from Q1 to Q2. We do not anticipate to see that kind of effect between Q2 and Q3 either. We also have one larger low margin strategic project that is carried out in petrol, which lowered their margin. And in conjunction with the discontinue the Marvel project, we do not capitalize the R&D cost in Q2, which we did in Q1. Next slide, please. So this picture further highlight EG7's diversification as both segments grow from one consecutive quarter to the other in LTM net revenue, despite the challenging environment. The last 12 months, net revenue in the game segment amounted to 1 billion, which is an increase from 462 corresponding to 118% growth, explained mainly by M&A, but also organic growth. Our foundation for our predictable and sustainable net revenue and cash flow is our live games portfolio. And the revenue from these assets was 251 million in the quarter, which correspond to 54% of the total revenues. And as you can see down to the right in this picture, this portion has established itself over 50% during the last year. The last 12 months net revenue in the service segment amounted to 708 million which is a growth from 421 previous year corresponding to 65 growth and this is mainly explained by strong performance again we have talked about the strong performance in fireshine and also in petrol this part of the business show greater volatility and is attached with generally lower margin Yes, please. Next slide. The game segment, if you look at that, we see that Daybreak contribute with 203 million in net revenue and a 52% adjusted EBITDA, which correspond to 25% EBITDA margin. Big Blue Bubble was fueled by a very successful Eastern campaign. and generated 43 million in net revenue and as much as 23 in EBITDA, which corresponds to 53% EBITDA margin. We have Pirana, who has been trading profitable since Q4. and generated 23 million in revenue and 4 million in AVTA. We also include Toadman Studios and Antimatter in this segment. Next slide, please. So in the service segment, as we have talked about, Fisheye generated 142 million in net revenue. I think it was 90 million previous quarter, again fueled by Sniper Elite, the physical distributed game, and Core Keeper, the digital distributed game, which continued to contribute to Q2. And that also generated an EBITDA of 31 million Swedish kronor. had a strong Q1 with 54 million and in Q2 that was followed up by 50 million in net revenue. But based due to this large project or large strategic project that they carried out, the profit or actually they generated a loss in the quarter of 4 million. That corresponds to minus 4% in EBITDA margin, and they had 25% margin plus margin in Q1, which shows a little bit the volatility in that company. Next slide, please. So to manage expectation a bit, The first half of the year was strong, driven by a good balance between recurring revenue from the live game portfolio, successful physical and digital distribution of games in Fireshine, and continued strong performance and campaigns in Petron. The second quarter delivered a net revenue of 463 million, which again corresponds to a growth of 49%, an organic growth of 41%, and adjusted for FX 24%. Growth wise, the comparable figures in the service segment for the first half of the year is relatively easy due to the pandemic situation in the beginning of last year. We have stated that we will deliver 1.6 to 1.7 billion Swedish kronor for the full year of 2022, which means that we do not anticipate to continue trading on these way above market growth rates for the next coming quarters. The yesterday EBITDA margin amounted to 18%. This is the same margin, as I said, as we had in Q4, but lower than previous quarter. We anticipate to be trading at the new normalized level which seems to be around 21-22% looking at the last 12 months LTM EBITDA average. So we will be trading around that plus minus given today's mixture of revenue between game and the lower margin service segment. And the third quarter started with 132 million revenue in July. Next slide, please. ED7's net debt to EBITDA ratio and cash position remains solid with or without Innova. So in this picture, actually, Innova is included. In the left picture, Innova is included up till Q1 and then excluded from Q2. So the cash debt amounted to 493 million Swedish kronor, which is a decline from 557 in Q1. This is mainly explained by that we have paid the remaining purchase consideration for the former owners of Digbu Babbel, which was an amount of 46.6 million Swedish kronor. The cash goes from 449 including Innova to 381 explained by that Innova was included by 72 million at that point in time and the payment to Big Blue Bubbles former owners of 46.6. This gives that the net debt to EBITDA ratio came out at 0.28, which is quite similar to what we had including Innova by end of Q1. Looking at the cash flow, the operational cash flow amounted to 64 million and contributed to a slightly increased cash balance of 381 million without Innova. Investments amounted to 114 and this mainly explained by capitalized R&D and the earn out to the big blue bubbles former owners. The remaining movements in cash is mainly explained by different FX effects. And so we still have a strong balance sheet and an attractive net debt to EBITDA ratio going forward. Next slide, please.

Next slide. Great. All right. So we'll cover some of the looking forward short term, medium term, long term here. In the short term, some of the value drivers that we have coming up, Innova sales should be completed by the end of Q3, removing the Russia-related risk. On the product side, for the second half of the year, we have My Singing Monsters celebrating its 10th anniversary, which should be a significant growth for the title, especially given that Q2 performance this year with large content update coming along with the anniversary. And then we have the Amazon's Rings of Power TV series that's coming out in September. And we expect that that should be boosting Lord of the Rings Online's performance along with the expansion for the title coming out and the upcoming annual expansion packs for EverQuest and EverQuest 2. large updates that perform well every year. And then we have Q4, which is our peak season, where we expect to generate significant revenues for the quarter. Additionally, we feel very well positioned to deal with the volatile marketplace now. We have been bucking the trends and delivering great results, operating at strong cash flows, strong organic growth. And we believe that with our stable and a solid base of recurring revenue-based games that will be able to generate continuing cash flows which will be very important during these unpredictable times. On the medium-term side of things, we have a couple areas that should be creating value for the organization. The first is the revamping of the existing live games. Three of our biggest games, we have Lord of the Rings Online, Dungeons & Dragons, and DC Universe Online, and Magic Online. These games are being invested in for medium-term update. with the revamp to be able to drive meaningful revenue and profit growth in the medium term. And we have a new area that we will be focusing on as well here. We have the ramping on the development consulting business line. There's a meaningful market opportunity that we have identified along with the pandemic, along with work from home. There's been a significant dislocation in the marketplace where resources have been very short and very hard to come by. This is one of the areas where we have significant assets. Currently have over 240 developers across Toteman, Anti-Matter and Piranha. And the plan is to be able to leverage the talent that we have to be able to establish a consulting business where we would be taking advantage of the supply and demand imbalance in the development resources for games. The combination of our talent and the premium consulting rates currently, and also our lower labor costs with the team should be providing a nice revenue and profit potential going forward. And we expect to see upside from this in the medium term. On the long term, we have new products that we are investing in. We have some of the best IPs, both first party and third party, We want to be able to invest in these IPs in order to really drive that significant upside in the long term. We want to emphasize the long-term growth over really seeking that immediate gratification through some of the short-term bets that's been made in the past and some of what the market has been really focused on. We do want to shift that from short-term to that big picture where Our primary vision is to be able to establish EG7 as one of the leading games as a service companies in the industry in order to be able to achieve that goal. We believe that it's very important that long-term investments in our own IP as well as some of the third-party IP that we currently have access to would be important in order to achieve these goals. In terms of M&A, we will continue to evaluate them, but the M&A market today is very different from where it was 12 to 24 months ago. There are opportunities out there, but more difficult to come by based on the market dynamics that all the companies and the industries are dealing with. We do believe that it's a strategy that we will not abandon, but nonetheless, not as attractive as it was over the last couple of years. So we will be looking at it opportunistically. We will be open to exploring, but our primary focus will be really organic growth, continuing to drive that and making investments in our long-term growth. Next slide, please. In summary, these are some of the investment highlights for ENAD Global 7. As noted throughout this presentation, we continue to deliver consistent performance quarter after quarter. We have outstanding organic growth despite what the market is doing here. A number of companies, a number of competitors showing slower, in some cases negative growth, but we're producing very strong organic growth. We have a portfolio of assets which really separates our business from many others where we have significant amount of stable recurring revenues. And that helps to produce that consistent operating cash flows. And during these uncertain times, we believe that having that strong liquidity and credit profile with a stable and strong cash flow is very, very important. And then we have our portfolio of world-class IPs. Those IPs are what's really contributing to our existing performance. But those are the IPs that with investment will also help drive significant long-term product upside potential. And lastly, we have the insiders who are fully on board. fully aligned with the investors. A significant investment made this past quarter. We truly believe in the value and the upside that we could bring about with ENAC Global 7, and we will be working very hard to continue to drive the significant growth going forward for all the shareholders benefit. Next slide, please.