Enad Global 7 AB (publ)

and welcome to this Q3 presentation with Enad Global 7. My name is Ludvig Andersson, and I will be your moderator here today. Together with me to present, we have EG7's Acting CEO, Ji-Hum, and Deputy CEO and CFO, Fredrik Rudén. After the presentation, we will have a short Q&A session. So if you have any questions, feel free to email them to EG7's Investor Relations email. But now, without any further ado, over to Yi.

Thanks, Ludvig. Good morning. Thank you for joining us this morning for our Q3 presentation. We're happy to present some strong numbers for the quarter. We'll dive right in. Net revenue for the quarter came in at 445 million SEC, which represents 26% year-over-year growth. and also very strong organic growth rate of 19%. This represents our fourth consecutive quarter, showing consistent growth and strong profitability. Adjusted EBITDA for the quarter was 113 million SAC, and that represents 25% margin. Normalized level of our EBITDA margin on a rolling 12-month basis should be 20% to 22% going forward. With that said, this quarter, we had some strong results from our gaming segment that boosted the margins up to 25%. Solid cash flows, 131 million SEC of operating cash flows for the period. And with the sale of Innova completing in September, we also generated 185 million SEC of cash proceeds from that transaction. Next slide, please. Operational highlights at the service segment level. Service segment continues to perform very strongly. Some of the key figures for the quarter, net revenues came in at 150 million SAC, 100% organic growth in terms of the 44% growth that we generated year over year there, and the adjusted EBITDA of 19 million SAC, which represents 42% growth. and an average 13% margin, which is consistent with the service segment. Some of the operational highlights for the two businesses within the service segment, Fireshine continues to perform very strong along with their buildup and transitioning with more digital publishing business as that contribute to continuing Q3 performance. And they're signing up a nice pipeline of digital indie games. with 10 additional titles signed up for 2023 and 2024 release. Petrol, perennial lead marketing agency for titles such as Call of Duty Modern Warfare 2 this year, a large campaign, very successful, that Petrol led. Also Marvel Snap, number one mobile game that came out recently. Petrol was responsible for that also. continuing to work with some of these blue chip, you know, AAA top games as they continue to, you know, prepare and present some of the best games that are coming out in the industry. Next slide, please. On the gaming segment side, some of the highlights include net revenues of 295 million SAC. That represents 18% growth, 8% of which is organic, EBITDA, adjusted EBITDA of 99 million SEC, and that represented 48% growth from last year and 34% margin, which is very strong. And net revenues for daybreak grew by 27% year over year. And my singing monster from Big Blue Bubble celebrated its 10-year anniversary this year. in September and achieved the highest daily revenue in its history, which is a very big achievement when you look at this 10-year period to actually have the best day in its 10th year anniversary. That speaks volumes about the momentum that game continues to have. And the overall so far for 2022, it's actually performing better than in 2021, which is one of the best years it had prior to this year. So we're very happy with that continuing momentum with My Singing Monsters there. Lord of the Rings Online, monthly active players increased by 11% compared to last year, driven by new content update as well as the successful launch of the Amazon streaming series that came out. successfully in the beginning of September, and we're looking forward to that continuing to build momentum for that IP as Amazon will continue that for the next four seasons. Piranha is continuing to build up their work-for-hire business on top of the MacWarrior 5 franchise that they have successfully released and support with DLCs. They're building up their work for hire business in parallel to build a better foundation of consistency in terms of revenue, as well as profitability for the studio. Next slide, please. This is something that we've been working on for six months, but sale finally closed in September, successfully sold to Games Mobile, STLTD, a Cypress-based private gaming group. The transaction was quite favorable. In our perspective, you know, 21 million euros of cash consideration at closing, 17 million of which came along with the closing of the transaction, and 4 million to be paid quarterly in equal installments over the next 18 months. There's some additional contingent consideration as well, up to 13.5 million euros. for the first five years subject to the business performing at a certain level and potential exit by the buyer. But while we're not counting on this potential upside, It's an insurance of sorts in case that a remote situation where things do stabilize in the Russia Ukraine region and there's additional value that could be had with the Nova. We may see some additional upside there, but once again we're not counting on that outcome. But overall, great outcome for the business. It significantly boosted our liquidity and credit profile. Cash increased by $185 million a SEC in Q3. And now we sit with total cash balance of $654 million a SEC. And that's against the $405 million of bank debt that we have on our balance sheet. So net cash of $250 million a SEC currently as of the end of September. And this transaction overall meaningfully de-risks the overall group. We're finally out of Russia, no more geopolitical risk exposure. The original MBO structure that we attempted could have been a good outcome as well, but nonetheless, that would have continued to have this relationship with that region as a seller-debt provider to the management team. But with this third party transaction, we no longer have any ties to Innova. It's a clean break and we're able to get significant proceeds for it. And I think all of us believe that this is a great outcome, given the circumstance that we had to ultimately get to this outcome. Next slide, please.

Roger. Thank you, Jay. Thank you for that. So in the third quarter, ED7 delivered 444 million in net revenue, which corresponds to a growth of 25.5% and an organic growth, which is 18.8%. The organic growth adjusted for FX is 1.2%. So we're really happy to continue to deliver currency-neutral organic growth that we have been delivering for the past four quarters now. The net revenue and EBITDA over the last 12 months shows a constant increase from one consecutive quarter to the other. And by end of Q3, we are up at 1.8 billion, which corresponds to an increase of 55% against the comparable figure last year. This is then driven by organic growth or strong performance, currency fluctuations and M&A activities. The adjusted EBITDA margin amounted in the third quarter to 25%, but our margins tend to vary between quarters, so it's more adequate to look at it in a longer perspective. And in the LTM over the past five quarters we have been trading in the level of 21 to 22 percent and we expect to close the full year 22 around that level. Next slide please. This picture further highlights the diversified portfolio, as both segments grew from one consecutive quarter to the other, looking at the last 12 months' net revenue. And in the game segment, the last 12 months' net revenue amounted to over a billion, which corresponds to a growth of 48%. And that is explained then by M&A for an exchange currency and strong performance. are more predictable and sustainable net revenue and cash flow derived from the live games portfolio. Net revenue from these assets amounted in the third quarter to 272 million Swedish kronor, which corresponds to 61% of the total net revenue, which is over the past 12 months average. So we have, not during my time here, been at such a high level of more sustainable and predictable revenues and cash flows. The last 12 months, the net revenue in the service segment amounted to 754, corresponding to 66% growth. And that is explained by strong performance by petrol and fireshine. Next slide, please. Looking at the game segment isolated, we can see a steady growth from Q4 last year. Daybreak is not only the largest contributor to the group, but also the largest contributor to our more predictable revenue base, generating 260 million in the quarter and 65% in adjusted EBITDA. which correspond to 30% margin. And that margin was 25% in previous quarter. Big Blue Bubble contributed with 48 million in net revenue, 30 million in adjusted EBITDA corresponding to really strong margin of 63%. And that margin was 53% in previous quarter. Piranha has been profitable since Q4. and delivered 25 million in net revenue, 9 million in adjusted EBITDA. We also include then the other studios, Toneman and Antimatter in this segment. Next slide, please. And then we will look at the service segment. And here we can see, as I pointed out a few times, that it's more volatile and to some extent also hit driven. Visualized here in the left chart where the segment came out from the pandemic delays in Q4 last year and also had one strong title delivering 100 million in net revenue in Q4. Faishan had yet another solid quarter, mainly attributable to the continued digital publishing success. A few of the planned physically distributed gains are moved from the quarter, but the company generated 83 million in net revenue and 9 million in adjusted EBITDA. The decline from Q4 and Q2 this year to Q3 and Q1 is not a sign of lower momentum. It's rather a revenue recognition timing situation that we see. Petrol's strong momentum from the first half of the year continued and they generated 66 million in net revenue and 10 million in adjusted EBITDA and a margin of 15%, so a solid quarter from petrol. Next slide please. Looking then at managed expectations going forward, so again we delivered 444 million in net revenue and the FX adjusted organic growth is 1.2. That was 24% in Q2 and 13% in Q1. The comparable figures in the service segment has been relatively easy up to the second half of Q3 due to the delays in game projects during the pandemic again. Faishan has also had one major hit, as I mentioned, in Q4, which must explain the volatility that we see here. Faishan has always been subject to change schedules, where one big release plan for Q3 was moved to Q2, and a handful of others are moved from the second half of the year to 2023. This explains to a great extent that we have guided for a lower margin going forward. Meanwhile, the pipeline for Fireshine remains solid with a few new games signed and a pipeline of 10 games to be released in 2023-2024. Meaning that the strong momentum for Fireshine remains even if the net revenue in Q3 is lower than what we saw in the very strong second quarter. And again, petrol is in good shape with strong deliverance in different projects, as Ji mentioned. In the game segment, Lord of the Rings and My Singing Monster delivered strong growth, which contributed to the net revenue from the more predictable and sustainable live games portfolio. And they amounted to 272 million and 61% of the total net revenue, meaning that the revenue composition is more predictable and reliable than ever before. Given the strong start of Q4, we upgrade our full year net revenue target. to say that we will come in around 1.8 billion Swedish kronor from the previous statement that we will come in the range of 1.6 to 1.7 billion Swedish kronor. The adjusted EBITDA margin in the third quarter was high at 25%. And as I mentioned, we think that you need to look at it in a longer perspective. And the LTM adjusted EBITDA have been trading at 21 to 22 percent. If we back another quarter here, as we include the sixth quarter, then that quarter was 19. So that is the level that we expect to be trading on going forward and specifically to close the 2022 with. And the beginning of the fourth quarter was strong with revenues of 148.1 million in October. Next slide, please. We'll then show the balance sheet and the cash situation in the company. So the strong operation of cash flow and the successful divestment of Innova further improved the group's already strong liquidity profile. to a net cash position of, according to this definition, 155 million. But then I have deducted the cash part of remaining purchase considerations. And I'm also taking out the office rental IFRS 16 liability. And adjusted for those, the net cash is increased to a quarter of a billion, which was the amount that Yi mentioned in the beginning of this presentation. So we started the quarter with 381 million in cash and we ended it with 654. And the reason for the strong increase of 273 million is a very strong operational cash flow of 131 million. And the proceed from the divestment of Innova, which is 185 million, is included in the row investments. which is in total 141, if we then also deduct the investments that we've done in capitalized R&D and also in tangible assets. And they together are 45 million in the quarter. That is what I have to show you today. So over to you again, G. Thanks, Fredrik.

Next slide, please. So we're quite happy with the results for the quarter. You know, we had strong numbers across the board. And I think when you look at the first three bullets from this investment highlight slide, they really focused on and emphasized the consistency and our ability to continue to perform growth both sequentially as well as, you know, year over year in an organic manner. even though the market has been challenging and the challenging market condition may persist going into 2023 with some of the macroeconomic uncertainties that everyone is feeling. But with that said, we have a very strong base of recurring revenues with our live service gain portfolio, which consistently produces strong cash flows as we demonstrated this quarter. And we have one of the best world-class IPs that we get to exploit further, not only as we benefit now with the live service games, but investments that we are making for future content updates as well as new games that we are considering. So along with the overall performance, this quarter also included a meaningful transaction where we were successful in divesting Innova. That improved our liquidity significantly with 654 million sec of cash currently sitting on our balance sheet, 250 million sec of net cash when you net out the debt. So this strong balance of great balance sheet as well as continuing consistency and performance And no more risk related to Russia and the geopolitical risk that's there that we have tried very hard to, you know, divest over the last six months. And we were able to do that successfully better than we originally anticipated. And we have significant insider ownership. Our management and the board have purchased additional shares over the last number of months. And we're fully on board and full alignment with the investors to continue to grow our business. And we're quite excited for our future going ahead of us. So thank you so much for continuing support. And we're looking forward to demonstrating continuing consistency and growth over the coming quarters and years going ahead. So that's the wrap for the quarterly presentation.

Thank you very much, G and Fredrik. So I start off here with a question from Yalmat Redeye. What are your potential considerations for the use of your strong balance sheet? And I add on to this question a similar one from Marcus Anderson. Could we expect any dividends going forward?

Yep. So I think The strong balance sheet and the position that we are in provides us with significant flexibility. Ultimately, in terms of how we view utilization of our cash balance is about how that enables us to achieve our long-term goals as an organization and being able to really measure and estimate what provides the best use of cash for driving significant shareholder value creation. So dividend is an option, having said that there are multiple investment opportunities that can be provided with the significant capital we currently have, and those are currently being evaluated as we think about how to best allocate those investments going forward. So we will be back to the investor base with additional information regarding that, but for now we're in that evaluation phase.

Thank you very much, Yi. Another one here from Hjalmar at Red Eye as well. What is the typical seasonality for your live games? How is November and December compared to October?

Generally speaking, because of our seasonality, we typically see a nice uptick in Q4 for our live service games. With that said, My Singing Monsters, which is part of our live games portfolio, had its 10-year anniversary in September of Q3, where it outperformed our expectations by a lot. So that will make the sequential comparison a little bit more difficult, but nonetheless, once again, we feel very good about our Q4 outlook based on how we performed in October, and we have nice momentum going into November, December.

And maybe, sorry, maybe to add to that picture also, we have strong activity, as you say, in Q4, but it also has some effects on the figures when we will show both Q4 and Q1 where, as we have communicated earlier, we will have a spillover effect of revenues into Q1, which normally have a fairly strong margin for us. Meanwhile, we will build up some royalty payments that we based on the high activity in q4 we need to pay it in q1 meaning that we will have a stronger outflow of cash in q1 than we had on average just wanted to say that as well

Great. Thank you so much. Another question here from Markus Andersson. How positive are you to succeed with the communicated work for higher projects in the gaming segment?

Yeah, I mean, look, it's an area that we recently started focusing on. So there's more work to be had there, but we like the market dynamics there. There's still very much a supply and demand imbalance where You know, having talent, having resources is highly valuable. And we currently have three studios with Toadman, Piranha, as well as Antimatter. We have about 250 talented developers where previously our focus has been almost entirely on our own projects. But given this market opportunity, we are starting to ramp up and work for higher opportunities, especially with Piranha already starting. and then told men and also anti-matter evaluating opportunities there as well. So there's more to more to clearly, you know, sign up. But nonetheless, we do like the opportunity for the short term over the next 12 months to be able to get to higher utilization. And that ultimately builds this foundation of stable revenue and profitability that that helps with funding projects that we want to fund, as well as generating additional cash flows and growth for the organization.

Thank you very much. I received a couple of questions from various investors. One of them is Jimmy Jönsson regarding BigBlueBubble and My Singing Monsters' success in Q3 and continued success in Q4. If we could elaborate on what's behind that.

Yeah. So My Singing Monster, once again, it's been around for 10 years, so it's not a new game by any means, but it's always had this very nice following, over 100 million accounts that's been created, lots of fans, a lot of nostalgia factor. But the expectation, along with some of our rest of our live service portfolio for 2022, was that My Singing Monster would also perform generally either flat or slight decline, given that 2020 and 2021 were banner years for My Singing Monster. But it's blowing our forecast out of the water for 2022, which is great to see. 2022 will be a better year for them than 2021, which really is bucking the trend compared to a lot of the other live service games. So as an organization, very excited about what they're doing. Of course, team has been working very hard, creating great content, creating you know, great reasons for players to come back and really enjoy the game further with the 10-year anniversary as a big tentpole event where a lot of nostalgia, a lot of, you know, lapsed players came back as well as new players also coming in. And also they're leveraging their social channels a lot, I would say, better than they've done historically, where they're leveraging TikToks of the world, Instagrams of the world, where you see a significant uptick in activity for My Singing Monster over the last few months. So that has been one of the big difference makers for My Singing Monster and Big Blue Bubble, being able to drive that social awareness for the title and certain memes and virality that they've been able to benefit from. So that's one of the key drivers for their growth so far this year.

Thank you very much. Another question here from Hjalmar at Redeye. Any comments on the timing of the release of Block and Load and Evil versus Evil?

Yep, so a couple of thoughts there. So, you know, ultimately, we have been very, I would say, thoughtful about the best approaches to utilizing our resources, as well as looking for the best outcome for investments that we've made. And being able to also, you know, compare that to other opportunities, such as work for hire, where we do see significant upside in terms of near-term revenues and profitability growth. So along with looking at both opportunities for those particular titles, which we have never really communicated our expectation as being really large. They're smaller investments with likely positive outcome, but smaller positive outcome. And we're able to look at that very objectively compared to some of the other near-term opportunities where we do feel that there's more momentum and upside. So those are what we're currently considering as to not only the quality of those games, but also the upside potential. compared to other opportunities that we're seeing in the marketplace for our teams as well as the studios and being able to decide on what path to go down on. So that evaluation is happening now. The game development has been progressing well, but ultimately for us, it's all about being able to drive stronger revenue and profitability growth and long-term value creation for the organization. And with that as the ultimate goal, we will be making a decision as to what path to take there.

Great, thank you very much, Yi. I'm afraid that's all we have time for today. If there is anyone that's listening into this afterwards, please feel free to contact us on the Investor Relations email or give us a call, and we're happy to answer any questions you have. But that's it for us today, and thank you once again, Yi and Frederik, for your presentation. And we wish everyone who's listening and a continued great day.