Enad Global 7 AB (publ)

Good morning and welcome to this year-end and Q4 presentation with EDU7. My name is Ludvig Andersson and I will be your moderator during this call. With me here to present, we have the company's acting CEO, G. Hamm, and deputy CEO and CFO, Fredrik Rudén. After the presentation, we will have a short Q&A session, so feel free to email your questions to the Investor Relations email. But now, forward to you, Yi. Thanks, Ludvig.

Thank you all for joining us this morning for earnings presentation. The group ended the year quite strong, and we're excited to share the results. Next slide. For Q4, net revenue came in at 559 million SEC, representing 12% growth year-on-year. Margins were very strong with adjusted EBITDA coming in at 179 million SEC, nearly doubling from the year before and achieving 32% margin. Solid operating cash flow for the quarter with 114 million SEC. For the full year, that revenue totaled 1.87 billion SEC. That's 27% growth year on year and 6.2% organic growth on an FX neutral basis. Adjusted EBITDA came in at 483 million SEC, strong 26% margin and 49% growth year on year. Four-year operating cash flows of 375 million SEC, which allow the company to fully repay the debt and take our leverage to zero, which we're very happy about. Next slide, please. The major highlight for the Q4 was My Singing Monsters from Big Blue Bubble. Big Blue Bubble delivered a record performance. Q4 included My Singing Monsters peak KPIs across the board. Net revenue for the quarter came in at 193 million SEC. That's growing by 607% year-on-year. Adjusted EBITDA came in at 116 million SEC, also growing exponentially by over 600%. For the full year, net revenue of 310 million SEC for Big Blue Bubble, a growth of 184%. adjusted EBITDA of 182 million SEC, representing 234% growth. This record performance was driven by My Singing Monsters' transformational growth. In Q4, MSN became the highest-grossing game in the music category and segment across both Apple and Android platforms, reached the number one spot in the game category in the App Store in more than 15 countries, and top 10 in over 100 countries. Viral growth across social channels such as TikTok and YouTube provided the launchpad for this growth. And some of the KPI highlights from the year end on TikTok included 1.7 million followers, 21 million likes, 210 million video views, 2.5 billion hashtags. And as of the end of January, over 6.9 billion hashtags illustrating the continuing sustaining performance of My Singing Monsters. Next slide, please. Some additional KPIs here that illustrate MSM's phenomenal growth. In Q4, 11.1 million new users came in. That compares to 938,000 total new users in Q4 2021. That represents 1,086% growth year on year. Average daily active user for Q4 2022 reached 1.4 million compared to 172,000 in 2021, growth of 728%. I've said transformational a few times at this point. We do believe that this growth is not just a pop and drop. The initial exponential ramp was never going to sustain. However, we do believe that MSM will have a new baseline higher than prior historical levels, which allows the team to continue to build upon that going forward. The game and the brand reached a higher level of relevancy, and we are excited to see what our talented team at Big Blue Bubble can do going forward and continue this momentum along with this game. Next slide, please. Game segment delivered a strong quarter. Net revenue came in at 423 million SEC. That's 83% year-on-year growth, 47% organic growth on an FX-neutral basis. Strong profitability with adjusted EBITDA of 168 million SEC, representing 40% margin and 169% growth. As highlighted already, MSM was the key driver, with BigBlueBubble contributing 46% of net revenues and 69% of adjusted EBITDA for the segment. Daybreak is continuing its steady performance, delivering 199 million sec of net revenues, three successful expansion releases for EverQuest, EverQuest 2, Lord of the Rings Online, Some of the titles did see declines as anticipated from the pandemic-boosted levels in 2021. However, Magic Online's addition and also the favorable FX trends contributed to the growth, resulting in net revenue growth of 15% year-on-year. Other business units within those segments are largely performing according to plan. Next slide, please. Service segment results came in in line with expectations. 136 million SEC of net revenues adjusted EBITDA of 14 million SEC. Q4 net revenues declined by 49% year on year. However, this is due to a mismatch in timing. In 2021, due to the pandemic, there were significant product delays impacting service segment revenues. As a result, 48% of total revenues in 2021 was recognized in Q4. This year-end weighted results in 2021 is causing this misleading year-on-year comparison. A more appropriate way to look at for 2021 and 2022 is really comparing the four-year results. For four-year, service segment delivered 622 million SEC of net revenues, representing 12% growth. And adjusted EBITDA for the year came in at 90 million SAC, growing a healthy 23% over 2021. Fireshine is performing as expected. Q4, the busiest quarter for petrol on campaigns like Call of Duty and a number of other AAA products. Once again, petrol delivered its best-in-class effort. Next slide, please. Over the last few quarters, we have communicated our plans to ramp up the work for hire business. As we ended 2022, we have decided to fully pivot this way with non-live game studios becoming work for hire centric. We believe that work for hire business provides a more compelling risk reward balance First party target titles that the studios have been developing, utilizing either new unproven IPs or subscale IPs with limited audience, we believe are too unpredictable and no longer aligned with their strategy. The rationale for this change is our desire to continue transitioning our focus and business to a more predictable business model with heavy emphasis on risk management and also more predictable outcomes. We want to limit or avoid investing in unproven, highly speculative opportunities going forward. As for the products that are a work in progress, we are considering a few options here, exploring potential sale of the assets or the sale of the publishing rights to third parties. In case of games that are largely complete, Evil versus Evil being one and Block and Load the other, uh we may end up uh you know releasing these games through early access uh to potentially recover some investment uh through uh publishing those games ultimately uh the impact from this change will result in a write down of 309 million sec in capitalized rnd as of december 31st during this transition period while work for higher businesses ramping up non-contracted staff will remain on these work in progress titles to aid in potential sale or release. Capitalized R&D accrual for Q1 should be largely at a similar level to where Q4 was for these titles until the staff is transitioned to work for higher contracts where the titles are ultimately divested. This decision to transition and clean up our balance sheet is consistent with the management team's ongoing actions over the last 18 months. We are proactively eliminating uncertainties. Our aim is to remove uncertain outcomes that are based on hope versus fundamental investment underwriting. And by eliminating these risks related to legacy and non-core assets, the aim is to improve our execution and predictability going forward. Next slide, please.

Over to you, Frederick. All right, thank you, Ji. Next slide, please. So, as Ji stated, we're ending the year with a strong performance. Net revenue in the fourth quarter came in at 559 million, which correspond to growth of 12%. Based on the high margin revenue mix fueled from My Single Monster, the EBITDA margin came in at 32%, which is really high the net revenue and mbta over the last 12 months continue to show constant increase from one consecutive quarter to the other and by end of q4 the ltm or in this case if you may the full year net revenue amounted to 1 billion 866 million which is a growth of 27 percent or organic fx adjusted growth of 6.2 in a declining market this growth is driven by a combination of strong operational performance effects and mna activities and the strong margin by end of the year also boost the ltm full year adjusted ebitda margin which came in at an historical high level of 25.9 percent next slide please Net revenue over the last 12 months from the game segment exceeded 1.2 billion, which correspond to 36% increase. And in this segment, we have our live games portfolio, which is the fundamental part of the more predictable and sustainable net revenue and cash flow. Having said that, that's the definition that we have taken looking at games that have, in relation to a premium product, they have many years of being out there. So in that case, it's more predictable and reliable. The full year net revenue from these assets amounted to 1.1 billion, which correspond to 60% of the total net revenue for the year. And the comparable figure for that was 53% last year. So in this definition, we could say that starting 2023, we are more stable and predictable than ever before. The last 12 months in the service segment, the net revenue came out at 622, corresponding to a strong growth of 12%. Next slide, please. Looking at the game segment isolated, we see a steady growth each quarter from Q4 2021. We've had growth both in Big Blue Bubble and Daybreak. Daybreak has normally been the single largest contributor to the group and the largest contributor to our more predictable revenue base. Daybreak generated 199 million in net revenue and 42 million in adjusted EBITDA, which correspond to a 21% margin. Big Blue Bubble, based on their strong performance, generated 193 million in net revenue and 160 million in adjusted EBITDA, corresponding to 60% margin. Big Piranha has been operating profitable since Q4 last year. And they generated a net revenue of 25 million this quarter and adjusted EBITDA of 15. And following the launch of DLC4 for Macquarie 5 by end of January 23, this momentum is continuing in this new year. We also include tournament studios and anti-matter games in this segment. Next slide, please. The service segment is more volatile and to some extent hit-driven. In Q4 last year, this segment had a strong momentum coming out from the pandemic delays and played with the hit, which was Jurassic Park Evolution that delivered 100 million in net revenue in Q4 2021. The net revenue delta between quarters is rather a revenue recognition timing question than a momentum issue. Faishan had a stable quarter mainly attributable to the continued indie digital publishing success. The company generated 77 million in net revenue and 10 million in adjusted EBITDA, which correspond to a 13% EBITDA margin. Petrol's momentum from the beginning of the year continued, and they generated 59 million in net revenue and 3.4 in adjusted EBITDA. Next slide, please. Full year 2022 delivered a net revenue of 1.9 billion. This corresponds to a 27% growth. And then FX adjusted organic growth of 6.2. And that is important to bear in mind that that growth comes in a declining market. So the market is estimated to decline four to 5% in 2022. Meanwhile, the mobile market is declining even more than that. The fourth quarter delivered a net revenue of 559 million. corresponded to an FX adjusted decline of 4.6. Adjusted EBITDA margin was 32%. This strong margin also boosted the full year adjusted EBITDA, which came in at 25.9. So the already guided for soft cue for growth is rather explained by revenue recognition timing than momentum. There are a few items to bear in mind, and a few of them were mentioned already. The challenging comparable figures in the service segment coming up from the pandemic by end of Q3 last year, and specifically in Q4 last year. And then we have this title, Jurassic Park Evolution, that delivered 100 million in net sale in Q4 last year. We have had a few planned Q4 titles to be published for Faishan that has moved into the future. and also that the live game portfolio in itself is trading at the new normalized post pandemic level the soft q4 growth fx adjusted then was more than compensated for an ebitda due to higher margin revenue mix and looking at my single monster which delivered a record performance with 193 million in net sale and 60 ebitda margin And also that we see that January is starting really strong, but it's a little bit too early to judge and to guide for Q1 and full year 23 based on that we need to look at the figures and the data for a longer perspective and then come back with some guidance around that. Next slide, please. Looking at the net depth and EBITDA ratio in cash, fueled by the successful divestment of Innova, an improved operational cash flow and lower investment than previous year, EG7 has had a net cash position since Q3. The net cash is 304 million excluding cash components to earn out and IFRS 16 leasing. If we include those, Then the figure is 220 million. The operating cash flow was improved in Q4 following the great success from Meisingen Monster. To further optimize the capital structure in the group, we repaid the 300 million of external credit facilities in Q4 and the remaining 100 was paid in 23. We still have a frame of 400 million, a credit frame to be utilized, which gives us a great flexibility for the future. And this improves our net from financial items with approximately 20 million on an annual basis. So starting the quarter, we had 654 million in the cash box. From operation, we generated 114. We invested 47. And then the repayment in the financing row, which is 300 million. Meaning that we're closing with a cash of 408 million. So the balance sheet is becoming stronger and stronger. Over to you, Yigit.

Thanks, Fredrik. Next slide, please. Thank you. All right, so in summary, we're quite pleased with the group's performance last year. We encountered some unexpected challenges early last year, but we're able to recover and deliver great results, growing our net revenue by 27% this year to 1.9 billion SAC. Strong profitability with adjusted EBITDA of 483 million SAC, which represented 26% margin. And My Singing Monsters delivered a headline-worthy performance, It's clearly established itself as another superstar brand for the group number one top grossing music game across both Apple and Android to end the year and is sustaining that performance into 2023. It has become our biggest title and we believe that it's established a new elevated baseline for performance and growth going forward. Overall, the group is in its best position yet. Solid balance sheet with zero debt, 304 million of net cash as of December 31st and continuing to generate solid cash flows. Clean balance sheet after writing down the intangible assets tied to unpredictable investments, really eliminating that question mark and risks associated with it. And solid start to 2023 with performance so far. And in conclusion, we want to emphasize our approach here. You know, we remain focused on taking solid steps one at a time to create that value for the group. We are not chasing after quick wins for short-term gains or hype. We'll continue to focus on investing in the building blocks for a sustainable and more predictable long-term growth. So that completes our earnings presentation. Thank you for listening. Now we will host a Q&A session. Back to you, Ludwig.

Thank you very much, Yi and Fredrik. First question here from Hjalmar at Redeye. What is your view on Daybreak's performance in Q4? Was it in line with your expectations? And are there any changes in player monetization due to the higher inflation?

Yeah, so Daybreak performance for 2020 to overall was generally in line with what the expectations were. We knew that coming into this past year and that the elevated levels in 2021 were not going to be sustainable. So similar to a lot of the other competitors that have published similar type of results with year over year declines for their live service games, we experienced the same. And as for impact from the inflation, it's difficult to really gauge as to how much that is impacting our numbers versus just general decline from the pandemic levels at this point.

Thank you. Another question here from Hjalmar at RedEye as well. You have a strong balance sheet. Can you elaborate on what you will use the overall cash for?

Yep, so it is something that we are continuing to evaluate. And with that said, I think there's a number of investments that we will be evaluating, including supporting the work for hire effort. We do believe that market has softened quite a bit from where it was 12 to 24 months ago. And based on that, we expect there may be additional opportunities that we may be able to target in the potential M&A space as well. So having that availability of extra cash on top of that additional leverage that's available with the revolving credit line gives us the flexibility, not only being able to invest in a number of the reinvestment projects and gains that we want to invest in, but also potential M&A activity that we could reengage with.

Thank you. A question from Jan Söderström. Can you please elaborate more on the work for hire strategy and why you believe it's the future for EG7?

Yep. So work for hire strategy, I would say it's a component of where we want to be driving our business to. We have a number of very talented groups of developers at Toadman and Anti-Matter, Piranha, et cetera. They have been working on their own games, but as we noted in the presentation, some of the historical decisions around what type of games to invest in and what type of risk to take with investment in these types of games, that perspective and that strategy has changed along with my involvement and the new leadership team that have taken over the company over the last 18 months or so. So our desire is to invest in opportunities that are lower risk. even within the gaming space, we believe there are compelling opportunities, such as work for hire, where there's a nice supply and demand imbalance. Opportunistically, we do see that sustaining for the near future. We do see elements of that success already with Piranha ramping up on the work for hire side of things. And we're looking for those type of similar opportunities that we could potentially bring forward, Toadman and other parts of the organization as well. So it's really a twofold approach, really stepping back from high risk investments and also going into something that we could build on. And that's a lot more predictable with great market dynamics currently in the work for higher space.

Thank you. A question from Rasmus at Handelsbanken. Can you give some light to medium term expectations for the game business and the service business as well? So I think he's referring to excluding my single monster and big blue bubble here.

Yeah, so service business, I think it's a steady, quite stable business as we've seen historically. It's not something that's going to grow at 30%, but at the same time, in terms of their ability to sustain and then continue to grow at a nice clip with predictable profitability, that's what we're expecting. And Daybreak and the other live service businesses are the same, where we have quite good insight as to their predictable trends going forward based on how we've been performing. So we feel very good about the stability of both the live service business and also service segment being able to repeat and continue to show growth, albeit at a lower pace compared to on the gaming segment.

Thank you. Last question here from Hjalmar at Redeye. Piranha looks to have a good performance in Q1 with the new DLC for MechWarrior. Could you give some light to your expectation for the franchise going forward?

Yeah, so MechWarrior IP is a very sticky IP. It's niche, but nonetheless, there's a huge fan base that loves that IP. So along with Piranha continuing to support the MechWarrior franchise with now the fourth DLC going out, as you noted, the fourth DLC has performed quite well. And we do see continuing ability to service that audience and generate meaningfully positive ROI on the investment being made to servicing Netwarrior. So the goal is to be able to continue the same model, which is, hey, there's DLCs that we could be providing and also exploring ideas around what else can we do with Netwarrior IP, even for a new title that we may want to invest in.

Thank you very much. I think that's all the questions that we had for the call. So thank you very much for tuning in and we wish you a great weekend.