Enad Global 7 AB (publ)

Good morning and welcome to this presentation of EG7's first quarter for 2023. My name is Ludvig Andersen and I will be your moderator here today. Together with me to present, we have the company's acting CEO Yiham and the company's deputy CEO and CFO Fredrik Ruden. After presentation, we will have a short Q&A session. So if you have any questions, please feel free to email them to the company's IR email. But now, without any further ado, over to you, Yi.

Thanks, Ludvig. Good morning, everyone. Thank you for joining us. We have some excellent results to share. Let's go to the next slide. Well, we started out the year very strongly for Q1, with Q1 net revenues coming in at 572 million SAC, representing 43% growth. And adjusted EBITDA was very strong with 190 million SAC, representing 33% margin and almost 80% growth year over year, and strong operating cash flows of 171 million SAC. And all of these results represent all-time highs for the group, which we're very excited to report. And the group is in its best financial position since inception, with significant cash on the balance sheet with $450 million in SEC. And additionally, we have fully paid down our debt, and we no longer have any bank debt remaining at the holdings level. Next slide. Big blue bubble continues to be a highlight for us with a solid performance throughout Q1. Additional growth on top of Q4 results with net revenues and EBITDA, 218 million SEC of net revenues and 133 million SEC of EBITDA representing 61% margin. In December 2022 was the peak, along with the viral uptick in My Singing Monsters, but we are seeing a nice follow through for Q1 with continuing momentum generating the additional growth from Q4 levels in Q1 this year. We do expect ultimately that My Singing Monsters will settle down. at a higher normalized baseline compared to pre-step up in this performance, which we will communicate further as we see additional data. Next slide, please. Some additional KPIs for My Singing Monsters to demonstrate the sustaining performance with strong user engagement. Over 7 million new users came in in Q1, representing all-time high daily active user base for Q1 with 1.63 million average for the quarter. And this higher average daily active user in Q1 does demonstrate this continuing solid engagement and retention trend for the title, which we're very happy about. And we have some exciting updates planned for the second half of the year with the anniversary and the holiday events that will be coming up. And the team continues to work very hard to deliver additional compelling content for all of its user base. to sustain and retain and engage the user base that has expanded along with this final update over Q4 as well as Q1. Next slide, please. On the segment side of things, a gaming segment operational highlights net revenue for the quarter came in at $475 million SAC, representing 86% growth. On an FX neutral organic basis, 69% growth. Adjusted EBITDA of $194 million SAC, which represented 129% growth year-over-year and 41% margin. As noted, my singing monster. 70% of adjusted EBITDA for the segment. Daybreak is continuing to perform very steady and stable with this portfolio of live service games. Net revenues came in at 201 million SEC, a slight decline from the year before, and adjusted EBITDA margin sustaining at 26%. And Piranha, since joining the group, delivered this best quarter ever with net revenues coming in at 51 million SEC. The fourth DLC that came out for Mac Warrior 5 in January was a nice success for the group. Along with that, Piranha continues to make nice progress on the work for hire strategy, recently signing a new contract with VLU in excess of 100 million SAC to be earned over the next 18 months. Next slide, please. On the service segment side, net revenue came in at 97 million SAC, representing a decline of 33%. Adjusted EBITDA was 8 million SEC, representing an 8% margin. Q1 net revenue decline compared to the year before was primarily due to two reasons. One was related to a different product lineup with Fireshine having delivered a nice success with CoreKeeper in Q1 2022, but no longer have that impact for 2023. and additionally for 2023 early part of this year a slower and lighter pipeline compared to last year having said that fireshine is performing according to plan no big releases were planned for q1 and the remainder of 2023 pipeline is strong and we're looking forward to getting additional products delivered throughout the year and then on the indie digital public side of things Fireshine released a game called Shadows of Doubt in April as an early access title on Steam, which has performed nicely, tracking a 92% positive rating on Steam, which is phenomenal. And we're looking forward to that title coming out, ultimately out of early access and contributing meaningfully to Fireshine and overall group's performance. On Petro's side, they do what they do best, continuing to work with top publishers and developers representing a mighty Doom launch in Q1 with over 10 million trailer views and more than 3.3 million units shipped for the first two weeks of release, and working closely with Digital Extremes on Warframe's 10th anniversary brand identity campaign. and of course, maintaining and working closely with Activision on Call of Duty franchise with the launch of the new season of Call of Duty Wars on 2. Next slide, please.

Over to you, Frederick. Thank you, Yi. Next slide, please. So as G said, the net revenue in Q1 was 572 million Swedish kronor, which is a growth of 43%. FX neutral organic growth is 31%. Based on the high margin revenue mix, the EBITDA margin was as high as 33%. The net revenue and EBITDA over the last 12 months continue to show constant increase from one consecutive quarter to the other. By end of Q1, LTM net revenue amounted to 2 billion 38 million, corresponding to an increase of 30%. This growth is driven mainly by strong operational performance, but also FX and M&A activities. The strong margins of Q4 and Q1 has had a natural positive effect on the LTM adjusted everyday margin, which came in at 28%. Next slide, please. Net revenue of the last 12 months in the game segment was nearly 1.5 billion Swedish kronor, corresponding to growth of 54%. explained again by strong organic growth from BigBlueBubble, but also M&A and FX. In this segment, we have our live games portfolio, which is the foundation for a more stable and predictable revenue and cash flow. Net revenue from these assets amounted to 423.8 million, corresponding to 74% of total net revenue in the quarter. In the last 12 months, net revenue from these assets amounted to 1.3 billion, corresponding to 64% in total net revenue. The last 12 months, net revenue in the service segment amounted to 575 million, corresponding to a decline. As previously communicated, the service segment is volatile. to some extent hit live and resulting in revenue fluctuations between quarters. Next slide, please. Looking at the more stable gain segment, we see a steady growth, which has been much stronger in Q1 and Q4, following the great success of Meisinger Monitors. Daybreak is normally the single largest contributor to the group and the largest contributor to our more predictable revenue base, generating 201 million in net revenue and 52 million in adjusted EBITDA, corresponding to 26% EBITDA margin. Big Blue Bubble generated 280 million in net revenue and 133 million in adjusted EBITDA. which is an EBITDA margin of 61%. Piranha has had its best quarterly performance ever, with a net revenue of 51 million and adjusted EBITDA of 23. This, as Ji mentioned, comes from successful launches of different DLCs to Macquarie 5, and the latest one was DLC 4 in January. Furthermore, Pirana successfully deliver on groups work for hire strategy and sign this new contract that will bring 100 million over 18 months. Toadman and Demeter gains also included in this segment, and they continue to pivot towards work for hire. But until further notice, they also conclude their ongoing activities. Next slide, please. The service segment is, as said, volatile. First half of the year, last year, the segment had a strong momentum, coming out from the pandemic delays and flavor with a successful digital hit that was released in 22. This gave a strong contribution, specifically in the first half of the year. Faishan had a stable quarter, mainly attributable to the continuity in the digital publishing success. The company generated 48 million in net revenue and 2 million in adjusted EBITDA. This corresponds to a lower than expected margin. Faishan continues to add to the strong pipeline. And as you mentioned, the shadow of doubt has been a success so far with over 90% positive reviews on Steam. But we anticipate Firesharing to mainly be dominated by lower margin physical releases in the second half of the year. Looking at petrol, they generated 49 million in net revenue and 6 million in adjusted EVTA. Next slide, please. And... April has started with 154.6 million in net revenue. We expect to reach 2.2 billion in the full year, with a margin around 23 to 25%. And there are some items that we write about in the report that you need to kind of understand here. And one is this rollover effect from high activity quarter. that is a seasonal natural effect that we always have specifically we see that in q1 and this q1 the effect is 35.6 million we also have 42 million positive fx effects in q1 and it's expected to turn negative throughout the remainder of the year Looking at net capitalization during the year, this is expected to be 18 million under last year's level, which negatively affecting our margins, but not the cash generation. And this is mainly explained by the transition to work for higher, but there are also other reasons for this. And then again, Firesharn will generate more physical revenues throughout the year, which has a lower margin. And as you see in the chart, Meisingen Monster had a very strong uptick in Q4 and Q1 with an activity peak in December. And we expect normalized baseline above the level prior to the viral uptick, so above the Q1 to Q3 level last year, but it's too early to judge exactly where that will show. So we will come back with that later. Next slide, please. Looking at the net debt and EBITDA ratio and cash, again, then fueled by the successful divestment of Innova and continued improved operational cash flow and lower investments uh we have had the positive cash situations in q3 and the net cash is 448 million excluding cash components for earners ifs 16 and some smaller items and including them we have this 365 that you see in the slide the strong operational cash flow continued to improve q1 following the great success of my singing monster them To further optimize the capital structure in the group, we repaid the remaining 100 million of our rolling credit facility in February. This improves our net for financial items with approximately 20 million on an annual basis. Meanwhile, we still have an attractive flexibility with an unutilized 400 million facility to be utilized if we want. We have also now in Q2 started to gain interest on our liquid funds through active low-risk capital deposits. Looking then in the Q1 cash flow, we see that from operation we have a strong cash flow of 171 million. The cash is drained by investments of 18. In those 18, we have a positive amount of 8. following the divestment of Innova. So it's a remaining purchase consideration that was settled. So the underlying investment is actually 8 million higher than those 18 that you see here. Financing then, minus 107, and then there you have those 100 that we repaid in February. So all in all, we increased the cash with 45 million up to 453. So we have a strong balance sheet with plenty of opportunities. And opportunities to use the cash. And we will come back on that topic later. But not in this presentation, though. So over to you again, Chi.

Thanks, Patrick. All right. Next slide, please. All right. So in summary, we're quite happy with where we are as an organization. you know, ending the quarter with all-time record results. And My Singing Monster, one of our key core IPs, performing and continuing to deliver as the biggest game in our portfolio and contributing significantly to our current performance and expected to continue to do so going forward. And additionally, overall position as a group financially, you know, we're very happy with our conservative approach to how we have managed our balance sheet currently debt free at the group level. Given the way the market is, we believe that it is very important to be prudent and conservative in this approach. Significant liquidity on the balance sheet with over 450 million sec of cash as of the end of the quarter. And we're making great progress on the business line that we're building up with work for hire. And overall, we will continue to stay the course with clear focus and maintaining our discipline in managing risks and approaching our investment opportunity with a conservative risk management approach and balancing that with the rewards profile and overall prioritizing our long-term business growth over the short term. And all in all, once again, quite happy with where we are and looking forward to delivering, continuing to deliver on what we're promising to deliver in terms of financial performance and growth for the business and the shareholders going forward. So thank you all for joining us. That wraps up our Q1 presentation, and we will now transition to Q&A. Ludvig?

Thank you very much, G and Fredrik. We have a first question here from Rasmus at Handelsbanken. What kind of scenario have you penciled out for My Singing Monsters in your guidance?

Yeah, we continue to, you know, Evaluate the data were very happy with the results for Q1 as we communicated with this presentation. There's nice sustaining momentum with the title with expanding fan base and we have some great plans ahead with additional content that we're going to bring to our user base. With that said, you know the peak was December 2022 and that was the viral peak where we saw significant uptick in volume of new users and overall engagement. We are at a lower level now and we expect that we will settle ultimately at a new normalized level that's lower than that peak level, but still meaningfully higher than where we have been prior to the step up. So we haven't disclosed a lot more detail beyond that with this presentation, and we are continuing to evaluate data, and at some point we may be able to communicate more. But for now, we aren't disclosing any more than the fact that we expect it to be performing at a higher normalized level compared to prior to the step-up level of performance.

Thank you, G. Another question from Hjalmar at Redeye, or it's a few questions regarding work for hire, which I tried to summarise as one. Could you give some more colour to the work for hire, how it's proceeding and what margins we can expect going forward?

Yeah, so Piranha signed a nice contract where, you know, we expect to generate over 100 million sec of revenues from the contract over the next 18 months. Quite healthy margins. You know, margins do vary depending on what studio we are going to be utilizing for some of these work for hire contracts. Some of the studios we have in Europe tend to have potentially higher margin possibilities as their overall cost is lower compared to North America. But nonetheless, Piranha's contract, we do expect to generate a pretty meaningful margin in excess of 30%. uh and uh uh you know we're targeting opportunities such as that where the margins would be above 30 for the type of contracts that we are seeking uh piranha once again it's it's one of the first contracts that that we have secured we're continuing to aggressively pursue other opportunities we like the market dynamics in terms of where the work were higher uh supply and demand imbalance continues to exist and we have significant pool of talented resources, both in Europe as well as North America, that we intend to aggressively pursue opportunities similar to what we secured with Piranha.

Thank you. Another question from Johan at Danske Bank. The new Lord of Ring MMO by Amazon and Embracer, what potential impacts will this have on Lord of Ring online?

Yeah, we do not expect any impact from that title for the foreseeable future. And I think, as maybe some of you know, developing an MMO is a long-term investment endeavor where sometimes it does take over five years to bring a product to market as You know, we've seen with the likes of Riot and Blizzards of the World who have taken over five years to bring out their MMOs. So in terms of where Amazon is with the title and, you know, what the timing is for that ultimate MMO to release, you know, we do need to learn more about that. If they are investing in an MMO similar to what we define as MMO, it's a lengthy investment cycle. And between now and then, we do not expect really any impact on our Lotro title, which is the orny game out there with that Lord of the Rings IP on a multiplayer, massively multiplayer online format.

Thank you very much. A question here from a few investors, Magnum Andreas Larsson and Jan Söderström. What is the plan for the cash of 450 million SEK? And what can we consider now for 2023?

Yeah, you know, if you have In terms of not having to work within.

Could you repeat that? I think we lost you for a few seconds there. So could you take the answer from the beginning?

Okay, let me start over. So yeah, so we are evaluating multiple opportunities. We do have significant cash on the balance sheet, which we are quite happy about, given where the market is. in terms of the economy and some of the uncertainties, we do believe that being conservative is the right approach. And we have demonstrated that operating conservatively could result in great results over the last six quarters since the new management has taken over here. With that said, there's some attractive opportunities that we're evaluating and we want to come back with additional details behind what those are when we're ready to disclose them. But once again, good news is that we're not operating under any significant time pressure, internal or external, given the strength of the balance sheet and continuing performance from our existing set of assets and businesses that are doing really well.

Thank you very much. Another question from Hjalmar at Red Eye. Can you elaborate on the deferred revenues and how much is from or impacted by Big Blue Bubble and Daybreak?

Maybe Fredrik, are you able to provide some additional detail around that?

Yeah, I can elaborate a little bit about that. And I mean, The total amount is around 36 million, which has a positive effect in Q1. And there are no attached costs to that, so it goes straight through to EBITDA. We haven't kind of split that amount between daybreak mainland and a big blue bubble in the report. So I guess you can assume that it's a little bit like 50-50 from those two. We also have from other entities but it's mainly Big Blue Bubble and Daybreak. And obviously we have this effect between all quarters but then the net effect is normally close to zero. We have a rollover effect also into Q2 from this, but the positive effect now in Q1 is because we have more activity by end of 2022 than we have leaving Q1.

Thank you. And question from Simon at Carnegie. Anything new regarding the almost completed games from Toadman and Antimatter, Evil vs. Evil, Block and Load, et cetera?

Yeah, I think so along with our year end, we ended up taking significant write down for those new titles that the studios have been developing and we have been proactively transitioning those studios into work for hire opportunities. so you know we are not counting on nor are they really factored into any performance forecast for our business so there may be some upside possibly based on at least some of the titles that we may ultimately bring to market but we are not you know categorizing them as core to what we're trying to accomplish here and ultimately we continue to evaluate opportunities with third-party publishers and potential uh investors for those titles uh but we are once again uh have fully written down a number of those investments and not counting on those to be an impactful a part of our business going forward

Thank you very much. I think that's all the questions that we had. So thank you very much everyone for tuning in and the presentation will be available on our website later today. So yeah, thank you very much for tuning in. Have a good day. Thank you.