Enad Global 7 AB (publ)

Good morning and welcome to this Q4 earnings call with EG7. My name is Ludvig Andersson and I will be your moderator during this call. Together with me to present, I have the company's acting CEO, Yi Ham, and deputy CEO and CFO, Fred Gruden. After the presentation, we'll have a short Q&A session, so please feel free to email your questions to the company's investor relations email. But now, without any further ado, over to you, Yi Ji.

Thanks, Ludvig. Good morning and thank you for joining us this morning for our presentation. Ludwig, let's go to the next slide, please. Here's the list of main topics we'll cover today. We'll start off with our Q4 2023 and four-year results. And after that, we will cover some of the key objectives that we were able to achieve for this year in the year of review. Industry backdrop, you know, I think it's very relevant for our performance in 2023 as well as our approach to 2024. So we do want to talk about the current market conditions that we're operating under and how that has impacted our 2023 results. and our approach strategy and the outlook for 2024. Thereafter, we'll quickly go over our medium to long-term outlook, which we already talked about at the Capital Markets Day, and Frederick will cover in more detail our financial performance for fourth quarter and the full year, and then we'll wrap that up with a summary and Q&A thereafter. Next slide, please. So it's another record year, 2023 Q4 results. Very happy to report that it's another great year for Q4. Group delivered net revenues of 473 million SEC. Adjusted EBITDA came in at 98 million. For the full year, net revenues came in at a little over 2 billion SEC and adjusted EBITDA of 542 million. Net revenue for the year did fall short of our four year target of 2.2 billion by 7%, but adjusted EBITDA came in at the high end of the range with stronger margins. Net revenue shortfall largely driven by the overall industry weakness for the year, which negatively impacted our business units, in particular units that are providing third-party services such as Petro and Fireshine. All in all, the group delivered solid results for the year. 10% annual growth outperformed the overall industry, which was largely flat this year with 0.6% growth according to Newzoo. Next slide, please. So year in review, we did achieve a lot of the key goals that we had set forth for the year. Some of the key objectives that we had for the year included continuing to driving solid revenue and profit growth, deliver 10% net revenue growth, 27% adjusted EBITDA margin, and 438 million of operating cash flows. Another important aspect that we focused on was continuing to improve the risk profile and really improving our balance sheet and improving our business foundation we fully paid down the debt this year built up significant cash reserve ending the year with 481 million a sec of cash on the balance sheet and we shut down underperforming projects and businesses And we refocused our strategy and communicated our long-term vision. Our first capital markets day that we hosted in September communicated our vision of becoming a leader in the mid-market publishing segment and communicated our medium-term financial goals. targeting $3 billion SEC of net revenues and $1 billion SEC of adjusted EBITDA by 2026. We began investing selectively in opportunities according to our long-term vision. MEC Warrior 5 plans development is underway. Publishing deal for cold iron second title was signed. We initiated concept exploration for H1Z1. We accomplished most of what we set out to achieve for the year successfully. While many of our peers are dealing with the fallout from aggressive and risky decisions of the past, we get to focus on our future without distractions. As a result, we are starting out 2024 on a very solid footing. Next slide, please. Some charts here, industry backdrop is not so great. Industry performance for 2023 was largely muted. Now it's going on over two years of weakness. After declining 5% in 2022, industry eked out again, 0.6% growth for 2023. Even though the industry may have avoided a down year nominally, the underlying dynamics tell a different story. Many developers and publishers, big and small, Lots of headlines, recalibrating, canceling or delaying many projects, and meaningfully cutting back on staffing. Big guys are doing it to improve profitability. They're not in trouble. They're trying to become more profitable. Little guys, on the other hand, had no option but to cut back in order to survive in many cases. The industry has been setting some unwanted records this year. Over the last couple of years, actually, 2022, 8,500 job cuts. That was the record for the industry in its history. And 2023 clips that with 10,500 job cuts. And so far in 2024, January alone, we saw 6,200 job losses, which unfortunately could mean we could likely set another record for job losses this year. So are we almost out of the tunnel? Not so sure, but we probably don't think it's the case. Big guys may be largely done, but likely there's more pain to come for the smaller guys. The reason the industry finds itself in this situation is because of too much supply while demand hasn't kept up. Basically, it was irrational exuberance. Since the pandemic, big guys with franchises will be fine. Little guys who jumped on the bandwagon won't be. We have to give it time for the market to ultimately rebalance itself out. Next slide, please. Industry impact. So how are we impacted? We manage relatively well compared to others, but no one is fully immune. Work for hire business this year has faced challenges. Ramp has been slower for Toadman. Piranha, as we just reported, work for hire contract. was just canceled to start this year they did realize 40 of the work for contract but 60 that we were counting on for this year are no longer able to achieve that as that contract was canceled third party service volume was also down as a marketing service business petrol had a difficult year as marketing is typically one of the very first line items to be reduced in a market downturn. FireShine's physical distribution volume, also dependent on third party, also went down with product delays. On the live service side, there was general pressure all around, you know, declining engagement as well as increasing costs. Daybreak's performance was negatively impacted. Big blue bubble bugged the trend, but likely would have performed even better in a favorable market climate. But despite this challenging industry backdrop, the group still delivered 10% organic net revenue growth. And we believe that's pretty good compared to the overall industry, which was essentially flat. 2024 is likely another challenging year for the industry. As a result, we believe that we must maintain conservative approach and focus. Next slide, please. 2024 approach and strategy. Our main approach is to keep it simple. Not the time to take big risks. At the top of the list is to stay conservative and actively manage risk. No big bets, maintain ample liquidity, control costs aggressively. We'll continue to execute against our long-term strategy. Fortunately, no near-term distress or risks for the company. With our solid foundation, we get to focus on our future versus worrying about keeping our lights on today. Also, we will stay opportunistic and target special situations. Industry distress could yield very attractive unique opportunities. We have thrived in driving exceptional results in such situations historically. We will remain ready to pursue opportunities where we can leverage our track record and expertise for outsized returns from distress situations. Next slide, please. 2024 outlook is expected to be a little softer due to the combination of three main reasons. Continuing overall industry weakness as we talked about, as we just covered, you know, this could keep the pressure on our service businesses, which depend on third party marketing spend. and pipeline of games. Beyond the service business, the overall portfolio of live service games could also feel some pressure. My Singing Monsters performance level will also be lower this year as we communicated previously. 2023 was a phenomenal year. We expected to normalize at a lower level than that. However, it still should be normalizing at a meaningfully higher level compared to pre-uptick level back in 2022. Returns from also our new product investments won't be yielding meaningful returns until latter half of 2024 when MacWarrior 5 plans releases. Key highlights for the year, MacWarrior 5 plans releasing in the second half. Core Deeper coming out of early access on PC and releasing across consoles in the second half. Full year of celebration for EverQuest franchise hitting major milestone. EverQuest is turning 25 and EverQuest 2 is turning 20. We have lots of great content, special events planned for these big milestones, which should result in nice performance for the franchises as well as Daybreak. Evo versus Evo is finally releasing. We just announced this last week on February 8th, releasing latter part of second quarter. Excited to finally get this game out. It is one of our legacy titles, but it's a nice little game and glad to have an opportunity to release and generate returns on the investment already made. We have written most of this down already. So regardless of the level of performance, it's all upside, which is great. And based on the confluence of these factors, we are expecting 2024 to be a softer year. Net revenue target at 1.8 billion SEC, adjusted EBITDA margin level, 22 to 25% range. It's tough out there with the industry. We're well positioned to weather the storm. Still expect to deliver solid profitability and cash flows for the year, which given the market circumstance would be a nice outcome. Next slide, please. Medium to long-term outlook here, similar chart to what we shared at the Capital Markets Day. No real change here. We are reiterating maintaining our goals communicated at the Capital Markets Day for 2026, 3 billion SEC of net revenues and 1 billion SEC of adjusted EBITDA targets. We are continuing to take steps to building our mid-market publishing business with core franchises, focused product pipeline, Mac Warrior 5 plans in 2024, CodeLiners New Game in 2025, H1Z1 targeted for 2026, and we're exploring additional mid-market publishing opportunities for 2026 and beyond, including some of the special situations that we're starting to see. Given our solid foundation, rather than having to spend a lot of energy restructuring and trying to survive, uh like some of our peers fortunately were able to focus on executing against their business plan without distraction now we will go into some detailed financial update uh frederick please next thank you next slide please

Yes so the net revenue in Q4 was 473 million corresponding to a decline of 15% with an EBITDA margin of 21 but the full year net revenue amounted to 2 billion 45 million corresponding to a growth of 10% driven by operational performance The full year adjusted EBITDA came in at 542 million, with a strong margin of 27%. This means, which GE pointed out, that we EBITDA wise came in within the upper span of our full year guidance, looking at EBITDA, despite lower than guided for net revenue. Our live games portfolio representing a more sustainable part of our business generated 273 million, corresponding to 57% of the total in the fourth quarter and 1.3 billion for the full year, which is 64% of the total in 2023. Maybe also worth pointing out is that we have generated a positive net profit for the first time since the transformation period started. Next slide, please. DABIC is the largest contributor to regroup net revenue and the largest contributor to our more predictable revenue base, generating 182 million in net revenue and 29 million in adjusted EBITDA, which correspond to a soft adjusted EBITDA margin of 16%. My Singing Monsters continue to perform well While gamers activity peaked in December last year, we continue to see levels above the pre-peak performance. And Big Blue Bubble contributed with 86 million in net revenue and 49 million in adjusted EBITDA, which correspond to 57% adjusted EBITDA margin. Next slide, please. So this slide visualized further how Meisingen Monster have been performing with a peaking activity in December 22 and the slowdown to level still way over the pre-peak levels. And we will need another couple of quarters to determine the new normalized level for the game. Next slide, please. Piranha continues to successfully release new relevant content to the MechWarrior franchise. Piranha contributed with a net revenue of 30 million and adjusted EBTA of 11, which correspond to 37% adjusted EBTA margin. Toadman's net revenue came in at 19, which correspond to over 200% growth year over year. And just that EBITDA came in at minus 5 million. So Toedman continues to ramp up its work for hire business and is getting closer to profitability, even in this continued transition to work for hire phase with reduced capitalized R&D levels. Next slide, please. As shown in this chart and also pointed out several times, both these companies are fairly volatile. Fireshine had a solid quarter with a strong sales from the back catalog. The company generated 107 million in net revenue and 11 million in adjusted EBITDA. And the back catalog is attached with generally lower margin. And the adjusted EBITDA margin was 11% in Fireshine. And despite being a softer year, Petrol had several successful campaigns in the quarter. and generated 50 million in net revenue with stable profitability next slide please the cash box has constantly increased up to 481 million over each consecutive quarter the past year and this is achieved by improved operational cash flow and despite investing 170 million in new growth initiatives those that we highlighted in the capital markets day according to our updated forecast we expect to invest another 200 million in those initiatives in 2024. and to look at the further details you can go to page 11 in the report where all those investments are listed and with the sale of a non-core ip in q1 2024 we further strengthened our cash position with 5.9 million us dollar in q4 the operational cash flow was 101 million And the cash flow was negatively affected by 63 million of investment activities, of which 41 refers to Cold Iron publishing deal. And 4.6 refers to various publishing deals in Fireshine. And 21.9 million is related to capitalized development expenses and mainly the Piranhas project, the Clans project that they have. In first half of 24, EG7 will execute its first ever dividend distributing 45 öre per share, which correspond in total to 39.9 million. All in all, the balance sheet remains solid. Next slide, please. The net revenue in 2023 amounted to 2 billion 45 million, corresponding to an increase of 10% driven by organic performance. The full year adjusted EBITDA came in at 542 million, corresponding to a strong 27% margin, despite 72 million lower capitalized R&D than a comparable figure last year. As Yi already mentioned, the market declined in 2022 and remained challenging over 2023. In light of that, the 10% growth is a market gain. Between 2023 and 2026, the market is expected to grow around 3% per year. Meanwhile, according to our targets, EG7 is expected to deliver 16% CAGR up to a net revenue of 3 billion and 1 billion in EBITDA in 2026. So we anticipate to continue to gain market shares even if 2024 which started with several industry layoffs is for us expected to be a transition year with 1.8 billion in net revenue and margins around 22 to 25%. And that concludes my part. So over to you again, G. Thanks, Fredrik.