Enad Global 7 AB (publ)

Good morning and welcome to this Q1 earnings call with EG7. My name is Ludwig Andersson, I will be your moderator during this call. Together with me to present, we have the company's acting CEO, G Humm and Deputy CEO and CFO, Fredrik Rudem. After presentation, we will have a short Q&A session, so please feel free to e-mail your questions to the company's Investor Relations e-mail. But now without any further ado, over to you, G.

Thanks, Ludwig. Good morning, everyone. Thank you for joining us. Let us begin the presentation. Next slide, please. Here we have our key performance figures for Q1. Net revenue came in at 382 million SAC, adjusted EBITDA of 62 million SAC, and we ended the quarter with solid cash position of 467 million SAC. Q1 was a relatively quiet quarter for us. We had no major content or product releases planned. Also, no major MySinging Monsters boost in our figures this quarter. Compared to Q1 2023, net revenue was lower by 33 percent. Adjusted EBITDA margin came in at 16 percent this quarter, representing a variance of 17 percent year over year. MSM settling down at a lower level was the main difference, contributing to nearly 80 percent of the variance for both net revenue and adjusted EBITDA margin. Secondly, Parana's latest DLC came out two months later this quarter, contributing to 16 percent of the variance in net revenues and 19 percent in adjusted EBITDA margin. Soft results for our service business units made up the remaining difference. Year over year comparison for the group is not always going to be straightforward. Our product release timing has variability quarter to quarter, as well as year over year. As a result, aligning quarters for comparison is not always going to be appropriate. There will be peaks and valleys in our results along the way, subject to content and product pipeline, as illustrated in this quarter. We are aiming to get to the scale where we can smooth out our performance, but not there today, and it's going to

take some time. Next slide,

please. Here we have our adjusted EBITDA contribution by business unit. Units in the gaming segment performed as expected. Big Blue Bubble contributed 38 million SAC, a large variance from 133 million SAC delivered last year, but should be no surprise as it came down from its viral peak. Daybreak continues to perform consistently, contributing 42 million SAC, and Parana delivered 3 million SAC. Lower results this year, once again, due to the difference in timing of its DLC release. Service units are facing some challenges. The market's been very tough. Toadman and Petrol, both highly dependent on third-party business, were impacted the most and generated losses for the period. Fireshine was essentially break even. Physical distribution also under pressure, but then benefit from its back catalog, as well as in the publishing business, which is ramping in the right direction. Based on the software numbers for the service businesses, and also the potential risk for longer-term market weakness, we have made some adjustments to our business. Costs were reduced at Toadman and Petrol, headcount reduction by 45. This will result in approximately 35 million SAC of annual savings. And the market volatility remains, and it's not clear how long it's going to sustain. So we will stay proactive in managing our risk and profitability, continue to evaluate trends, and adjust more as needed. Next slide, please. My Singing Monster has largely settled around a new solid level. The chart on the left shows the MAU trends from January 2021 through March 2024. December 22 was the peak MAU at 2.6 million players at the height of its virality. As of March 2024, the game had around 1.1 million MAU, still more than double 2021 levels of less than half a million MAU. The chart on the right compares Q1 net revenue for 2022, 2023, and 2024. Q1, 23 was the all-time peak with 218 million SAC of net revenue. Q1, 2024 came in at 69 million SAC. This current level is more than 2.5 times Q1, 22 level, which is nice. And based on the current trend, we expect MSM to stabilize around this nice level going forward. Next slide, please. Here we have our notable content release schedule for the year. We're still on track for our full-year 2024 target. We want to emphasize that the first quarter results should not be seen as the indication for our full year. Our content schedule is more back-loaded this year. My MechWarrior 5 plans our biggest product for 2024. It's releasing around Q4. The table here highlights our notable content and products for the year. Releases are categorized into small, medium, or large based on the overall size of revenue expectations. As shown, Q1 was fairly light with smaller content drops. The volume picks up with a couple medium-sized content updates in Q2 and Q3 for our live service games. The MechWarrior 5 plans is slated for release towards Q4. Plans is expected to be the largest revenue contributor for the year. Based on our current plan, Q2, Q3 results are expected to be steady with Q4 results seeing a meaningful uptick with plans released. And the key takeaway here is that our performance won't be linear quarter to quarter. Typically, we do show more seasonal upside in Q4, but this year we expect it to be more amplified with plans coming out in Q4, resulting in heavier back-load to our overall output for the year in terms of revenue and profitability.

Next slide, please. We are in a transition period. Our

position today is solid, excess liquidity, steady cash flows, and no credit risk. The market conditions are challenging, but we are operating with no real concerns. We have a solid foundation. We get to focus on our long-term plans without much distractions at this time. As for where we're headed, we communicated our strategy and long-term plan last September. We remain confident in our plan, and we aim to deliver 3 billion SEC of net revenues and 1 billion SEC in adjusted yield at 2016. It's going to take a few quarters to get there. During this transition time, we expect to maintain continuing profitability and cash flows. We're going to have new product releases also to increase our performance. But until we get to scale, there will be continuing variability. Our results are dependent on the timing of content releases, looking at our business with a short three-month window. Those are not the best snapshot of our business at this time. More relevant would be a broader or longer time horizon, maybe 12-month window that allows to look at a broader pipeline of products that we're releasing until we get to scale. Our plan ultimately is to get to that nice level of predictability and smooth out the performance, but this will take some time. So until then, there could be variability quarter to quarter, and you're over here, subject to our product release timing.

Next slide, please. Thank you, Yi. Next

slide, please. So the net revenue in Q1 was 382 million, corresponding to a decline of 33% with an everyday margin of 16. The decline from last year is mainly explained by the well-communicated expected decline in activity in the game, Micing and Monsters, which contributed with 69 million in net revenue, a reduction by 149 million from the 218 reported for in Q1-23. Given that Bibliobabel had a 61% margin in Q1 last year, this drop also largely explained the low margin for the quarter. And as Yi pointed out, in addition to the decline in activity in Micing and Monsters, product release timing and the ongoing industry weakness also impacted our results adversely. Over the last 12 months, net revenue amounted to ,000,000 with an everyday margin at 22%. This mapped fairly well to our full year 24 guidance. Our more predictable part of our business, including our live game revenue, generated 271 million, corresponding to 71% of the total net revenue in Q1. This has been above 50% of net revenue in the past two years and a quarter. Next slide, please. Dayberg is the largest contributor to the group net revenue and the largest contributor to our more predictable revenue base, generating 188 million in net revenue and 42 million in adjusted EBTA. This corresponds to an adjusted EBTA margin of 22%. As already said, Bibliobabel contributed with 69 million and 38 million in adjusted EBTA. Corresponding to 56% adjusted EBTA margin. Next slide, please. Piranha continues to release new relevant content to the McWhorrier franchise. From start of Q2, this business is focusing in delivering McWhorrier clients later this year. Piranha contributed with a net revenue of 21 and adjusted EBTA of 3 million, corresponding to a low 16% adjusted EBTA margin. Toedman's net revenue came in at 17, which is a growth from 6 last year, corresponding to a strong growth year over year. But despite the growth and due to the continued industry challenges, several of the expected new work for hire contracts for Toedman have either been terminated or postponed. And as he said in conjunction to this restructuring program with ambition to reach profitability was initiated in April. Given this, the adjusted EBTA came in at minus 6. Next slide, please. As shown in this chart and also pointed out several times, both these companies are fairly volatile. Fichine's pipeline remains solid over the next coming 12 months, but will vary between quarters due to scheduled release dates. The company generated 46 million in net revenue with a small positive adjusted EBTA. The quarter was rather driven by back catalog sales instead of new releases, and this is a trend that will continue into the second quarter. Petrol is highly dependent on third parties' game releases, which is negatively impacted by today's game industry challenges. Due to that and due to our expectations on the future, management has initiated a restructuring program with an aim to get back to a more sustainable situation for the company. Petrol generated 40 million in net revenue and a loss of 6 million. Next slide, please. Our financial health remains strong with ample liquidity, strong balance sheet, and an underlying portfolio that continues to generate predictable cash flows. This gives that we can execute on our long-term plans with limited dependencies on third parties. The cash box by end of the first quarter was 467 million, and that's close to the same as starting the quarter. The cash flow is now 45 million due to an accrued tax payment in Canada following the strong year of Big Blue Bubble. Adjusted for that, the operating cash flow is 55 million, meaning that the business has a strong cash generation. The first quarter's cash flow includes operational investments amounted to 54 million, and they consist of 20 million for Daybreak's Gold Iron project, 90 million for McWhorio Clans, 50 million for FireShine Publishing activity. And the investing activity row, as you can see here, is positive by seven. And the explanation to that is that it includes 61 million of sale of this non-core IP that we did in Q1, which balancing out the Canadian tax payment. We have also paid the first dividend of 20 million to the shareholders, and the next dividend will be paid in Q2. Next slide, please. The net revenue of the last 12 months amounted to ,000,000, corresponding to a decrease of 9%, driven by the decline in Micing and Monster, which now likely is getting closer to its new normal level. The last 12 months adjusted with the A came in at 414 million, corresponding to a margin of 22%. The 9,500 game industry layoffs in Q1 is close to the full year 23 figure, which indicate that the game industry continues to transform during the year. At the same time, the market is expected to grow 3% to CAGR up to 26%. We have, over the past couple of years, prepared our business to be operated more conservatively and sound. We have also initiated a few new growth initiatives that we monitor and evaluate closely. We see great potential in them and believe they will contribute strongly to our anticipated 16% CAGR growth up to 26%. Our financial health remains strong with solid liquidity, strong balance sheet, and an underlying portfolio that continues to generate predictable Our financial strength allows us to continue focus and executing against our targets of 3 billion in net revenue and 1 billion in adjusted EBITDA in 26. Over to you Yi.

Thanks, Fredrik. Next slide, please. Next slide.

Okay, so in summary, Q1 was a quiet quarter for us in terms of content release, our results reflected this. My Singing Monster's big boost from last year also has calmed down as expected. And the gaming market downturn has impacted our service business units as it's impacting many other peers throughout the industry. However, we feel very confident about our outlook for the year. It's still intact. Q1's quieter performance is not indicative for the full year. Several of our major content updates and MechWarrior 5 plans is coming out later this year. While market challenges pose some risks, especially for our service units, we do have confidence in our ability to deliver against our guidance. In conclusion, we are in a nice and stable position. We have a solid foundation with ample liquidity, stable cash flows, no real concerns for the group as it relates to the market situation. This allows us to continue focusing and executing against our long-term plan and strategy. So that's the conclusion of the presentation and we'll now transition to a Q&A session.

Thank you very much, Jean Frederick. First question here from Jan Söderström among a few others. Any update on the uplisting process?

Frederick, you want to take that one?

Not really. We are continuing according to plan and what we communicated is that we aim to uplist during 2024 and that we see no risk that we will not be able to do that.

Thank you very much. A question from Hjalmar at Redeye. Can you please elaborate and share some light on the full year guidance and the margin?

Yes, so we are guidance for the year 128 billion of net revenues and the 22 to 25 percent target adjusted even the margin. So we continue to strive towards that based on how we're performing. First quarter was a little bit softer but overall conservative forecasting as we put our guidance out and as to how we're progressing, we still expect to be able to meet those targets.

Thank you very much. Any risk of for delays in MacWarrior 5 Clans release? How is the competition looking from other game releases in the same period?

Yeah, I mean timing-wise we like the window that we are targeting. It's a very unique title. It's obviously a branded title with MacWarrior IP. It's a -a-kind and the quality and the progress the team has been making at Piranha we're very happy about. So we do expect the game to perform quite well and in terms of our overall expectations for unit sales, it's in line with how the prior game performed over its lifetime.

Thank you very much. Regarding H1Z1 moving into full production, who will work on the development and the budget? Can you please elaborate on that?

Yeah, the budget it's something that we communicated during the capital markets day. So it's within that middle market AA range which we communicated as between 20 and 30, so average of 25. You know of course as we go into more planning we'll have additional details regarding what the overall budget could be. I will say it's a little too early for that given where we are. So for now I think the estimation around 25 million US development budget is a reasonable estimate.

Thank you very much. Can you share some more on the how the game is moving into full production and who will work on the development of the game as well?

Yeah, I mean it's not quite at full production yet. It's still through pre-production. There's a talented lead designer for the project with significant experience on survival genre etc. We do have to ramp around the team but at the same time we're still at that stage of still planning around the overall concept and what we want to ultimately produce. So it's going to take a little more time but it's going to be a combination of daybreak staff with external help that we may be able to bring on.

Thank you very much. Can you please share some more light on the cost savings in Toadman and Petrol?

Yeah, it's headcount reduction. So Toadman headcount reduction was the majority of the overall reduction in that 45 person headcount. Petrol did pull back slightly as well but overall the estimated annual saving from 45 people being reduced is about 35 million sec that we expect to save on a full year annualized basis and we should be able to start realizing that savings from second half fully of this year.

Thank you very much. I think that was all the questions that we received. So thank you very much G and Fredrik for the presentation and thank you to everyone who tuned in. We wish you a great day. Thank you very much.

Great, thank you. Thank you all.