Enad Global 7 AB (publ)

Good morning, and welcome to this Q2 earnings call with EG7. My name is Ludvig Andersson, and I will be your moderator during this call. Together with me to present, we have the company's CEO, Yi Han, and Deputy CEO and CFO, Fredrik Ruden. After the presentation, we will 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.

Great. Thank you, Ludvig. Thank you all for joining us this morning. We'll begin with our key performance figure review. Please, next slide. For the second quarter, net revenues came in at 353 million SEC, adjusted EBITDA of 33 million SEC, and end-of-period cash balance was 317 million SEC. This quarter was relatively quiet. As communicated before, most of our major product releases are coming in in the second half. First half results are reflective of this. We expect significant pickup in revenue starting in late Q3 into Q4. Based on our second app plans, we are still expecting to deliver against our guidance for the year. Other notable events included for the period, the acquisition of Singularity 6 right after the quarter's end, additional cost optimization efforts, which is expected to reduce costs by around $100 million on an annual basis going forward, and successfully uplisting onto NASDAQ main list. Next slide, please. For Q2 adjusted EBITDA contribution, Big Blue Bubble was the biggest contributor to our profits this quarter. Big Blue Bubble contributed 37.3 million SEC in adjusted EBITDA. We can now say that My Singing Monsters has stabilized at these levels. While it is lower than the peak levels last year, it's still nearly three times greater than 2021 level, which is a nice outcome. Daybreak was the second biggest contributor with 12.3 million SEC in adjusted EBITDA. Margin for Daybreak was a little bit lower than usual. The main reason driving this was the revenue deferrals. Larger revenue uptick happened near the end of the second quarter, which was deferred into Q3 based on the revenue recognition accounting. Piranha has been also doing well, steadily performing, contributing 7.9 million SEC in adjusted EBITDA for the period. Netwarrior 5 sales performing nicely, benefiting from the publicity surrounding the upcoming title. Now on the service side, it has been more challenging. Toadman and Petrel continue to be under pressure. Toadman has not been able to ramp their work for hire business. resulting in adjusted EBITDA loss of 8.5 million SEC for the quarter. Marketing spend is also down for the industry overall, impacting petrol negatively, resulting in adjusted EBITDA loss of half a million SEC for the period. On the other hand, Fireshine has been performing to plan. Second quarter result was negative 1.8 million of adjusted EBITDA. However, this was due to the timing of their product releases. Majority of Fireshine's releases happening in the second half, where we expect a nice pickup in performance. Based on the continuing challenges faced by the service business units, we have undertaken additional cost-cutting measures. Total man staffing is being reduced by around 100, including both full-time employees as well as contract resources. This is expected to generate approximately $63 million of annual savings going forward. Overall for the group, the annual savings are expected to be over 100 million sec from cost cuts year to date, including the latest reductions. Next slide, please. A highlight for the group recently was the acquisition of Singularity 6. Singularity 6 is a studio behind the game called Paleo, a multiplayer online cozy community simulation game. Singularity 6 is based in LA and led by former senior development leaders from Riot Games, The studio is comprised of highly talented game developers with a ton of AAA experience, currently around 40 people. They were formerly backed by some of the leading PC funds from the Silicon Valley. With their investment, Singularity 6 was able to successfully bring Paleo to market in open beta last fall. We're very excited to take on the project here on out and help bring the game to PlayStation 5 and Xbox next year to expand and grow the community further. Since its initial open beta release, Palia has attracted approximately 5 million players to date. Monthly active user base is currently around 650,000. The game has successfully built a nice and strong, passionate community and currently has a very positive rating on Steam. And we're very excited to take this on. Next slide, please. Now for the investment rationale and the highlights for the transaction. We believe the product has a nice upside potential. The game has a huge following already and dedicated community. Currently on only PC and Nintendo Switch, with releases on PlayStation and Xbox planned, we expect the audience to expand further and increasing revenues. Cozy community simulation games are also a genre with a huge fan base. Animal Crossing New Horizons from Nintendo sold over 45 million units. Stardew Valley has sold over 30 million units. With this large addressable market, Pellia has a great opportunity for success there. Singularity 6 is also comprised of highly talented and experienced leadership and the team. They're committed to delivering on the vision for Pellia long-term. It's still in open data and the job's not completed yet, and the team is aiming to achieve great success with the product and highly motivated to do so. Pellia is an excellent fit with our strategy and expertise. It's a live service game. With a long tail revenue potential going forward, Daybreak has over 25 years of history in live service games. By leveraging our knowledge and expertise, we're very excited to partner with Singularity Six's team to grow Palia into one of the leading games of the genre. Overall, we like the risk-reward balance here, relatively low risk. with the game already in open data, with a ton of data available to evaluate and to make informed decisions going forward. We're taking on a project closer to the finish line, which always minimizes the development risk. And there's a clear path to growth with a wider distribution plan for PlayStation and Xbox in 2025. Lastly, this type of transaction is what we're good at. Our prior successful examples include Sony Online Entertainment Daybreak deal. turbine standing stone deal, cold iron acquisition, magic online deal, all of which have been very successful outcomes. All in all, a great transaction for the group, and we're very excited about this. Next slide, please. As for the summary terms for the deal, Daybreak acquired 100% of Singularity VI as its wholly owned sub. The deal closed on July 2nd. Consideration was comprised of two parts, Initial cash consideration of $5 million at close and contingent consideration going forward based on 50% of net cash flows over the first five years after closing. Daybreak plans to invest up to an additional $10 million. This is to fund the development of the console release versions and marketing and publishing spend as well. Currently targeting release sometime in 2025. Our investment is fully recoupable. Daybreak gets 100% of net cash flows until our investment, including the initial purchase price, is fully recouped. Contingent consideration will be payable only after our full recoupment. Overall, we believe it's a smartly structured deal, minimizing investment risk upfront and sharing upside if successful. Next slide, please. Now over to Frederick for the financial section.

Thank you. Next slide, please. Yeah, so the net revenue in Q2 was 353 million, and the adjusted EBITDA was 33 million, representing a decline from last year and previous quarter. The main reason, as you said, for the decline is that Meisinger Monster is stabilizing at the new normal level. Biblo Bubble delivered 75 million in net revenue, a reduction by 69 million from the 144 million reported Q2 previous year. Over the last 12 months, net revenue amounted to 1,725,000,000 with EBITDA margin at 19%. Both LTM net revenue and the margins are forecasted to improve during the second half of the year due to a more active pipeline of releases. Our more predictable part of our business, including the live game portfolio generated 261 million, corresponding to 74 million of total net revenue. And this figure has been over 50% over the past two and a half years. Next slide, please. Daybreak is the largest contributor to the net revenue and the largest contributor to our more predictable revenue base, generating 167 million in net revenue and 12 million in adjusted EBITDA, which correspond to a low adjusted EBITDA margin of 7%. DC Universe and PlanetSide 2 are the two games that underperformed. Meanwhile, EverQuest is responding positively to our anniversary investments. There is also an unusually strong 30 million revenue recognition rollover effect in to Q3 due to that most update in Daybreak's portfolio came close to the end of the quarter and this is something that we normally see between Q4 and Q1 but now we see it between Q2 and Q3. Big Blue Bubble generated 75 million in net revenue and is the largest contributor to our adjusted EBITDA delivering 38 million. corresponding to a margin of 51%. Next slide, please. Piranha has been focusing on completing the Macquarie Clans for launch in October and has had limited other releases during the quarter. Piranha delivered a net revenue of 23 million and more than doubled the adjusted EBITDA from previous quarter, up to 8 million, corresponding to a strong 35% adjusted EBITDA margin. Todman has continued to struggle, and as said, management has executed some mitigating actions to help Todman to profitability. These actions will be seen during the third quarter. Next slide, please. Faishan's pipeline remains solid over the next coming quarters. The second quarter was mainly driven by the back catalog sales, similar to the first quarter. The company generated 38 million in net revenue with a small negative adjusted EBITDA. Petrol is highly dependent on third parties game releases, and they are negatively impacted by today's game indices challenges. Management has also here initiated a few actions to secure long-term profitability. Petrol generated 38 million in net revenue with a close to break-even profitability. Next slide, please. Even if Q2 was a soft quarter, we are confident that EG7 is in good shape financially and operationally. We have no external financial debt. and plenty of liquidity, strong balance sheet and an underlying portfolio that continues to generate predictable revenues. This gives us an attractive situation where we can execute on our long-term plan with limited dependencies on third parties. The cash box by end of the second quarter was 317 million. This is a reduction with 150 million during the quarter. And the reduction is mainly explained by us investing 98 million to meet our 2026 targets. management is favoring allocation of its available capital towards investments with an attractive risk reward profile and a potential to significantly contribute to the company's long-term growth and cash generation the operational cash flow is charged with a preliminary 19 million sec tax in big blue bubble based on last year's performance And subject to the performance of Big Blue Bubble, we believe that we have more or less paid the full year tax for 2024 for Big Blue Bubble already in the first half of the year. Furthermore, we pay the second dividend for the year amounting to 20 million to the shareholders in the quarter. Next slide. The net revenue. over the last 12 months was 1,725,000,000, corresponding to a decrease of 16%, mainly driven by my singing monster stabilizing on a new normal level. The last 12 months adjusted EVTA came in at 334,000,000, corresponding to a margin of 19%. Both these KPIs are expected to increase by end of the year. driven by a more active release pipeline and the cost reduction executed. So we repeat our full year guidance to reach 1.8 billion in net revenue in 2024. But based on the performance in the first half of the year and our expectations on the second half, we believe that we will end up at the lower end of the EBITDA margin range of 22 to 25 percent. We have so far this year seen 11,400 game industry layoffs, indicating continued industry transformation during the year and the remaining higher risk level in the industry. At the same time, the market is expected to grow 3% CAGR up to 2026. We have over the past couple of years prepared our business to be operated more conservatively and sound. This optimization will continue both in the quarter and in July, as we are monitoring and managing our performance closely. In addition to this, we will see the outcome of our new growth initiatives this year, even if most of it will come later. The addition of Singularity 6 gives further confidence to our strategic approach to become the a leader in the middle market publishing segment with 3 billion in net revenue and 1 billion Swedish kronor in adjusted EBITDA in 2026. So I hand it over back to you, Yi.