Enad Global 7 AB (publ)

to EG7 second quarter earnings release. My name is Fredrik Rydén, Deputy CEO and CFO. And with me, I have the company CEO, Ji Ham. We will start this session with a presentation and end it with a Q&A. And I hand it over to you, Ji. Thanks, Fredrik.

Thank you all. Good morning for joining us. We'll start with the key performance figures. Next slide, please. For the second quarter, net revenues came in at 379 million SEC with adjusted EBITDA of 38 million. Performance improved year over year. Net revenue grew by 7.4%. Currency movement has impacted our result pretty significantly this year. Without the FX effect, net revenue grew by 17.2%, and organic growth came in at 6.7% when you exclude FX as well as the contribution from Talia. Adjusted EBITDA grew by 12% year-over-year, and margin came in around 10%, a small increase from last year. Next slide, please. Paleo release was the main highlight for the period. A successful release on PlayStation 5 and Xbox on May 13 contributed 38 million SEC of net revenue for the second quarter, and that represents around 200% increase quarter to quarter. All the major KPIs saw significant increases, live-to-date downloads of over 8 million. and 215,000 peak daily active users representing more than three times the level before release, and 1.2 million peak monthly active users. For July, average daily revenue came in at three times the 30-day average before the update. The team has an exciting roadmap ahead with continuing build of the momentum for the game. We have Animal Husbandry feature releasing shortly in September, multiplayer co-op housing feature targeted for the first half of 2026. Content update will also see a more robust update going forward. Currently, monthly updates are going out, but we will be including larger quarterly content as well, which will reflect the seasonal changes. And just as we just released the Elderwood content update together with the console release, we intend to have big annual expansions during spring summertime going forward. And with the right approach and execution, we are very excited that we have an opportunity here to be able to establish Palia as one of the leading cozy games globally. So far, Palia has attracted over 8 million users. And we have some big titles in the genre with Animal Crossing New Horizons, a cozy game from Nintendo, which sold over 48 million units just on the Nintendo Switch. And you have Stardew Valley, a multi-platform indie title that has sold over 41 million copies. And then The Sims 4 from EA, which had over 85 million players live to date as of last year, which is likely higher now. So based on the player base of these titles, this illustrates the overall market potential for the genre and combining Paleo's quality gameplay with the unique differentiation that Paleo brings, which is the it's the only large scale multiplayer online cozy game in the marketplace. And our aspiration is to be able to take Paleo out and then establish it as one of the biggest and the best in the genre going forward. Next slide, please. Additional updates for the period. We have Piranha successfully releasing its first DLC for MechWarrior 5 plans. Performance was good in line with expectations. Early trends are on target compared to prior DLCs for MechWarrior 5 Mercenaries. Next up is the DLC 7 for Mercenaries coming up in September and future plans for additional DLCs for both clans as was Mercenaries will be announced thereafter. Cold Iron Project. Project is making good progress, steady, positive progress. It's in the final stages of development and subject to progress. We're aiming to share official announcement around the timing of the release in the near future. On the strategic M&A front, we're continuing to see a flow of special situation opportunities in the marketplace. To date, we have evaluated several, but passed on most of them. Interesting opportunities, but we haven't liked the balance of risk and reward profile for most. And current marketplace, when you look at the climate, it's a tale of haves and have nots. So at the very top of the markets, when there's headlines relating to the biggest guys, they are showing good performance and they're doing very well, benefiting from their established franchises. But when you look at the mid to lower end of the market, the market remains quite challenging. Still too much supply and volume. And currently there's just not enough capital availability to fund a lot of these games to completion. As a result, we do expect additional rationalization in the marketplace, especially in the mid to lower end of the market over the near term. And EG7 as a group, we feel like we have a good position currently to be able to target opportunities as they come up, given our solid financial standing as the market continues to rationalize over the coming quarters. Next slide, please.

Over to you, Fredrik. Thank you, Ji. Next slide, please. Net revenue in the quarter was 379 million, up from 353 in the comparable figure last year, representing 70% FX-neutral organic growth. Adjusted EBITDA was 37 million, which gave a 10% adjusted EBITDA margin. LTM net revenue over the past year shows steady improvement and reached 1 billion, 830 million, 13 million, sorry, representing growth over the past four consecutive quarters. The LTM margins are stable and the adjusted EBITDA margin was 19%, which is what we've had over the past five quarters on average. Next slide, please. We have a foundation of more predictable revenues and cash flows. More predictable revenues comes from the live service and back catalog titles. Net revenue from this portfolio was 290 million. corresponding to 77% of the net revenue for the group. And over the last 12 months, net revenue amounted to 1,813,000,000, of which 1,276,000,000 derives from this portfolio. The portion of revenue has been stable at 70 to 74% in the past five quarters. Next slide, please. Both Daybreak and Bibliobubble are negatively impacted by currency fluctuations. If adjusting for it, they would both show an increase from Q1. I will get back to this later in the presentation. So Daybreak is the largest contributor to the net revenue, generating 190 million. The adjusted EBITDA came in at 2 million, corresponding to a low 1% EBITDA margin. The lower margin was primarily driven by 37 million additional cost of the capitalization from acquired entity of which 10.5 million was marketing expenses in conjunction to the release of elderwood expansion. Singularity VI capitalized a significant part of their cost up to the release date of elderwood. We expect capitalization to increase in the preparation of the next major upgrade for Palia. Second quarter included the full eastern campaign for Big Blue Bubble, who generated 61 million in net revenue and contributed 25 million to the adjusted EBITDA, corresponding to 41% adjusted EBITDA margin. Next slide, please. Piranha delivered a net revenue of 23 million with an adjusted EBITDA at 13 million, corresponding to 55% margin. The executed cost savings measures had a positive effect on margin. Meanwhile, net revenue was helped by the successful release of the first DLC for clones, which came out May 8. The winding down of Todman was completed according to plans in the beginning of the third quarter. Next slide, please. The strong release pipeline for Fireshine in the first quarter was followed by a fairly slow second quarter. Net revenue in Fireshine was 74 million and adjusted EVTA was 3 million. Petrol has been profitable following the business optimization efforts executed in the beginning of the year. Petrol generated 30 million in net revenue with a 3% adjusted EBITDA margin. Next slide, please. We have experienced some strong currency fluctuations in the second quarter. and they totally amounted to 36 and a half million mainly hitting daybreak and big blue bubble and what I would like to highlight here is that we consolidate on accumulated figures which means that we will see a revaluation effect on previous quarters to be recognized in the most recent quarter So what we see in 2025 is that we have a positive FX effect in Q1 of six that will then be revalued in Q2 to 36.5 million. So for the full period, the first six months, the effect is 30 million negative. But the effect is stronger in Q2. That is what I'm trying to show here. Next slide, please. After issuing a 350 million unsecured bond in Q1, we started the quarter with a strong 579 million opening cash balance. The working capital movement has so far for the year, and for several different reasons, been negative. We expect this to balance out over time. During 2024, our investment in what we call new growth initiatives, clones and paleo, and Cold Iron peaked at 238 million. And now we invested 49 million in Palia and Cold Iron, who are the two remaining projects here. And second quarter ended with a cash of 455 million and a net cash position of 102 million. And then I hand it over back to you, Jim. Thanks very much.

Next slide, please. Next slide. Okay. So in summary, a good quarter, stable one. Solid net revenue growth of 7% year-over-year. Adjusting for FX once again would have been a nicer growth of 17%. Paleo released on PlayStation 5 and Xbox was a nice success, and we have more to come on that front going forward, and we're excited for that. First DLC for MechWarrior 5 plans was also a nice outcome there. Our position is very good. So solid cash flow continues to be one of our strengths with our live service games. Our operations have been optimized to a point of nice lean operations and a strong liquidity position, all of which provide us with a great position to execute against our strategy. And we are patiently seeking growth opportunities. There's good volume of potential M&A deals. out there and we're being patient and disciplined. We do want to make sure that we find opportunities that fit and align well with what we're trying to accomplish strategically and provide compelling upside for the group going forward. So that concludes our second quarter earnings presentation and now we will move to Q&A.

Thank you, Ji. So I'll try to coordinate this as I get some questions along the way here. I can start with one question from Karu Karadzicki. Could you elaborate a bit on the types of targets you have evaluated recently?

Yeah. Can't get into too much specifics, but in terms of the type of situations that we are encountering, we could talk about. So they're not that dissimilar from what we've done with Singularity VI. So there's been a significant amount of capital that's been invested into the middle to lower end of the market over the last number of years. in quality games, great teams. But because of the dearth of capital in the marketplace, given where the industry has been, there are certain studios that have great products that just do not have enough capital to get to the finish line. But they're almost there. So being able to evaluate opportunities where we can see, touch, feel, play and be able to underwrite the risk of these titles based on actually getting our hands on it, especially ones that are closer to the finish line, has been highly valuable. But nonetheless, whether it's because it's an original IP or we may not like the genre that some of these games are in, even though they're quality products and quality teams, we haven't found the right fit as to what to invest in yet. But we're seeing a number of these opportunities, and those are one pocket. Another pocket is there are also ones looking for liquidity where they do have an existing title, existing business, but they're looking for opportunity to exit. And then we're looking at this range of opportunities that fit with our strategy. And we are optimistic that there will be an opportunity for us to grow with M&A. But for now, over the last number of quarters, we haven't pulled the trigger yet.

Thank you, Jim. So I have some questions from Jalimar at Redeye here. How has the revenue from Pelia trended after the release?

Yeah, I mean, it's not... Okay, sorry. So the second part was the trend after? Yeah. Okay. Yeah, so I mean, it's not that dissimilar from what you would expect from any type of games released. So we saw a huge spike initially when the game went out on PlayStation, Xbox, as well as reactivation of a lot of players on the existing platforms. And along with the significant content update, we saw a lot of players come back, re-engage, spend a lot of time playing. And we're also able to generate significant revenues from that. But because this is a live service game, you will see spikes and then the number will decline somewhat. And the idea is that we continue to provide content to keep players engaged and also to reactivate and attract new players. So trend will be big spike, slow decline. And our goal is to be able to sequence content updates, compelling updates in terms of what the players may enjoy so that we continue to build. So the spike, slight decline, spike, slight decline, etc. So that over time we continue to build that foundation of our user base to be able to sustain a long-term success here. And we do look at Palia as a type of game that we can establish that long-term success life service game, similar to a number of our portfolio games that have sustained for a very long time.

There is a follow-up on that also, which I think you didn't cover, also from Hjalmar. How is monetization on Palia now and what is the potential? What will drive revenue growth, more players or high monetization?

Yeah, it's a combination of both. So, you know, the key driver is the player base, but alongside that continuing improvement on pair conversion, it's a free to play game, right? So in terms of all the players that are playing one of the efforts that that we are prioritizing is increasing the conversion rate for those that are enjoying the game. And alongside that, ultimately being able to increase average revenue per paying user, all of which would translate to increasing average revenue per user if we are successful with a number of the features that we're rolling out. So there's a pretty robust plan around that. So combination of both user acquisition, retention, and improving the conversion and average revenue per paying user. All of those metrics are what we're targeting.

And then we have a question that also came from Rasmus at Chevreux and also from Hjalmar at Vendai. And I'm not sure if we can answer this, but how substantial is the impact on Everquest from this copy that are out there?

Yeah. you know, because given that it's a live, you know, litigation, there's not a lot of commentary that we could provide on that currently. But it's, as we stated in our report, that EverQuest is trending below our target for the year as a result of the hero's journey situation. So we are going through our legal proceeding. The latest was that we just had a court hearing on August 12th, and we expect to hear back from the court with the decision relating to the preliminary injunction, which is what we filed for over the next four to six weeks. Thank you.

What is the reason for the positive tax uh and i can take that one so we have a 15.4 million related to deferred tax assets from the acquisition of singularity six uh that was recognized in the income statement in q3 and this derives from write downs on capitalized r d from before Singularity 6 was part of EG7 and based on the strong performance we could recognize that now in the second quarter let me see Do you expect Big Blue Bubble, this is a question from Hjalmar, do you expect Big Blue Bubble to see higher profitability going forward assuming no changes in currency rates?

Yeah, so their second quarter results came in a little below our expectations, a little lighter on the user engagement side. But we're looking forward to their, typically third quarter is one of their best quarters along with their anniversary celebration. So BigBlueBubble has great content and a campaign plan with that, and we expect that we should see it. influx of additional players coming back. And a lot of the metrics that we care about in terms of our pool conversion rate, et cetera, are sustaining as they've been. So we do expect them to rebound and get to a better profitability for the second half of the year.

And then we got this question also. What explains the low margins in the quarter and what shall we expect from it going forward?

Yeah, I think the biggest reason for the lower margin, especially on the daybreak side, is related to the marketing spend for Palia as well as the revenue recognition timing. So we had 10 million sec of marketing spent along with the launch that we recognized immediately along with that spend in the second quarter. And then alongside that, there's a little bit of a mismatch in that live service games when you generate revenues. With content release, you don't recognize them immediately, you recognize them over time. So that mismatch is creating a lower profitability for this particular quarter. But there will be higher profitability, especially with marketing spend going down, and also the revenue recognition over time. As that gets trued up, we expect the margin to improve.

All right. Then we have a question with regards to what's the difference between EBITDA and EBIT? And the difference is 74 million in total, of which acquisition related amortizations is 30 million. It mainly derives from daybreak and paleo, where it's write downs on software and customer base, I think it is. And then we have amortization of capitalized R&D and publishing rights, which is almost the same size. And then some smaller items like financial leasing and depreciation of tangible assets. Here is one question. You have had 12 million in restructuring cost in this quarter. What shall we expect from restructuring going forward?

Yeah, I think we're largely finished with a lot of the optimization, you know, along with Toadman and Petro beginning part of this year. We don't really expect anything going forward. We feel very good about where we are as an organization, and I think we're able to scale from here in terms of the business that we're managing, but as to the level of cost and how we're currently organized, we feel very good about this level and we don't really expect additional optimization or restructures going forward.

We have received the question from several different with regards to the release date of the cold iron and the question is if it's reasonable to assume that it will be in 2025 or if it will be delayed.

Yeah, it is something that we are actively evaluating and I think the key thing for us is that it's a an important title for EG7 as a group. And we want to make sure that the product that we bring to market ultimately is something that drives significant positive return for the shareholders. So we're very mindful and prioritizing the quality and also making sure that the timing is right. The timing, we're working closely with the IP franchise ownership as well as Cold Iron and also on the publishing side, on our side to coordinate and align around the right timing that provides the game with the best chance for success. So this is real time, something that we're actively working to determine. We of course want to say more and we want to be able to announce the title sooner rather than later. But at the end of the day, the most important thing that we're focused on is quality and ultimately maximizing the upside potential with the product. I think recent examples that we've seen in the marketplace Killing Floor 3 is a great example from Tripwire, where I think there was significant expectation for that game to do well, but ultimately the quality wasn't quite where it needed to be. It underperformed pretty significantly. We do not want situations like that as we want to avoid, obviously, those situations as much as we can. And also the other example that we have is picking our release timeline based on trying to satisfy a, let's say, earnings target. And we did that in the past. I think Mac Warrior 5 plans last year, last October's release, Probably would have been the worst time to release it nine days before Call of Duty came out. But part of that reason was because we made a commitment to delivering against certain earnings and we needed or we wanted to make sure that we deliver against that. But not optimal. That's not the best time to be releasing a mid-sized game against a AAA game with Hundreds of millions of dollars of marketing stand behind it, and those are the type of consideration that we're thinking through as an organization to make sure that the product that we release is something that the shareholders, the players, that everyone could be very happy about the quality and ultimately that that's what determines the performance for the game. so more to come on that front once again we are eager to share more but at this stage uh you know in real time we're determining that and as soon as we have information that we can share we'll be back with that information thank you ji i think that concludes our q a session

And if anyone has any further questions, you can forward that to the investor relation email address and we will answer them after that. So thank you everyone for listening and have a good day. Thank you.