Modern Times Group MTG AB (publ)

Good afternoon and welcome to MTG's interim report presentation for the second quarter. My name is Lars Torstensson. I'm responsible for communication and IR here at MTG. Joining me on this call is Jörgen Martin Lindemann, our group president and CEO, and Maria Rudin, CFO of MTG as well. We will start with a formal presentation followed by a Q&A. Please keep in mind that questions are only enabled for those participating through our dial-in. Our webcast is listen-only. That concludes my introduction. Please, Jørgen, can you take us through the presentation of our quarter?

Yeah. Thank you, Lars, and a warm welcome to our second quarter resource conference call. I hope everyone on and off this call is doing okay despite continuing difficult circumstances. The corona pandemic is still heavily affecting the world and our industry. As expected, it also had a clear impact on MTG in the second quarter. I must say I continue to be very impressed with how our companies and our teams are performing under these uncertain and extraordinary circumstances. The safety of our employees, teams, fans, and partners remains a priority as the pandemic remains very real. We have, during the quarter, made relevant long-term operational adjustments in both our esport and gaming verticals, invested to move the business forward taking a broad range of other proactive actions for the long term, which includes measures to preserve financial health and investing into new opportunities. We see clear positive results from our efforts, which will make us even stronger and our products even more relevant as we eventually move towards a more normalized business environment. So let's move to the highlights of the quarter. If you go to the next slide, we delivered a record high performance in the gaming vertical, both in respect to revenues and profitability. This as we have seen more people enjoy our games and also spending more time and money on them while playing during the lockdown. InnoGames was the key driver of growth. On the back of marketing, the company saw a strong inflow of users combined with reactivations of old customers and also overall increased activity within the user base driving increased spending. It should be noted that the operational trends that peaked in April and May was more normalized as we entered into June, much because of societies opening up ahead of the summer. Our esport vertical continued to deliver on strategic objectives to professionalize the commercial part of esport by onboarding more partners to our tournaments and performed better than anticipating compared to the financial guidance for the first half of 2020 that we gave earlier this year and significantly improved losses compared to previous quarter and last year. We saw an increase of media partners in the quarter, and ESL enjoyed close to 50% increase in media revenues, growth in ESS revenue, and stronger performance from our online PLC product, supporting the operational development in the quarter. Moving from revenues to cost control, equally important, both ESL and DreamHack delivered on our own expectations in the quarter, reducing costs significantly, mostly related to events becoming online, but also reviewing the fixed cost base, taking the opportunity to review the organization set up and how we operate. Throughout the history of MGG, we have been prudent on our capital structure, so we are ready to capitalize and invest in changes in the landscape and in consumer behavior which we see these days. Therefore, it is pleasing that we have been able to maintain a very strong cash position throughout the coronavirus pandemic. To move on to esports, you can see that the revenue for the esports vertical has been negatively impacted by the pandemic. and we have quickly adapted and changed to ensure business continuity and performance and delivering on our strategic agenda. This has been done primarily by successfully converting live and physical esport events to online, making sure that the show goes on in a way that is responsible towards all our stakeholders. Sales declined by 18 percent in the first half compared to our assumption of a decline between 25 and 35 percent, with owner-operating seeing a decrease by close to 35 percent in the quarter. On the positive end was esports services that grew with 15 percent. Equally good when looking at the revenue mix was media rights that grew by almost 50 percent for ESL in the quarter, providing growing reach for the vertical. Also, our emerging B2C product showed good development. In the quarter, we made sure that esports as entertainment form continued and expanded its online presence. DreamHack was able to follow through with their master property, but not their summer festival, while ESL had a busy quarter with four master properties. The fans have been very engaged, leading to all our five master properties delivering very strong KPIs for the audience and audience engagement across the quarter. With this comes bigger reach and more commercial relevance. Overall eSport has proven in the second quarter that it is a compelling and convincing media product and not to forget one of the few sports which continue to be live when many other sports unfortunately have to come to a pause. During and following the end of the quarter we have secured several new publisher deals. DreamHack also teamed up with Epic Games to launch a new Fortnite tournament series. This tournament will be performed as an open tournament for all North American and European players with a monthly price pool of $250,000 and an aggregated price pool of $1.75 million. For esports services, several key deals have been closed. One big highlight is DreamHack's agreement with Psyonix to be the production partner for Rocket League Championship Series X. Owner-operating continues to be the biggest part of the revenue. However, our revenue pipeline is taking a hit due to many brand partners are holding back on their spending due to the impact of the pandemic we had on their business. On the positive end, we still have been able to secure new contracts, even though the scope has not been the same as under normal circumstances. Among them were a contract with Mastercard and Hockey's Bank for our UK National League of Legends Championship tournaments, with BBC Sports as a broadcasting partner. Taylor Company joined, as earlier mentioned, as sponsor for the Nordic League of Legends tournament, just to mention a few. As said, media revenues has really developed well in the quarter, On media partnerships, we have seen solid progress across the quarter with Twitch, Huya, and BBC Sport Deals as a highlight. Let us take a closer look at our B2C services that had a good development in the quarter and is an emerging revenue stream for us. If you go to the next slide. Our B2C part of the business have seen an increasing interest amongst fans to play online and participate in smaller amateur competition as a result of the pandemic. On the back of this increased momentum, we assume that the B2C will come close to 100 million SEG revenue in 2020, which makes us a relevant player also in this space. As a result, when looking at our B2C business, such as ESL Play and our Counter-Strike subscription services here, and our partnership with Sony PlayStation, they have all seen a record-breaking engagement from users during the quarter. And during the pandemic, DreamHackers released a new series, Community Clash, tournaments in multiple titles, such as League of Legends, Valorant, and Counter-Strike. We will continue to develop and invest into our B2C experience and further online capabilities to make us even more relevant to fans, also when not arranging large and world-leading esport events. ESL broader B2C platforms ESL Play and ESL Mobile are being transformed into a new multi-platform hub system. The hub system will have a toolbox that allows for more scalable B2C product, leveraging the unique ESL experience and transforming the ESL B2C product to a story and tech-focused community builder. The first standalone hub will be released for beta testing already in August. Today, we already offer advertisement, publisher-funded, and subscription-based B2C products, being one of the global leaders in this segment. There is a clear opportunity and focus to further leverage our strong esports brand ESL and DreamHack through coordinated events and new storytelling through our new and soon-to-be-released multi-platform hub system. If we then move on to the gaming part, the gaming vertical delivered a record quarter with an organic revenue growth by 15% and adjusted EBITDA by going by 13%, including significant investment into marketing. There's a coronavirus effect when it comes to the increased overall time spent on mobile games, downloads, and use of browser games when looking at the weeks for the lockdown in various countries and following a more open society. InnoGames showed strong performance in the quarter, at the same time as investing heavily into marketing to support future growth. The positive development was driven in part by effects of the ongoing coronavirus pandemic, which led to increased gaming. This resulted in higher daily active users in DAO. Average revenue per daily active users increased up DAO growth by 10% and 17% respectively compared to the same period last year. In June, the operational trend started to normalize and lockdowns globally were gradually rolled back. However, we expect that the DAO KPIs will remain on an elevated level also going forward. Kongregate was impacted by two third-party games no longer being part of the game's portfolio in the quarter as part of the company's focus on long-term profitable partnership. The company introduced three new games to the market, and one additional title, Teenage Mutant Ninja Turtle, will be released during the second half of the year. Different to indie games, Kongregate has been negatively affected by the pandemic due to lower ad spend, and their games have more of a commuter character. In the gaming vertical, we have continued to develop existing and new gaming products, pipeline, and even though home office, we have not experienced any productivity loss. CommonGate launched three rescans of IELTS Frontier and preparing for the launch, as I mentioned, of Teenage Mutant Ninja Turtle in Q3. IELTS Games tried two new games in the quarter with promising results and have another two coming up in the second half of the year, and current plan is to go live with the first game in Q1 2021. So with that said, over to you, Maria, to walk us through the financials.

Thank you, Juergen. We ended the quarter with higher sales than previously anticipated on the esports side, driving overall group sales to 1.1 billion. Sales have passed year-over-year, also on an organic basis, as there was only minor impact this quarter from foreign exchange rates. As we've seen on the Q1 call, gaming had a very strong quarter and increased its proportion of revenue contribution in the second quarter and accounted for nearly 70% of the turnover. which is also in line with the outlook for the remainder of 2020. Adjusted EBITDA almost doubled year-over-year, with improved performance in both verticals, combined also with lower operational and central costs. And if we then look further into the reduced losses in esports, we delivered on the communicated $150 million savings target, this primarily through COG savings, as we moved all tournaments online, whilst also incurring limited sub-costs in this quarter compared to Q1. We also ensured that we had some limited one-off fixed cost savings in the quarter. The financial performance in the quarter was further positively impacted by the growth in media rights, providing a more favorable revenue mix, combined with a positive ESS development in the quarter. As I just mentioned, eSport did benefit from temporary savings in Q2, and we do expect that cost savings will continue also in H2 as long as we run events online only. And we are at the same time working on identifying more permanent savings as we are reviewing our way of working within ESL and DREAM Act, and we will come back to you with more details as we are concluding that work. The EBITDA adjustments in the quarter amounted to negative 63 million kroner to be compared with negative 27 million last year. And as you might have noticed, the cost for LTIP was again elevated this quarter, and this follows the strong result that we see in the gaming vertical on back on the coronavirus pandemic. Depreciation amortization was slightly higher in the quarter compared to last year. That is reflecting higher depreciation within the gaming segment as we both launched and acquired new games, which we are depreciating back on. Partly offset by lower depreciation in esports and the amortization on the purchase price allocation was flat in the quarter. Net financial items were adverse in the quarter. This is predominantly driven by exchange rate changes and they are mostly unrealized. One should remember that we have our cash balance predominantly held in euros, which means that the recent strengthening of the SEC, we do see a negative impact in this quarter. This is therefore reversing the positive effect that we saw in Q1. If you then can turn the slide to the cash flow statement. I'm back on the strong financial performance. The group reported an improved net cash flow from operations of 121 million. This is driven by in-game, but also the much improved performance within the esports verticals. CapEx was lower in the quarter compared to last year, which was mainly driven by Congregate's acquisition of BitService last year. There are currently six games in development within both InnerCampus and Congregate, and we also did invest in student build-up and B2C platform development within ESL. The 2019 dividend to the InnerCampus minorities was paid in the quarter, and subsequently reduced the group cash position. If you exclude this dividend, the group did have a total net positive change in cash in the quarter. The group remains well funded with a net cash position of 1.6 billion as of Q2 2020. The gaming continues to be the cash flow contributing entity, and we are working very focused with the eSports optimized current cost structures and also to minimize the cash outflows. So that concludes the financial review. And back to you, Juergen.

Yeah, thank you, Maria. And if we take the next slide and we look a bit ahead, we expect that the ongoing coronavirus pandemic will continue to impact our two verticals, but again, different ways eSport will see further conversation during the remainder of the year with media rights continuing high double-digit growth rates. Even though brand sponsorship as a contributor is impacted in the current environment, the interest around eSport remains, and we do expect further strategic partnerships to be secured for the long term. Most eSport events will remain predominantly online for the remainder of the year, and our expectation is that we will be able to host physical live events as of 2021. If and when this can be done under the same conditions for fans, teams, and partners and employees. It should be noted that the third quarter only has one master property, something that of course will impact the short-term revenue development, while the fourth quarter will be very intense with as many as six master properties, with one being the CSGO major. We have moved as many events as we could into Q4 or beginning of 2021 to cater for a prolonged pandemic environment. As a result, the seasonality in the second half of the year would be significant. Looking at the revenue composition, our view is that owner-operated will sequentially improve versus Q2 in the second half, fueled by media rights, offsetting some of the decline we are experiencing in brand partnership. Further contrary to the highest growth experienced in first half in ESS revenue, we do expect a higher decline of that revenue stream in the second half. Genium, on the other hand, would largely operate at an elevated performance level thanks to the strong inflow of customers that occurred in the second quarter. That said, we expect a more normal growth pattern for the remainder of the year with marketing investment being more balanced versus last year. If we then move on to the guidance on the back of this, we are providing new guidance for the second half of the year. This new guidance reflects esports remaining online, as I said, for the rest of the year without any physical live events. It also takes into account maintained or even increased one-way savings that we saw in the second quarter. Last but not least, guidance for the second half also reflects the strong performance of gaming providing support for the overall group's operational results. So to sum up things, starting quarter, despite the pandemic, record delivery by gaming and relatively strong performance by our esport vertical. Looking forward, we expect esports to remain online for 2020 and physical events to come back in 2021. We continue to push on our strategy, and we see we have an opportunity to move our positions forward in both our verticals. That's despite the challenging circumstances, we are in a strong position that allows us to plan ahead. We continue to focus on business continuity, operational efficiency, and sizing of new business opportunities. So that concludes our formal presentation. So now over to you, Lars, for Q&A. Thanks, Juergen.

That ends our formal presentation for the second quarter of 2020. We are now ready to take any questions that you might have. So, operator, could we have the first question, please?

Thank you, ladies and gentlemen. We will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star one on your phone. and wait for a name to be taken by an operator. Please stand by while we compile the Q&A queue. This will all take a few moments. If you wish to cancel your request, please press the hash key. Once again, please press star 1 if you wish to ask a question.

So, operator, do we have any questions? I can see that we have one from Tom at Citi.

Yes, sir. Your first question comes from the line of Dom Singlehurst. The line is open. You can answer the question now.

Hi, everyone. It's Tom here from Citi Group. Thank you very much for taking the questions. I had a couple of questions on esports. Firstly, sort of looking backwards, you mentioned there had been a little bit of weakness in sort of sponsorship revenue. I suppose that makes sense on one level because I guess a big part of the experience is the live environment. But I'm just interested why it wasn't necessarily able – you weren't able to transfer that revenue line to a sort of virtual environment. That was the first part of it. And then the second question was – The third quarter makes perfect sense. Markets haven't opened up, and large-scale events are unlikely to happen anytime soon. But is there a chance that any of those master properties scheduled for the fourth quarter will end up happening in person? Maybe start with those two, and I'll follow up.

Yeah. Yeah, thanks, Tom. Good questions. I'm going to be the boring guy here and step in and repeat the questions just to make sure that everyone hears them. As you said, sponsorship weakness to be expected when we move from live to online, but explain why that is. That's a question for you, Jörgen, for sure, on the sponsorship side. And when we get back to large-scale events, if that's going to happen in Q4, is the other question, I guess, that goes for Maria and Jörgen to reason around. But if you can start, Jörgen, on those two.

Yeah. Of course, it's different factors, particularly when you come to the sponsorship part as well. Just the fact that we didn't have any festivals, we couldn't host any festivals, obviously, that is a big part of sponsorship revenue disappearing. And then obviously, as we said as well, that some of the pipeline as well, you know, some of the money that we expected to come in didn't materialize. Also, the way when you have a brand partner or sponsor, they also normally would like to see activation at the event. Obviously, we couldn't give them that either. At the same time, though, you know, as you can see as well, that we were live and we had our events taking place and with extremely high ratings. And that, of course, has helped some of the sponsors that we managed to keep, despite that they didn't get the activation that they eventually needed. At the same time, as we also discussed, we have seen very strong interest now for the media partner side. And that is important because the more media partners you get on board, the bigger reach you will have. The bigger reach, you should obviously have a more commercial, long-term, interesting product. So when things hopefully will normalize again and brand partners will come back, then obviously you will have a very strong revenue when it comes to the media partner, and you also then see the brand partners coming in. So in all fairness, it is a pity just to be very clear. At the same time, we are very happy to see that this online opportunity has created such a bigger reach for us, so it has created so much more interest for the media product. You saw also the Hui announcement this morning. And when it comes to the last question, sorry, we didn't repeat that one.

No, I did, actually, but it was regarding the possibility of having live physical events in Q4.

Yes, and that, to be fair, we should call around to the presidents in Europe and understand when that is possible. We don't know, Tom. We simply don't know. I think what we have said to you is that we are planning, you know, for online events for the second half. We don't plan for any physical events in the second half, as it looks right now. We might have studio events. but not the big events with dialysis retailers.

I think it's, from our perspective, it's always good to have a more prudent approach to this. Tom, as you know, it's very hard to predict when the society will open up fully, as I'm sure you can understand. So that's why we keep it as it is for now, until we have more certainty around physical events or not. Okay. You might want to follow up.

Yeah, please, Tom. Actually, a couple of follow-ups, if it's okay. I mean, the first one, I suppose the point I was trying to get to with the fourth quarter was more about should we, I mean, the cost saves and therefore the EBITDA guidance, I assume it's vaguely conditional on them not taking place in a physical setting. So I was trying to gauge whether actually, even if there was the opportunity to run them physically, you might still choose to run them virtually because of the planning that you put in place. So that was one clarification there. And then the second sort of follow-up question was just more on the sort of strategic sort of development of the group. I mean, obviously, Jürgen, sad to read that you're deciding to sort of step down, but I guess there's still quite a lot sort of unfinished in terms of portfolio structure and the strategic direction of the group and i'm just wondering you know whether we should um expect a resumption of some of the sort of strategic initiatives um now that maybe the the sort of covid related crisis is slightly less acute

Thanks, Tom. Good question. I think on the guidance side, that's for Maria when it comes to what we have assumed in our guidance when it comes to the second half on eSport and physical, non-physical events. And then, of course, the flowers sent to you, Jorgen. I guess you would like to answer yourself.

I'll take the guidance. And a fair question. So what we have assumed, to Jorgen's point, is that we will continue to run our schedule online with selective. We're going to have three studio events the way we are forecasting it right now. And I think that the question will be for us whether we can actually hold those studio events, because that will require teams traveling as well, even though we will have no audience there. So with the studios, we can do more activations, and that's why we would like to be able to do the studios if possible. And why we have set that already now is because we want to provide clarity to both partners and teams and our team internally as well. And on behalf of that, we have then set the guidance. So that's the way you should look at it. And I think that if you ask me what the risk it is rather that we won't be able to hold the studio events. I don't expect us to have any fiscal events this year whatsoever, even if the regulation changes.

When it comes to the strategy, that is quite clear, as also we are laying out in the report, to be fair, that we are saying that management and the MSG board believes that long-term there is a lot of merit in having two pure play companies, a pure play gaming company and pure play esport company. At the same time, what we are saying as well is we only want to have that obviously when you can present two strong equity stories. So right now what we are doing is that we are delivering on the strategy for each of the verticals and the verticals, the strategy for the esport part is to commercialize the sport is to develop the revenue streams. That is not changing. That is a thing which all the team works on and works very hard on. As you can see in some of the revenue streams, it's actually going very well, particularly in the media part right now. That has not changed and will not change. We would like to professionalize the commercial part of esports. And then when it comes to the gaming part, that is the same as well. We expect the studios to, over time, of course, to deliver and produce new exciting games. That is why we are buying a game studio. Now we are fortunate, of course, that we have such a strong performance in InnoGames as well. On top of this, we have very strong organic growth in the quarter and also looking, as we said, at the DAO. will continue to be, you know, fairly strong throughout the second half. So nothing has changed when it comes to the direction of the company. Nothing has changed when it comes to the strategy. We know exactly what we would like to achieve. Yes, COVID has given some bumps on the road. Of course, it goes without saying. At the same time, you know, it looks very healthy on the gaming part, to be fair. It has helped a lot in the game vertical and then also has helped a lot on the eSport and get that broader out due to much more increased viewing. I hope that it's very clear. So there's no change.

That is very clear. And just one final follow-up. Once again, the strategic review of games, is that still sort of technically paused whilst the disruption works through?

No, we have. There's nothing as paused, you can argue. We are continuing to explore different opportunities. I think interesting, of course, now, is that the gaming business is doing so much better. So that is, of course, very fortunate for us. We still believe long-term that there's a merit in having two strong equity stories, one being esports, one being gaming. But for the time being now, we cannot execute on that until we have two strong equity stories.

Thank you. So, Operator, could we have the next question, please?

Yes, your next question comes from the line of Yari Ingholm. from Nordea. Your line is open. You may ask your question now.

Not sure if that's me, but can you hear me?

Yeah, we know it too, Erik, so no problem there.

Yeah, this is Erik from Nordea. Yeah, so a question on the B2C in esports. Can you elaborate a bit on how you expect to increase monetization here and how do you expect to sort of differentiate your platforms from the matchmaking ranked systems that most publishers already have in their games?

Yeah, there is... No problem at all, Jörgen. I like it when you're taking those questions as fast as you do, but just for the benefit of the others listening in, you know, our B2C platform, how to make that competitive, especially against the in-game features that is provided by the publishers already... Over to you, Jørgen.

Yeah.

I think, luckily, as you can see as well from also when we look at the revenue that we are generating, we are actually extremely competitive already. And we do also, as you can see from the slide, having matchmaking functionalities. And also now we're enhancing with a more storage-driven and tech toolbox in order to create these different B2C hubs, which of course should serve the communities. ESL brand, DreamHack brand, what they stand for, the opportunities that we are having with our tournament to integrate the B2C part into that as well is quite unique in all sense. So we will have an opportunity to create a very strong ecosystem, much stronger than we have today. Today we have the subscription business, which is ESEA. When you are playing well in our Congress to like ESEA product, you can actually qualify to come into our tournaments today. So that is, of course, a synergy and an interesting opportunity which we can deliberate or can work more around. The ESL Play product is already now very strong and features more than 100 games and a range of tournaments every day. So there is the storytelling due to the brand-like There is a lot of opportunities to enhance that more and then experiment a bit more with the storytelling as well. What you don't know exists, you don't look for, and therefore there's a lot of stuff that we need to do in order to understand how to enhance the viewer experience, how to what to put behind the paywall, what we want to do with advertisement, what kind of publisher deals can we make in order to support our pitches to them as well. So there are so many things we can do around the B2C, which we don't do today. I think the Sony PlayStation partnership integration is a prime example that when you have your Sony PlayStation, you go into the ESL infrastructure and you play tournaments through that. And that is a very strong partnership within both can monetize on the customers coming in. So there's a range of things which we haven't explored today, which we, of course, will explore, and we have, also, quite a dedicated department working on right now.

Okay, that's very clear. Just to follow up on another question on esports, then. I think you said that you're seeing some weakness in esports services into H2. What is driving this versus H1, because I guess you were operating this online in H1 as well.

Yes, thanks, Eric, for that one. When it comes to the e-sport guidance, why we see some slight weakness in second half versus first half when it comes to e-sport development. For you, Maria.

E-sport services. Oh, sorry about that.

Thank you, Eric.

All right. No, I think it's fair to comment also on the e-sport in general, because I think if you look at e-sports in general, I mean, you should remember that Q1 was, I mean, the corona pandemic impacted first in March, which meant that Even though Q1 was quite quoted this year, we actually could execute our events in line with expectations for January and February. And that means that if you look at the second half versus Q2, you actually see an improved projection, and especially in our own and operated performance. If you then look isolated on the esports services, as you do know, some of these contests that we do are for an extended period of time, and some are for more sort of one-off projects. And what we've done and secured now in both Q1 and Q2 is a very strong growth on behalf of some interesting partnership deals that we've done with both Supercell and Epic. And also we did a very interesting charity work, Damage Wealth Borders, in Q2. So taking that together, I mean, we saw a very strong growth in the ESF side in H1. And that is currently not what we see in the pipeline for the second half of the year. On a positive note, however, we do see an improved projection on our own and operated revenues. That should show an improved performance, especially in Q4, because if you see a schedule, it is heavily skewed to Q4, where we're going to have six properties, while only having one in Q3. So that's the way to think about it. Hopefully, I clarified your question.

Would you like to follow up, Erik?

Yeah, sure. On gaming, then. Can you talk a bit about the release date for InnoGames and Congress? What is the timing here and when do you expect to have results? Is there any particular game that stands out and so on?

Yeah, when it comes to the gaming portfolio, definitely Maria sitting on the board of InnoGames who can elaborate on that one. So Maria, when it comes to the portfolio of games to be released.

Yeah, as you may have saw, and I think you already mentioned as well, we launched three, you could argue, rescales of one of our IDA games in Kongate in Q2, and I think that the bigger release that we have coming up is Teenage Mutant Mutant Turtles, which is coming up now in the second half of the year, which we look forward to in Kongate, and then we have yet another bigger release coming up in early 2021 for Kongate. I think there is Indie Games that has a bigger sort of development agenda. They actually have four games in development. They've now... put two tests into what we call retention testing in Q2 with very successful results. And we're having, yes, two other ones that's getting into retention tests in the second half of the year. And for the two first ones, it all goes ahead. According to plan, we'll put at least one of them in full live mode in Q1 next year. That's it.

All right. Thank you. And just a final question then on the strategic review of gaming. And you are sort of exploring two different paths there with the listing and the divestment. Could you, if you were to do a listing, could you perhaps do some look to do some M&A within gaming before this? Or would you list the gaming as it is right now?

Thanks, Eric. So when it comes to a potential listing of the gaming asset, would that then include potential additional acquisitions ahead of that, or if the listing could be done as is, I should say.

Jørgen, would you like to elaborate? Yeah, no, definitely. And it has always been the case, you can argue, that we wanted to be acquisitive when it comes to the gaming part, you know, so we have acquisitions. Also, as you can see, the cash to go out and become acquisitive when we find what we call companies, the quality companies. So nothing prevents us from being that or we are in the market and we are looking at different opportunities that also goes for esports. We have always looked at areas which can accelerate our relevance in either gaming or esports. So that can easily happen ahead of a potential listing when we are ready to do so.

Thank you. Operator, can we have the next question, please?

Yes, sir. Your next question comes from the line of Martin Arnelli. The line is open. You may ask your question.

Hi, everyone. This is Martin here with DMV. My question is on gaming in the second half, and thanks for providing the outlook here in these strange times, but what kind of gaming revenue do you pencil into that EBTA guidance for the second half?

So, hi, Martin, and thanks for that question. Reference to assumptions made in the, when it comes to gaming, in our guidance for the second half, Maria, that's straight up your alley, so to speak.

We didn't, as you could probably read and give the direct reference to guidance on revenues for gaming. What we said was that you should expect a more normalized growth trend going forward. We come in on elevated levels, of course, on the Dow levels. You will always see the seasonality effect that you see in the summer, so of course it will drop until it starts to come back again after summer holidays. We put a lot of marketing efforts now in Q2, and we should see that benefit in the second half of the year. But what we're not expecting to see is that hype that we had in the increased activity levels, that people spend significantly more time in front of the computer, therefore also spend more. So the ARPDAU increased quite significantly in the quarter, and that we don't expect going forward. What we also said, and Jörgen, I think, mentioned in the script was that, I mean, we increased marketing investment quite significantly in Q2, which would benefit us in the second half of the year, and also, of course, the years to come afterwards, of course, states. that you should not see the same elevated marketing effect in the second half, but it should be more balanced versus last year. So I hope we can help you a little bit.

Can you follow up? Yeah, just it sounds like it's fair to assume that it has normalized a bit in July, and it makes a lot of sense, of course. And then on the revenue outlook for next year, given that the base is sort of more lowered now, in 2020, and if we're back to more normal times in the first half next year, what kind of growth rates should we expect? If you can just elaborate on the drivers.

Yeah, you know, thanks, Martin. It's, of course, a very interesting and also relevant question, but we will refrain from placing any guidance or outlook statements with reference to 2021. I think we've We are living in uncertain times, as you know, and we would like to just keep the guidance for the second half, and then we'll see how things develop, and we will keep you informed how things look also when the year evolves. So, unfortunately, no elaboration or guidance for 2021 today.

Okay, fair enough. And then a question on the cost savings. I guess that some of that is temporary and You mentioned new ways of working. Can you give some more color on the savings?

Yes, so cost savings, once again, Maria, that's your area of expertise.

Yeah, no, you saw we incurred 150 in line with our expectation for the second quarter. And I'd say the vast majority comes from the caucus side of us actually moving physical events to online only, no travels whatsoever, not even studio production. There was a small part of fixed cost savings in that as well, but that was more one-off initiative characters, which meant that they are not sustaining that savings. And what we're working on is to see how can we work differently and be more efficient and lean structure as the esports group and find savings there. So that's what we would like to come back to when we conclude that. And as I also said, I mean, as long as we keep the format online, we have found a new way of working there, we will be able to see that run rate savings on the COG side as well going forward into Q3 and Q4.

Great. Excellent. Thank you, Maria. And just finally, Jørgen, can you sort of comment your decision to leave the company, if I may ask you?

Yeah, definitely. As I write in the release, it is straightforward. I think 26 years in the same company, you can argue, is a period, to be fair. And what is important for me, of course, is since I spent half my life in this company, is that we put in place a management team also, which is long-term for the company. So, succession planning here is very important for me to make sure that we do that right. And I think that is a great moment right now. You see the companies are doing good. They are planning ahead. And also, for me personally, I think it's also time for me to... you know, to think about something else in all fairness and one day open a new chapter. But again, I'm the CEO of the company until that succession is in place. I have a long notice period. So there's no extraordinary thing here, to be fair. It is just 26 years is in all fairness a time spent in a company.

Thanks a lot, Jörgen.

Thank you, Martin. Operator, do we have any... Other questions?

Yes, we're just taking the names for it. And, by the way, we have one question. It's coming from the line of Oscar Harrison. Hi, Oscar. Mine is open now.

Thank you. Good afternoon, guys. This is Oscar from Carnegie. A few questions for me. Could you elaborate a little bit on the dynamics on the different revenue streams in esports from actually holding events online? You discussed it earlier a bit, but some more input on the dynamics there. What is most severely impacted and what is going the other way?

So as we move from physical to online events, the characteristics of the revenue streams also change a little bit, I guess, especially now when the coronavirus pandemic is very clear. Maria, I know you have thought a lot about this, so maybe you can start with a question.

Yeah, no, absolutely. And I would say, I mean, even though those revenue streams may not be the biggest ones, but the two ones that are the most severely hated, of course, are ticketing and merchandising because they go down to very low levels. And then the two other buckets is media rights and the sponsorship revenues. And I think that as you've seen, we have actually signed quite some few media rights deals, which have showed the relevance of esports in this particular difficult time. So that has actually performed quite well. And we've also, on behalf of the content that we've delivered, I mean, ESL has actually had an extremely busy quarter, having five events, so four events this quarter. and with the record viewing. So that has actually performed better than our expectations, and hence also the better revenues that we saw in the quarter. And the big impact we've seen in sponsorship, and it's partially due to, as Jørgen has mentioned, the pipeline drying up. We were sort of concluding on the EPT tour at the same time as the corona pandemic broke out, which of course became difficult times to onboard new sponsors. At the same time also not being able to hold any festival. is, of course, a significant impact because their sponsorship is a big part of the revenue contribution. So that is also one of the reasons why sponsorship is getting a bigger hit proportion than what media rights is getting.

Would you like to follow up there, Oskar?

Yeah, that was very clear, actually. And to follow up on that, what is the impact of the Twitch deal in Q2? You mentioned it in the report. So what is the impact in Q2? How do you expect it to develop in 2020? And perhaps if you could also shed some light on if that deal scales up gradually in 21, 22, given that it's exclusive in those years. Thank you.

Thank you, Oscar. The Twitch deal. It should be said, though, that we have not disclosed the value of that quite significant media deal. But anyhow... Whatever we can then share, Maria, when it comes to how that deal looks like.

I think what it gives us is reach, which is great. And I will over time to Jorgen's point, but I think he talked earlier on one of the questions, give us more sponsorship because what the sponsor wants is a core reach. So they will have time to go hand in hand. We've signed quite a few sponsors of media rights deals in Q1 and Q2. Many of those are, you can argue, reach of a value. which, again, over time would give us better sponsorship revenues as well. And I would say Twitch is both reach and value, and I think that is what you see also in the revenue numbers for Q2. And then going into next year, to your point, it's going to go exclusive, which means we're going to see a ramp-up in value in 2021 and onwards.

There we go, Oskar. Any follow-up?

Yeah, thank you. Actually, a few more if I may. Stop me. But the first one, just Q4 here, ESL One in Rio, the Dota 2 tournament, will that still be major and will it still have a $2 million price pool or does that change in any way?

So looking at the event schedule then for Q4 and then road to Rio or major in Rio when it comes to CSGO, if it's going to keep that status or not?

Yeah, that's what we currently plan for. And that's why I think I said it's whether three of our events, even though everything's going to be held online, it's going to be studio productions. And the Rio event is one of those that we plan to hold as the studio productions. So hopefully we will be able to do that. That will, however, be teams and flying into a studio production hub. But there is still not going to be any audience there. So that's the plan and the price money remains as well. And as you may see now in the quarter, we also have the road to Rio so that we have a warm-up going into the CSCO major.

Great. And also we've seen in this quarter, I mean, a lot of companies actually reporting positive earnings effects from government support and furlough schemes. Could you comment if you have had any impact and if that's possible to quantify as well would be really helpful. Thank you.

A lot of questions for you, Maria. So now to... Kurzarbeit and furlough, then.

Yeah, I learned a new word this quarter. That's kurzarbeit. So we've had furlough in our different esports companies. Not in gaming. So in gaming, we've had production up and running 100%. And we have approximately 10 million kroner benefit in the quarter from furlough.

Very clear. Oskar? And one final question on gaming, then. a question on ad revenue and corresponding also user acquisition costs. Has that normalized now, or should we expect a normalized performance from Congregate in the second half?

So when it comes to ad spend and not in-app purchases, I guess, then, Oskar, it's a big reference to Congregate. That is normalized, or what does it look like?

Yeah, no, you're absolutely right. That has started to normalize now in June, July. So we should not see any significant negative effects from that. But what you should expect is an impact for congregate for the full year is the third-party partnership with the HyperHippo Games that in its totality expired as per year end 2019. So you're going to have tough comparisons for Q3 and Q4 also for congregate due to that reason. But otherwise, from a corona pandemic impact, that should be normalized.

Excellent. That's it for me. Thank you very much.

Thank you, Oskar. Operator, do we have any more questions?

Yes, sir. Your next question comes from the line of Stefan Billing.

Stefan Billing from Capital Chevrolet here. I have a couple of questions. One is if you could... Say something about the audience measurement development. I think when you struck the deal with Nielsen a year ago, you said that you probably could start sharing some like-for-like numbers at this point. So that's one question. The other question is if you could share some things about how media writes have been growing and what share of revenues within own and operated media rights represent right now. Thank you.

Okay, I guess it's for you, Juergen, when it comes to audience measurement and Nielsen, how that is developing, and then when it comes to media rights as part of owned and operated, it's more for you, Maria. So if we start with you, Juergen.

Yeah, but the average media audience or the AMA is the partnership with Nielsen is up running, and that is something that we are now getting into our presentations, preparing, for the upfronts here coming into 2021. We will be on the market now here in August already with key figures from the partners that we are measuring right now. Of course, as we onboard more and more partners, we will then of course have a much stronger set of data. It's not to say that everything is flawless. It takes some time for some partners to make sure that we get the right data and so forth, but that is in development, and that is developing in the right way. It's quite important for us, and luckily, as you can see as well, we have increased the viewing, so the AMA figures are better. And then when it comes to the media rights as such, we have seen strong traction. Obviously, it is a simple word, meaning that when you have a TV channel having its best year, the best day in 20 years, of course, there are rumors because that shows that the product can move the needle. And that, of course, is helping the media right sales as we're having right now. So we are growing. And as I said also in JustQ2, we saw that ESL, very close to growing 50% of the media rise, and I've also said that we will see that in Q3 and Q4, we will see very high double-digit revenue growth in the media part. It's good news. I think also, for many reasons, first of all, we are happy that we are making bigger deals, also the one we announced this morning with Huda, but also the fact that we get a bigger reach and we get more on board so we can have even stronger AMA figures or stronger Nielsen figures. So everything... in that direction goes actually according to plan.

And Stefan, I think you maybe should mute if you have some background noise there, but thank you. And Maria, then, when it comes to media rights as part of the own and operated revenues.

No, we don't break that up, unfortunately. But what we have said is that sponsorship is the biggest contributor into the own and operated revenue bucket, and then media rights comes thereafter. And as Jörgen mentioned, I mean, ESL grew very strong in media rights in the quarter. At the same time, we just need to bear in mind that Dream Act did not have any real events, which, of course, meant that they had very few media rights in the quarter. But overall, the trend looks very good on media rights, which is very encouraging.

So, Stefan, that is maybe not the exact stats that we're looking for, but some indication at least how things are developing, and let's continue to discuss. Do you have any more questions, Stefan?

No, thank you very much. Sorry for the noise.

No problem at all. Operator, we do not have time for more than one more question, if there is. Is there any other questions?

There are no further questions at this time. Please continue.

Okay. Thank you very much. In that case, that concludes the presentation for MTG's second quarter, 2020. We look forward, as always, to stay in touch, and we will release the next quarterly report on the 4th of November. So until then, have a great day and stay healthy. That concludes the conference call for MTG. Thank you and have a great day.

That does conclude our conference today. Thank you all for participating in All Disconnect.