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.