Modern Times Group MTG AB (publ)

Good afternoon and welcome to MTG's interim report presentation for the second quarter 2021. My name is Lars Torstensson and joining me I have our group president and CEO, Maria Hedin. As usual, we will begin by presenting the quarter and then take your questions in a Q&A session for diving participants only. With that said, I'm now handing over to you, Maria, to take us through the quarter.

Thank you, Lars, and good afternoon, everyone, and thanks for joining our Q2 earnings call today. The second quarter was yet another intensive quarter for us, both from an operational and M&A perspective. We delivered solid progress on our strategy in both the gaming and esports verticals. This quarter also marks the full year of operations under the ongoing corona pandemic. Stay-at-home and lockdown orders have contributed to the growth of our gaming verticals, with our companies gaining new users and experiencing higher user engagement. However, as expected, we're now also starting to face tougher year-over-year comparisons against this elevated baseline. Our esports vertical, on the other hand, was initially hit hard, but is now starting to improve and recover thanks to our agile shift to online events, as well as the gradual reopening of society. Unlike gaming, esports will face easier comps going forward. I will now walk you through our presentation, and afterwards, I look forward to taking to your questions. Our results for the second quarter shows that we're executing well on our strategy, with solid development in terms of net sales and EBITDA. Our gaming vertical delivered a solid quarter, mainly driven by good monetization, solid display-based engagement, and clearly supported by the inclusion of both Ninja Kiwi and Hutch driving overall sales. The esports vertical returned positive revenue growth, driven in particular by stronger ESF sales, as well as renewed growth within our own and operated operations. ESM Gaming hosted six digital-only master properties and successfully produced another season of Gamers Without Borders and hosted a successful Rainbow Six live event in Paris. On the gaming vertical, we continue to deliver on our buy-and-build strategy, announcing the acquisition of PlaySimple, a rapidly growing, highly profitable Indian gaming studio and a global leader in the mobile word game genre. Last but not least, we maintain a high level of strategic investments in our esports product portfolio and B2C platform, strengthening our position and diversifying our current offering ahead of a return to live audience events, which we expect by the end of 2021. If we then move to the next slide, let's start out by reviewing the performance of our gaming verticals in the second quarter. Net sales increased 9% to $810 million, Foreign exchange rates had a negative impact of 5% resulting in a growth at constant currency of 14% fueled by the inclusion of hutch and . Organic growth was minus 14% due to the tough comparison against an elevated 2020 numbers. However, when comparing to the first quarter this year, our sequential growth was 3%. I'm pleased with the results in the quarter, but admittedly, we did end the quarter slightly soft. we saw a lower than expected result from InnoGames' June event for its largest game, Porto Empires, in conjunction with the European Football Championship. It's quite rare that we do not see the anticipated uplift from an in-game event, but it happens from time to time. And as we're now progressing into the third quarter, the next event InnoGames had in the schedule, which was played out early July, performed instead in line with our expectations. On a general note, InnoGames' core title and portfolio of classic games delivered a solid performance. Congress operations development in the quarter showed stable progress, but the issues with the newly launched Teenage Mutant Ninja Turtles title have not yet been fully resolved, which is hampering the company's development to some degree. On the other hand, HUD popular Formula One class title for a strong customer intake and revenue development, supported by increased marketing on back of the Formula One championship season starts. We also consoled Nintakivi starting the 1st of June, which had a strong performance in the quarter. Its key title, Blue's TD6, maintained high engagement with lower seasonality than normal. It is worth pointing out that Nintakivi's TD6 is a premium game, having its main product updates annually in December. The team has therefore been working on in-game improvements and releasing more frequent updates to reduce the cyclical characteristics of the game, and I would say that the Q2 performance is a good sign of this paying off. I also would like to make a short comment on Apple's change to their identifier for advertisers' features, commonly referred to IDFA, which has been thoroughly discussed by the industry since it was first announced last year and rolled out this quarter. The changes to IDFA, which means that apps need to be obtaining sharing permission from iOS users to share data with app developers, opt-in rather than an opt-out basis, have so far had limited financial impact on our gaming verticals. That said, we continue to monitor the situation and we encourage all group collaboration of topics. We do believe that solid processes along with agile working ways will be the success factor in this changing environment. It is also important to underline that the IDFA changes will likely have different impact on different gaming companies. If you look at our portfolio, Ninda Kiwi, for example, having 100% organic traffic will not have any impact as in its all community-centric approach to marketing. Meanwhile, in games, which has both mobile and browser-oriented business, we'll experience a different impact. But in both instances, as I said, the financial impact has been limited so far. I'm also pleased to see that our gaming vertical maintained its margin, despite the push behind our growth gains, such as the already mentioned Formula One clash. The solid development was supported by the recent acquisitions, as well as the underlying adjusted EBITDA growth. We're very excited about the gaming vertical that we're building, with a balanced portfolio across both casual and mid-core. Our work to further diversify our gaming vertical through strategic M&A has continued, and on June 1st, we added a strong Blooms IP to our portfolio of casual games throughout the closing of Nita Kiwi transaction. On July 2nd, we announced the acquisition of Play Simple, a rapidly growing, highly profitable Indian gaming studio and global leader in the mobile world game genre. Through the acquisitions carried out over the last eight months, Touch, Ninja Kiwi, and Play Simple, MTG has become a scale player in the industry. As of the second quarter, we now reach 31 million monthly active users across more than 50 live games. We have also shifted our mobile revenue representations to be above 70% of total net sales for the gaming vertical. And as mentioned, we have now a much more diversified games portfolio, stretching across different genres and life cycles, along with a solid line of games. Additionally, we have now a first group common project between our gaming studios underway to ensure that we realize synergies between the different companies and showing the key benefits of operating as a group of gaming companies. We're still in the early days, but I'm very happy to see the high level of engagement between the different management teams and the excitement about working together. I am certain that this, over time, will result in stronger vertical performance and better, more engaging games, which ultimately will accelerate the value of the Gaming Co. as a whole. Let me go to the next slide, please. Our new games pipeline continues to develop well over the quarter, with some delays due to identified areas of improvement in the top launch titles ahead of the commercial launch. InnoGames made good progress on the development of the new games and currently has two games in soft launch, Rise of Cultures and Lost Survivors. Ninja Kiwi soft launched one game, Bloons Pop, at the end of the quarter with promising early results. While it's exciting itself with the title, it also serves to generate excitement ahead of the widely anticipated release of Bloons Battle 2, which will come now in the second half of 2021. Hedgehog's launch title, Battle Heights, has so far not performed as anticipated, and the team is focusing on improving both the user acquisition campaigns and the early experience of the game metrics. In total, there are currently four games in soft launch, for which we are planning commercial launches in the second half of the year. In addition, there are several new games that remain to be soft launched in 2021, including Play Simple's new word and part game title. And speaking of Play Simple, let's move to the next slide, please. With the acquisition of Play Simple, we added a category leader within the word game genre to the group. along with the highly relevant capabilities around cross-promotion and ad pick. Since being founded in 2014, PlaySimple has developed word games for the English-speaking audience with strong analytics and a data-driven approach that has enabled them to master both retention and monetization. They have a balanced portfolio of nine live games across Anagram, Crossword, and PvP word game franchises. And three of these games quite equally drive the majority of the sales, all within the growth mode space. Within the pipeline of new gains, they're further moving into the solitary space. For Q2 and H1, play simple delivered revenues of $285 million and $535 million respectively, which is at the higher end of our guidance, and it equals the growth of 100% for Q2 and 87% for H1. Margins continue to expand in the quarter, and adjusted EBITDA amounted to $94 million in Q2 and $151 million in H1, also better than our initial guidance. We do expect PlaySimple to continue to perform growth rates above market averages and accelerate the growth profile for the gaming group in totality, though we do not expect the current levels to be sustained. The upfront consideration amounts to $360 million and with a performance-based earn-out of $150 million. We expect a closer transaction at the end of July, following our EGM that is scheduled for July 28th. Through a successful execution of a buy-build strategy, entities' revenues and adjusted EBITDA profile have changed significantly, with faster underlying growth and a margin expansion. On a performance basis, 2020 net sales amounted to more than $4.4 billion. That should be compared to the $2.7 billion reported net sale, with a solid 29% adjusted EBITDA margin. If we now look at 2021, for H121 and Q2, respectively, We report sales of $2.3 billion and $1.2 billion, respectively, driving a 30% and 8% year-over-year growth in content ethics and a margin expansion to 31% in the second quarter. Looking at the breakdown of revenues, mobile revenues are not close to 70% for the group, and we have diversified our revenue stream to also include paid apps and increased advertising contributions. All in all, we're very proud of the company we have built, and we look forward to continue to develop and grow our business. If we then move to the next slide and move into esports, our esports vertical continued to be affected by the ongoing pandemic in the second quarter, but we maintained a successful online schedule for our esports tournaments with a strong fan reception and continued commitment from partners. Net sales for the esports vertical increased by 18% to $388 million, negatively impacted by foreign exchange rates of 8%, which meant an organic growth of 10%. ESL Gaming successfully delivered and produced six master properties, such as digital-only events, including DreamHack Master Spring, IEM Summer, and ESL One Summer. Furthermore, our ESS operations made a strong contribution to the Eastport Vertical, and ESL Gaming produced another season of Gamers Without Borders, as well as Rainbow Six live event in Paris. At the Paris event, we successfully invited the teams to physically participate, provide us with good learnings ahead of our recently conducted ESL One Global Colony event that was also done in the same format. Additionally, DreamX Sport Games started the production of the Olympic Virtue Series, which will lead up to the Tokyo Olympics and produce a playoff of eNHL. On a general note, we continue to believe that we will see a few live audience events returned by the end of 2021. and we are optimistic about 2022 being a year of normality. As a result, we are still experiencing some soft reception from brand sponsors on 2021, but we are seeing more activity regarding 2022. Hence, our sales team at ESL Gaming is already having discussion with both new and existing partners on commitments for 2022. We are pleased to see ESL Gaming announce a strategic extension on its cooperation with Intel starting in 2022, which is a strong signal of confidence from our largest partner. Additionally, DHL also prolonged its contract, starting now in Q2, and wants to make commitments to its ESL gaming in the quarter. Furthermore, our discussions with publishers remain active in the quarter, and we feel that our proposition is resonating well with them. As an example, DreamHack, as a part of ESL gaming, announced a new partnership with Epic Games through the DreamHack Open featuring Fortnite. If we then move to the next slide, we continue to make strategic investments to fully capitalize on the trends that have emerged during the pandemic, leveraging the learning from digital-only events and a more platform-based operating model. Our focus has been on building the esports platform, including B2C and mobile esports products, supporting traditional esports and traditional sports into esports products, and prepare the organization for potential geographic expansion. These investments have already started to yield early results, For example, in the second quarter, a mobile esports product, ESL Mobile Open, ran competitions across North America, Europe, and Asia for titles such as PUBG Mobile, Clash of Clans, Brawl Stars, Assault Mine, and many others, attracting over 850,000 unique players. I strongly believe in this product as it enables a broader fan engagement through a larger addressable market. Additionally, as games are converging towards mobile platforms, together with the 5G mobile networks being rolled out, the mobile esports market is set up for strong growth going forward. Another clear example of early results from the strategic investments is within DreamHack Sport Games and its ambition to digitalize traditional sports into esports products. In Q2, we produced events for NHL and the International Olympic Committee as a part of the Olympic Games in Tokyo. Additionally, ESL Gaming invested into the interactive experience DreamHack Beyond, that is an all-digital festival concept developed for the gaming community. Created to both complement and showcase the best of DreamHack in a fresh new way, and we will start to test this on the market now in Q3. We also continue to invest through our VC fund into the casual competitive gaming platform Joyride, which enables tournaments and competition for mobile casual gamers. This is a new innovative casual competitive gaming platform and an absence trend to the mobile esports that we see. Through these investments, we are preparing our esports vertical for a mixed model of live events and an enhanced online product proposition in a normalized business environment as we expect in 2022. We do expect this emerging hybrid model to lead to both faster growth and increased revenues, but also to richer, more resilient commercial operations. At the same time, we will carry on to pursue the operational efficiencies in the core export business and seeking new commercial and sponsorship agreements. With that said, I hand over to you, Lars, to walk us through the financials.

Thanks, Maria. As Maria has already stated, it has been a very active quarter, both operationally and from an M&A perspective. As in Q1, the second quarter was impacted by significant currency headwinds. The gaming vertical experienced a negative 5%, while esports saw an 8% in translational headwinds, resulting in a total negative 6% for the group. Net sales amounted to $1,198,000,000, growing by 9% or 15% excluding FX. Organic growth amounted to a negative 3% due to, and as flagged in the first quarter, difficult comparisons in the same period last year, as the gaming vertical operated from elevated levels due to the pandemic. With that said, we are pleased to see that both verticals have grown double digits in constant currencies. The gaming vertical grew by 9%, with the inclusion of Ninja Kiwi from the month of June. The underlying net sales was a negative 14%, including FX, due to last year's quarter being positively impacted by the pandemic with elevated activity. As mentioned, our esports vertical had six master events in the first quarter, all online and without live audience. Compared to the same period last year, net sales were up by 10%, positively impacted by a better performing ESS business, but also due to easier comparisons versus Q2 2020. Excluding exchange rate impact, sales was up 18%. Organic net sales growth was also up 18%, with O&O at plus 6% and ESS at plus 36%. Adjusted EBITDA amounted to $155 million, $228 million from gaming, including Hutch and one month of Ninja Kiwi, and maintained solid performance from video games. And minus $48 million from eSport, supported by improved cost structure related to online events and the higher proportion of ESS work, but affected negatively by the ongoing pandemic, and accelerated operational investments into new strategic initiatives. The gaming vertical had an adjusted EBITDA margin of 28%, driven by continued robust performance at InnoGames despite difficult comparisons. New game launches for InnoGames and Hutch, together with a strong marketing push behind F1 Clash, impacted profitability in the quarter to some extent. Let's take a closer look at esports. We continue to experience an impact from the pandemic in the form of less activity from brand sponsors, thus because of the lack of live audience events. We are optimistic about 2022 when we believe we will see a year that has returned to normalcy. We have seen several of our most important sponsors prolong the contract with CSL Gaming, showing commitment not only to esports but to us in particular. We maintain our accelerated investments into several strategic initiatives in the esports vertical, follow us starting to look more positive into a return to live audience events again. Hence, we would like to make sure that we are at the forefront when it comes to services offered to fans and partners. As we flagged already in Q1, this will continue throughout the year. With that said, the EBITDA adjustments in the quarter amounted to $41 million to be compared to $63 million last year. Management incentive programs amounted to $25 million. Also, M&A cost amounted to $60 million as a result of activity in both the gaming and eSport verticals. It should be noted that the M&A cost associated with the acquisition of PlaySimple would be booked in Q3. Depreciation and amortization in the first quarter, or sorry, second quarter amounted to 102 million and included amortization of PPA of 54 million. Amortization of PPA was higher compared to last year, mainly related to the Hatch and Ninja Kiwi acquisition. Excluding PPA, depreciation and amortization was merely flat year-over-year at 48 million. Net financial items amounted to 26 million, predominantly driven by exchange rate changes. Last but not least, the group tax was negative 49 million, predominantly reflected the increased result in the gaming vertical and in-games, but also a result of timing effects. Let's move on to the cash mistakes. Cash flow from operations before changes in working capital amounted to negative $3 million. The management incentive program amounted to $85 million was paid out by the gaming vertical during the quarter. The cost of the four-year program has been provisioned on a quarterly basis, and the first part of the program was paid out in the quarter. Operationally, the cash flow was positively impacted by continuous strong performance by the gaming vertical and negatively affected by maintained investments in the eSport vertical. When looking at the cash flow profile of the company on a half-year basis, the swing versus the same period last year can more or less be fully explained by the management incentive program being paid by the gaming vertical. Cash flow in investing activities contain the net cash payment of the acquisition of Ninja Kiwi of $507 million close to 31st of May and a final payment of Hutch of $30 million. Furthermore, we invested 26 million in the VC fund in a company called Joyride, an up-and-coming casual competitive gaming platform for mobile players. CapEx amounted to 59 million in the quarter, mainly consisting of capitalized development costs for games and esports platforms that have not yet been released. Cash flow from financing activities mainly consists of capital injection from minority owners in the gaming co. of 154 million as they partly participated per rata in the Ninja Kiwi transaction. As a result, the net change in cash and cash equivalents for continuing operations amount to a negative 624 million. That gives us a group net cash position of 1.2 million as of end of Q2. which is to some extent being used for the simple acquisition. Gaming continues to be the main cash flow contributing entity. Looking into the third quarter, I would like to remind everyone that the upcoming costs will continue to be high for gaming and easy for esports because of the way the pandemic affected the third quarter of 2020. Gaming will face more normal comps as of the fourth quarter. That concludes the financial presentation of the quarter, and now back to you, Maria.