Modern Times Group MTG AB (publ)

Good afternoon everyone and welcome to MTG's interim report presentation for the third quarter. My name is Lars Torstensson and I'm the CFO and EVP Communication and Investor Relations at MTG. And joining me, I have our Group President and CEO, Marie-Eridie. As usual, we will begin the presentation by presenting the quarter and then take your questions in the Q&A session for dive-in participants only. With that said, I'm now handing over to you, Maria, to take us through the quarter.

Thank you, Lars. Good afternoon, everyone, and thank you for taking the time to join our Q3 results call. Let me jump directly into the presentation. First of all, we delivered a record quarter that was the result of our successful execution in the last year on our buy and build strategy. The new NPG is a much more diversified company, and as a result, a stronger and a more resilient organization than we were a year ago. Our net sales increased by 61% to a constant currency, with double-digit growth in both verticals. Equally impressive, our performance net sales growth amounted to 16%. That is an important metric showing the strength of the group as we move forward. To support our strategy, we have executed on a series of ambitious M&A transactions, building the foundation for a truly competitive gaming vertical, defined by category mastery, diversity of genres, high-quality IPs, And, of course, amazing talent. The gaming vertical results validated our strategy to create a more diversified portfolio. While the performance across the group were mixed, we pleased to see that we on a performance basis grew 8%. We had a strong trajectory to become the gaming group that we envisage. The natural step following the intense past 10 months of M&A is to focus on synergies and operational excellence. And we have now formed a relevant mobile gaming group. We're also ready to take it to the next step and up our game by building a central gaming organization to drive synergies through central excellence across the gaming vertical. For that reason, I'm very happy that Marcus Litt, the current CEO of Kongigate, and InnoGames CMO Christian Pern, have agreed to step up and gradually transition to become the CFO and CMO respectively in our central gaming organization. These changes reflect the growth of Vertical as a whole, and we are positive examples also how we're starting to work on group-wide initiatives. It is also an example to see how we promote talent within the group and create opportunities for our people being a part of a bigger gaming company. The Esports Vertical had its second consecutive quarter of revenue growth, and that is the result from an intense event schedule. We've become increasingly confident also that 2022 brings us normal circumstances for our esports vertical. And our focus is now to ensure that we are as prepared as possible for the opportunity to once again operate live audience events. We continue to make investments in our strategic initiatives, such as competitive mobile gaming, B2C platforms, and geographic expansion. This in order to diversify our esports vertical. Additionally, we're exploring new strategic partnerships to help us reinforce our leading position in the esports industry. Moving to the next slide. With that high-level overview as a backdrop, let's review the performance of our gaming vertical in the third quarter more closely. This is the first quarter for the new gaming group, including all our acquired companies, and I'm very proud of the group that we're building. Because of our strong buy and build strategy execution, net sales for gaming vertical increased by 59% or 63% on a constant currency basis, and performer growth was 8%. EBITDA amounted to a record $364 million in the quarter. We have been selective in our M&A strategy, looking for assets with great IPs, strong founders, management and culture, along with companies that want to be part of our growth journey. Therefore, it's great to see the strong performance of our recently acquired companies and the contribution they make to our group. In particular, Ninda Kiwi's Bloons BTD6, which has achieved significant success by porting the game to both Steam and browser, showed very strong results in the quarter, and we believe that their evergreen IP, such as Bloons BTD6, has the potential to develop into a larger franchise platform over time. The strength of its evergreen franchise and how it can drive organic traffic and user engagement is impressive. Moreover, Play Simple and the Grand Franchise, especially Game World Trip, perform very strong, managing multiple complementary platforms to maximize operation performance despite the more challenging marketing environment and growing in particular on the Android platform. Our older portfolio comprised by inner games and congregates have had a strong track record of impressive operation performance over the years. However, in the quarter, they both faced tough comparison year over year, as well as challenges from lower marketing efficiency resulting in negative growth. This was also, unfortunately, combined with the less successful in-game campaigns. However, as a group, we've taken steps to adapt to the new marketing landscape, And we have also increased ambition for our in-game events, and we can see early but promising signs of this negative impact easily going into the Q4. New game launches are key to drive long-term sustainable growth, and we're happy to see that our new games pipeline continues to perform well with 10 titles underway across all our game companies. In September, Kongate launched the anticipated SpongeBob Idle Adventure on mobile platforms, and in the coming months, InnoGames and PlaySimple are expected to fully launch several new titles. It is worth mentioning that InnoGames will in Q4 scale up marketing for three soft launch games in anticipation for a full commercial launch in Q1 next year. Additionally, Niga Kiwi is expected to launch in Bloons Battle 2 in late in this quarter, and the Fountain Tower Defense franchise has long been awaiting for this game launch. Following the lower-than-expected performance from Hutch's title, Passive Heist, the company has decided to further pause the development of this title, rather shifting the team's focus towards existing successful titles in the company portfolio, such as Formula One Clash, as well as upcoming and still-to-be-released titles. Moving on to the next page. As said, we are well underway to build a relevant gaming vertical, which, in a positive way, will change our financial profile of the group. With inclusion of our latest acquisition, Play Simple, we have Performa net sales amounted to more than $3.5 billion year-to-date with a 31% adjusted EBITDA margin. What excites me about this is that we have demonstrated an accelerated growth profile whilst maintaining or even actually slightly improved profitability margins. Isolated for the quarter, we delivered almost $1.2 billion net sales to Performa, representing an 8% growth rate, Hence, we are both year-to-date and for the quarter outgrowing the mobile gaming market, which is forecasted to grow 4% per year. This shows the strength and the quality of the gaming companies that we have recently acquired. Equally important, we now have an even stronger group capability and skills, which we will leverage across the gaming vertical going forward, and I will come back to that later. Moving on to the next slide. As I mentioned, one of our main drivers behind building a stronger mobile gaming group is relevance and diversification to create an even stronger focus for future growth. Over the course of the last year, we have step-by-step executed on this ambition. As a result, we no longer have a single type of dependency, and we've also increased the spread of games across our gaming verticals. Additionally, we also increased our exposure to mobile, which is the gaming segment that is expected to have the fastest growth which now also represents 73% of our total revenues. I do not want to downplay the importance of browser, which still represents an important part of our gaming success, but I want to increase our exposure to mobile, as that is where we can meet the most fans and gamers. Diversification is also revenue generation related, and through the addition of Ninja Kiwi and Play Simple, we have now also more relevant revenue streams coming from ads and from premium games. making our gaming vertical more resilient to a shift in the market landscape circumstances and also in user behavior. And as to our geographic exposure, we still continue to have a predominant focus to U.S. and Europe. Finally, we have also increased our focus and exposure to female gamers through Play Simple, seeing that that has a play base made up to over 70% of female gamers. All in all, diversification will lead to a more sustainable and a more resilient revenue growth going forward. To conclude on the gaming part, we are well underway to build the leading mobile game group. With the great companies we have acquired over the years and the excellent talent within those companies, we have a solid foundation to build upon to create synergy and economies of scale and above and beyond the single standalone entity. The way we will approach this is still according to our family model. Hence, it's important that all our gaming companies retain the local mandate and ownership if they understand the communities best and what we'll resonate with them. But we strongly believe that there are group capabilities that will help us accelerate growth and share best practice. And this is especially in the field of UA, LiveOps, AdMob, cross-promotion, and HR. Therefore, the next important step that we're now taking is the promotion of new talent to step up into group responsibilities to realize these group common initiatives in a collaborative format. And as an added benefit, this will also help us to promote talent within and drive performance. Shifting the focus to our esports vertical. We saw a strong recovery in combination with a richer event schedule in third quarter, driving organic net sales growth of 55% and reduced losses, with an adjusted EBITDA amounting to negative 33 million. ESR Gaming successfully delivered and produced five master properties as scheduled, four being produced as online and one as a studio event. IAM Cologne was the first event with teams present on site. which was an important testament for us as a company to deliver a safe and successful tournament despite an ongoing pandemic. As gaming convergence continues, with esports being enjoyed over multiple platforms, we are excited on what's to come for mobile, both on the cash and competitive gaming, as well as the professional esports side. Therefore, it's great to see that ESL Mobile Open continues to develop in a positive direction, and it kicked off the second season of ESL Mobile Challenge, including games such as Punchy Mobile and the League of Legends Wild Rift. We had close to 900,000 participants in these events, demonstrating the strong demand from fans for this product. QMX4 Games further produced the NHL annual gaming tournaments remotely, and the European E-Tour was also concluded during the quarter. Looking then into Q4 2021, It should be underlined that our esports business is still being impacted by the ongoing pandemic and that we in the quarter have a lighter schedule this year compared to the same period last year. With that said, we remain confident regarding a return to normalcy for esports in 2022. We continue to make investments into exciting strategic initiatives such as competitive mobile gaming, B2C platforms, and geographic expansion to diversify our esports verticals. These investments have already started to yield early results. For example, in the third quarter, ESL Gaming invested into DreamHack Beyond, an all-digital festival concept developed for the gaming lifestyle community, created to both complement and showcase the best of the classic LAN experience of DreamHack in an all-new, all-digital way. 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. We expect that this emerging hybrid model to lead to both a faster growth and increased revenues, but also to a richer, more resilient commercial operation. We've also continued to invest through our VC fund. In the quarter, MTG made an additional investment into Bitcraft's new token fund. The fund is focused on investment at the intersection of cryptocurrency, blockchain, NFTs, and gaming. We believe that this has the potential to become an important part of both esports and gaming, and together with our partners at Bitcraft, we want to support emerging companies in this space, and of course, also to learn more on our side about these emerging businesses. Additionally, we're exploring new strategic partnerships within our ecosystem, as we want to continue to strengthen our leading position within the broader concept of competitive gaming. With that said, we'll continue to carry on the operational efficiencies within the core esports business segment, and we're seeking out new commercial and sponsorship agreements. So with that said, I will hand over to you, Lars, and walk you through the financials.

Thanks, Maria. As said, the third quarter delivered record results on the back of our more diversified strategy, showcasing the strength of our buy and build strategy. Net sales amounted to 1,438,000,000, growing by 58% or 61%, excluding exchange rate changes. with both verticals growing double digits in constant currencies. This was a result of us consolidating Hutch, Ninja Kiwi, and Play Simple. Organic growth was flat, but pro forma net sales was 16% on the back of strong performance of our acquired companies. The gaming vertical grew by 59%, equaling a pro forma net sales growth of a solid 8%. Net sales for our esports vertical was up by 53% or 55% in constant currency. positively impacted by a more intensive schedule compared to last year. Our owned and operated properties grew by 44% and esports services at 70%, sequentially reflecting a gradual movement back to a proportionally higher share of owned and operated sales as brand partners and media sentiment improves, although from a low base. Adjusted EBITDA amounted to 306 million, of which 364 million from gaming. The margin remained stable year over year at 21%. The newly added game companies was the drive behind our record EBITDA contribution. The gaming vertical had an adjusted EBITDA margin of 34%, driven by solid performance at Ninja Kiwi and Play Simple. Worth mentioning is Ninja Kiwi's successful work with Steam, to distribute its Blooms franchise that has been good both from a reach and efficiency perspective. I believe it's also worth mentioning that we have been able to maintain our gaming adjusted EBITDA margin despite us growing the business so significantly. Moving on to eSports that delivered reduced losses of 33 million supported by a more intensive event schedule. but still affected by the ongoing pandemic and accelerated operational investments into new strategic initiatives such as competitive mobile gaming, B2C platforms, and potential geographic expansion. As we flagged already in the beginning of the year, these elevated investments will continue throughout the year. With that said, the overall EBITDA adjustment in the quarter amounted to 70 million to be compared to 72 million last year. Management incentive programs amounted to 28 million. Also, M&A cost amounted to $41 million because of the activity in both the gaming and esports vertical. As we said already in Q2, most of the M&A cost in the quarter is related to the acquisition of Play Simple. Depreciation and amortization in the first quarter amounted to $142 million and included amortization of PPA of $87 million. Amortization of PPA was higher compared to last year, mainly related to the Hatch, Ninja Kiwi, and Play Simple acquisition. Excluding PPA, depreciation and amortization was slightly higher year over year at $55 million, mainly due to more investments into new games to be launched. Net financial items amounted to a negative $22 million. There are several items to keep track of here. We have seen a gain from financial assets of $112 million, mainly due to an esport investment into Nasara Technologies of $96 million. The revaluation of the asset value is the result of the company going public in India. To give you some background on the company, Nasara Technologies is a leading Indian-based diversified gaming and esport media platform. Additionally, we have Discounting interest for earn-out debt related to acquired companies amounted to negative $77 million, and exchange rate differences of negative $52 million. Finally, the group tax was a negative $27 million, predominantly reflecting the increased result in the gaining vertical, but also a result of timing effects. Let's move on to the cash flow statement. Cash flow from operations before changes in working capital improved to $164 million. A management incentive program amounting to $57 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 this was the second payment this year. Operationally, the cash flow was positively impacted by continued strong performance by the gaming vertical and negatively affected by maintained investments into the esports vertical. We saw a large swing in working capital of 173 million being predominantly related to the gaming vertical and inclusion of the new companies acquired. Within the gaming vertical, PlaySimple have had payouts of 70 million, mainly coming from canceled employee share ownership program, also known as ESOP, and withholding taxes on dividends and accounts payable. The PlaySimple ESOP was paid in August and September, and is netted against cash received in the transaction closed in July. Cash flow in investing activities contained the net cash payment of the acquisition of 77% of place input of $2,161,000,000. Furthermore, we invested $7,000,000 in the VC fund and Bigcroft's new token fund number one. CapEx amounted to $73 million a quarter, mainly consisting of capitalized development costs for games and e-sport platforms that have not yet been released. Cash flow from financing activities mainly consists of a bridge facility and RCF taken up as part of the Play Simple transaction. The bridge facility amounts to $1 billion. The RCF amounts to also $1 billion, of which $900 million has been drawn. Additionally, a capital injection from the minority owners of the gaming co of 160 million has happened as they partly participated pro-rata in the PlaySimple transaction. As a result, the net change in cash and cash equivalents for continuing operations amounted to a negative 196 million. The group had a net cash position of around a billion. As of end of Q3 2020, net debt amounted to 950 million, or 1.1 times last 12 months pro forma EBITDA. Gaming continues to be the cash flow contributing entity. Looking into the fourth quarter, I would like to remind everyone that gaming will face more normalized comps, while esports will have more tough comps due to a very intense event schedule in the fourth quarter of 2020. That concludes the financial presentation of the quarter, and now back to you, Maria.