Modern Times Group MTG AB (publ)

Good morning, everyone. Thank you for joining us today to go through our results for the second quarter and first half of 2025. My name is Anton Gorman, and I'm the VP of Investor Relations at MTG. With me and hosting this call is our CEO, Maria Redin, and our CFO, Nick Hopkins. After the end of this presentation, there'll be an opportunity to ask questions. If you're dialing in, please follow the instructions from the operator. Otherwise, please use the online form for your questions as always. Thank you. Apologies again for the restart. And now I hand back over to Maria and Nick. Maria, please go ahead.

Thank you, Anton, again. Hello, everyone. Again, sorry for the trouble on the sound, but thank you for joining us on our call. Before we get in the number, I still again want to welcome Nick to joining MTG and our team. It's truly great to have him on board, and he's already proven to be a great addition to our team. Having said that, let's now dive into the results. For Q2, I'm very happy to deliver another quarter of exceptional business momentum in which we double our total revenues year over year. While our total revenues, of course, were indeed driven by the acquisition of Plarium, we also continue to see great and accelerated momentum from all our original studios. As a result, we delivered organic growth of 9% in the quarter and 8% for the first half of the year. Our strong organic performance was driven by a combination of both our casual and mid-core games. On the casual side, our world games grew from both geographic expansion and the new games. And on the mid-core side, we delivered growth in several of our mid-core strategy and simulation titles, as well as the racing franchise. This demonstrates the quality of the games and the teams we have across our portfolio, and our focus on product innovation to deliver the greatest player experiences. This in turn enables us to continue to invest in disciplined marketing to fuel profitable growth. And as we look at the results now in the quarter we have delivered again consecutive solid organic growth now three quarters in a row. And we are very confident therefore to our ability to invest in our growth. For the quarter we reported 640 million in adjusted EBITDA for Q2. That represents a 50 percent increase year over year. And this is mainly as a result from the consolidation of Plarium. We report a healthy operating margin of 22 percent in the quarter with our margin levels reflecting the significant increase in user acquisition spend to drive current and future growth. Our operating margins were therefore down from the elevated levels we saw in the second quarter of last year. But you may also remember that our U.A. spend in our original studios was at an all time low in Q2 last year and that our U.A. spend has gradually been accelerated since the end of Q2 2024. We generated 325 million kronor in cash flow from the operations in Q2 with an unlevered cash conversion of 48% for the rolling 12 months period. These cash conversion levels reflected the recent higher M&A cost as well as withholding tax payments in Play Simple both in the first and the second quarter of 2025. Moving on and let's have a look at our net sales. We reported total net sales of 2.9 billion krona in Q2. As mentioned, this was a doubling year-over-year, and that reflected not only the consolidation of Plarium from the 1st of February 2025, but also the 9% organic growth for the quarter, and then 8%, as I said, for the first half of the year. In total, net sales were up 117% in constant currency year-over-year in Q2, and were up by 98% for the first six months of 2025. The significant weakening of the US dollar and the overall strengthening of the Swedish Krona resulted in a material negative currency impact of negative 14 percent in the second quarter and minus 8 percent for the first six months. Despite this our reported net sales were still up 103 percent year over year in Q2 and by 90 percent for the first half of the year. Let's now take a little bit more grander look into the performance of our different gaming franchises and key titles. As we already mentioned in April at the Q1 call, we plan to announce a new reporting structure at the Captain Markets Day coming up now in October. However, in order to keep it consistent in our reporting structure, we've taken a decision to continue to report our franchise as is for the remainder of the year and rather introduce a new reporting, which we will present at the CMD, that we will start reporting accordingly in Q1 2026. So therefore, you'll see and continue to see for the rest of the year Plarium as a separate franchise. Starting then on Plarium, revenues were down on single digits on a like-for-like basis in constant currencies. However, looking at the largest games, Raid Shadow Legends, which is also now the largest game in our portfolio, were up by single digits year over year. And this was driven by very strong in-game events and the continuous focus on live ops from the team, and UNE being particularly strong thanks to the summer campaigns. It is worth mentioning in general for the raid, since it is such a large game, the in-game events calendar and live-op calendars are key to the performance on raid. And as we look forward, it's really exciting to see that the team has a very strong pipeline for the second half of the year. Moving to our World Game franchise, they delivered an outstanding quarter, revenues being up 16% year-over-year in constant currency. The performance reflected two broadly equal factors. The first was a continuous strong momentum from the geographic expansion of our World Games, and in particular, World Search Explorer and Crossword Gen and World Tour, where we continue to see good results in key European and Latin American markets. The second one was a successful scaling of new titles like Jigsaw and Time Match. They are successful both in the core English, but also in selected non-core English markets. And again, here it's worth mentioning that the core gameplay on these titles are not depending on language in the same way as the word games are, and therefore the team can more rapidly scale them on a global basis rather than on a local basis. Australian simulation franchise revenues were up 7% year-over-year in constant currencies in Q2. The growth here came both from Heroes of History, launched by Energames in Q3 last year, as well as the Warhammer 40k Tacticos, where Snowprint continued to scale with great effort. The growth in these two titles were offset by the revenues in Forge of Empire. This is our second largest evergreen franchise in our portfolio. But in the quarter we saw revenues slightly down year over year and this was due to the lower than expected performance in one of the games events in the quarter. Zooming in then in the growth game in the franchise, Heroes of History continues to expand and it launched both new heroes to collect as well as live ops and events and was supported by focused marketing investments. We're therefore very excited about the growth trajectory we're seeing for the game. Next, Warhammer 40K Tacticals continued to deliver a strong growth in the quarter. The game team has been focusing on boosting organic installs. They introduced a new popular in-game faction and also launched a new event. On top of this, the team has also further diversified the game's revenue mix more towards direct-to-consumer sales through the launch of the Tacticus web store. As an icing on the cake, I'm also very proud to say that both Snowprint Warhammer 40K Tacticals received a lot of recognition at the upcoming 2025 Pocket Game and Mobile Games Awards this year. Snowpin has been nominated in the Best Developer category, while the Warhammer 40K Tacticals received nominations both in the Best Marketing Campaign and the Best Forever Franchise category. And on top of this, also from Ninja Kiwi, Bloom's Cardstorm was nominated in the People's Choice Award at the Pocket Gamer Award as well. I think it's fantastic to see the success across the group and a huge congratulations to everyone at Snowprint and Ninja Kiwi who has contributed to this well-deserved and recognized success. Moving on then to our franchise revenues, we had a very strong Q2, delivering 14% year-over-year growth in constant currencies, and this was predominantly driven by the exceptional performance of Formula One Clash from the season reset in May. Thanks to a focused effort by the team, the new season included the biggest campaigns to date and features new drivers, new stats for players to unlock, and updated core game systems and mechanics. And also it's worth noting that in addition to the great work done by the team, there is also an increased and elevated interest around Formula 1, given that the season this time is more exciting, and also the recent Formula 1 movie release adds to the interest. Finally, tower defense franchise revenues were down 17% year-over-year in constant currencies, and that is mainly reflecting declining DAO levels in the Bloons TD6. The game team continues to focus on new in-game content and launch several new towers, a new map, and additional content for the Rouge League Legends paid DLC game in the quarter. The game has, however, active content for the pipeline for the rest of the year, as well as a Nintendo Switch launch in the works, so the momentum in the studio remains high. As a result of the consolidation of Plarium, our top three games, which is Raid, Forge of Empires, and Warhammer 40k Tacticals, now represent 50% of our total revenues. Of note, our top three games are all developed by different studios, and the same can be said if you're looking at our top five games, where the top five is also including both mid-core and casual titles. And again, I do believe this really highlights the creativity, diversity and our resilience of our portfolio. Looking at the user acquisition, we invested 36% of our total revenues in user acquisition in Q2, which was an increase from 33% of the total revenues in Q2 last year. It's worth noting two things. The first is that 36% in this quarter represent the total combined UA invested by both our original studios and Plarium. Our total UAE spend amounts to just over one billion krona, and that is materially over double our spend for Q2 last year, and in part due to the consolidation of Plarium. The second is that Q2 last year represented a historically low level for our UA spend, as several studios in Q2 were still working on the games that were due to launch in the second half of 2024. Several of those games are now scaling, and as I said before, from Q2 last year and starting Q3, we have been ramping up marketing, and now these are among the main drivers of our organic growth in Q2 this year. Our total US spend in our original studies is therefore up 52% in constant currencies in Q2 year-over-year. And this was driven by the geographic expansion of our world games, the growth of our casual titles, the rapid expansion of our new titles Heroes of History, and the continuous scaling of Warhammer 40k Tacticus. We continue to be very happy with the positive momentum we are seeing in our marketing and the growth that it is enabling us across our businesses. And with that, I will now hand over to Nick to discuss our profits, KPI and financial position.

Thank you, Maria, and hello, everyone. It's a pleasure to join the team and to deliver such a strong performance as my first set of results as CFO. So we reported 640 million SEC in adjusted EBITDA in Q2, which represented a 50% year-over-year increase in absolute terms. If we adjust for translation currency effects, our adjusted EBITDA was up by 63% year-over-year in Q2. The year-over-year increase was driven by the contribution from Plarium after the consolidation in February, as well as our organic growth, but it was partly offset by the investments in UA to scale the current and new games that Maria just discussed. We therefore delivered a solid operating margin of 22% in the quarter, with the delta to last year's operating margin primarily reflecting our increased UA spend. Our adjustments to reported EBITDA in Q2 amounted to 44 million SEC. The vast majority of this was attributable to M&A transaction costs related to the Plarium acquisition and also performance-based payments related to the acquisition of Snowprint. Our depreciation and amortization costs amounted to 373 million SEC in Q2. Of this, just over 320 million SEC came from the amortization of PPA from the Playroom acquisition. This was driven by the fact that around 70% of the PPA for the Playroom acquisition was allocated to intangible assets, with Raid Shadow Legends containing the key assets. This is the first quarter where we've had a full three-month contribution from the consolidation of Plurium, and so the levels you are seeing here should represent somewhat of a new baseline going forward. So now let's look at our operational KPIs for the second quarter. The consolidation of Plurium has shifted the composition of our revenues and of our operational KPIs. We generated 79% of our revenues from in-app purchases in the second quarter, with 19% coming from advertising and a further 2% from third-party platforms. This primarily reflects the scale of Raid Shadow Legends and that it is primarily IAP monetisation. We now have 9 million DEAU stable from the first quarter and up from 5.8 million in Q2 last year. This year-over-year increase in the DAO reflected both the consolidation of Plarium and also the successful geographical expansion of our word games and growth of key new casual titles in more or less equal measure. ARBDAO also grew in the quarter, both year-over-year and sequentially, driven primarily by the consolidation of Plarium and also a mixed shift with growth in higher ARBDAO franchises, such as racing. So now let's take a look at our cash flow for the quarter and also our leverage position. We generated 512 million sec in income before tax adjusted for items not included in cash flow. We reported cash flow from operations of 325 million sec with a positive working capital inflow in the quarter and free cash flow of 280 million sec. This enabled us to deliver levered cash conversion of 50% for the 12-month period ending 30 June 2025, and an unlevered cash conversion of 48%. It's worth noting that our levered cash conversion was lower than our unlevered cash conversion, as whilst on a quarterly basis we now have net interest expense, given the financial debt from the Playroom acquisition in February, on an LTM basis we still had a net interest income, given we were in a cash position prior to that acquisition. Cash conversion in the quarter was also lower than the levels we've historically reported in recent quarters, primarily reflecting two main effects. The first is the M&A cost that I already mentioned, incurred in both Q1 and Q2, which predominantly related to the acquisition and integration of Playroom. The second is the payment of withholding tax in PlaySimple in both Q2 and Q1 this year, which were the first two quarters where we have upstreamed cash out of India. It's worth noting that our underlying cash conversion was therefore materially higher and remained very strong if you adjust for these M&A costs and if withholding tax had been spread out as if we had been moving money out of India on a more continuous basis over the last few years. We reported total net income of negative 61 million sec. But when we look at the underlying number without non-cash items and amortization related to our M&A activities, we delivered 317 million sec in operational net income for the period. I believe this clearly demonstrates the underlying health of our business and the strong position we have today. Our financial net debt at the end of the period amounted to 3.2 billion sec, which mainly comprised our external financing of 4.4 billion sec, less the 1.2 billion sec in cash and cash equivalents at the end of the period. Our cash and cash equivalents reduced quarter on quarter, primarily as a result of a 1.1 billion sec earn-out payment in relation to PlaySimple. Our financial leverage ratio therefore amounts to 1.1 times based on EBITDA for the rolling 12 month period ended the 30th of June 2025. Our total net debt amounted to 4.6 billion SEC, which is down 0.5 billion SEC quarter on quarter. This comprised a 4.4 billion SEC in external financing that I just mentioned, 1.1 billion in earn-out liabilities, 300 million in put-call options, and then reduced by cash and crash equivalents of 1.2 billion. We therefore had a leverage ratio of 1.6 times based on net debt over the 12 months rolling EBITDA, including Plarium. So that concludes the financial part of our presentation. And now let's have a look at our pipeline of games. Core to our model is delivering fun and engaging games to our players. And as Maria mentioned, core to our financial performance has been developing and scaling new games. It's therefore crucial for us to continue to get more shots on goal in order to deliver sustained future organic growth and value for our shareholders. Maria has already called out the success and the rapid scaling of Heroes of History, which was launched by InnoGames in Q3 last year, and also that about half of PlaySimple's growth was from new titles, with games like Tilematch and Jigsaw Puzzle showing very strong growth. As we look at the broader pipeline, two days ago, InnoGames publicly announced Cozy Coast, which will launch globally on iOS and Android later this year. This is a new casual title in the Merge genre, and InnoGames just concluded a successful test phase. Hutch has continued to evolve Match Creek Motors, adding new features and content to drive engagement and retention. Ninja Kiwi continued to focus on Bloon's Cardstorm, which is in soft launch, and also has three additional titles in development. And whilst Playroom's Elf Island is still in soft launch, it also has two additional titles in development, which are yet to be announced. So, given the financial performance in the first six months of the year and our continued good momentum and visibility, we have full confidence in reiterating the full-year outlook we provided in April. We continue to expect full-year organic sales growth of between 3% and 7%. For the avoidance of doubt, organic sales growth are our sales in constant currencies from our original five studios. We also intend to continue investing in efficient marketing behind key established and new games in order to drive this growth. We therefore reiterate our outlook for the full year total reported adjusted EBITDA margin to be in the range of 21% and 24%. And again, to avoid any confusion, this includes both our original studios as well as Plarium. The exact level of our margins will depend on our ability to continue to invest in UA at the right return levels. So with that, thank you for your time, and I'll hand back over to Maria for our summary.