Enad Global 7 AB (publ) ($EG7)

Good morning. Welcome, everyone, to EG7's First Quarter Earnings Release. My name is Fredrik Ruden, Deputy CEO and CFO. And with me, I have my colleague and the company's CEO, Ji Ham. We will start with the presentation and then end with a Q&A session. And if you have any questions, please e-mail our Investor Relations e-mail address. By that, I hand it over to you, Ji.

Thanks, Fredrik. Good morning, everyone. Thank you for joining us this morning. And let's go to the first slide. We'll start off with our first quarter key performance figures here. For the first quarter, we came in with SEK 345 million of net revenues. That's down 24% in SE year-over-year, 13% organic in local currencies. Adjusted EBITDA came in at SEK 51 million, down 31% compared to last year, and EBITDA margin came in at 14.8%. That's 140 basis points lower than last year's numbers. Net profit-wise, we're returning to profitability with SEK 21 million of net profit compared to a loss of SEK 18.5 million last year and operating cash flow is strong with 5x the multiple compared to last year, coming in at close to SEK 90 million and EPS on a diluted basis of SEK 24 -- SEK 0.24. Next slide, please. So here, we showcase the net revenue bridge from last year to this year. So we wanted to demonstrate some of the key components that contributed to that decline. Underlying business is stable, but there's two major components that reduced our revenue for year-over-year. The first part of it being a significant FX impact. We had SEK 50 million of impact, about 11% of our net revenue contributing to our decline. And also Fireshine. So Fireshine, one of our publishing businesses last year in Q1 2025 had three physical titles that it released, which contributed SEK 96 million. That revenue is not present for this quarter as their revenue pipeline is more backloaded this quarter as well as this year. As a result, this missing revenue is also contributing to a revenue decline for this year, but that's timing related, not structural related. Otherwise, the organic growth for the other business units, including Daybreak, Big Blue Bubble as well as Piranha all showed positive growth, resulting in about SEK 40 million of growth year-over-year. When you account for all that, we end up at SEK 345 million of net revenue for Q1. But once again, two major components, one is FX. The other one is the backloaded revenue for Fireshine with timing that contributed to this decline versus any kind of structural issues with their business. Next slide, please. Some of the key strategic actions that we took this quarter. The first one is cost discipline. We continue to look at our business that may be underperforming, and we're actively looking to optimize in order to sustain our profitability in the long term. So we had restructuring with Petrol where we reduced about SEK 13 million of annual cost. Piranha, the same, we reduced about SEK 15 million of additional costs given their revenue level in order to get to sustainable profitability. Also contributing to a lower cost going forward would be reducing for remuneration by about SEK 4 million in total, about SEK 32 million of annualized run rate savings going forward. Additionally, we had a reduction in a liability to Daybreak earnout about USD 11 million that was paid in the first quarter. We had this tax receivables obligation that Daybreak earnout to the sellers that's been on the balance sheet for some time. We wanted to clean up our balance sheet. This should be resulting in about $1 million to $3 million of annual cash flow retention going forward for the next 12 years or so. And this generated about $16 million of profit onetime gain for our P&L as the -- what was booked on the balance sheet versus the purchase price resulted in this positive gain. And thirdly, we have the Proposed Cold Iron acquisition M&A. This is restructuring of the existing deal largely. We have a publishing deal in place where Daybreak is investing and publishing the new title that we disclosed earlier today, Aliens: Fireteam Elite set to release third quarter of this year. So we have the structuring change namely where we're shifting the publishing deal into an acquisition to really clean up this related party issue. So with that said, the structure remains largely the same where Daybreak would be fully recouping all the investment that it made, including any expenses that are going in for publishing prior to any kind of profit share that happens. There is an upfront payment that's going to be made along with this transaction, and that is tied primarily to the back catalog revenue that Cold Iron receives for the first title, Aliens: Fireteam Elite, and we expect that investment upfront purchase price to generate a positive yield with the remaining term for that particular title and continuing performance from that back catalog revenue going forward. Next slide, please. On the live-service side, we have continuing momentum here. We have 91% of our group net revenues coming from what we consider to be more predictable service revenues. So you have live-service revenue as well as back catalog revenue that contribute about SEK 314 million of net revenue for first quarter. And this declined only about 1.5%. So we have continuing very good sustainability of this revenue base and contributing to that with Daybreak, where we actually saw very strong growth year-over-year, 16.8% local currency growth from last year. And Daybreak represents 55% of group net revenues, which is significant. And this particular growth was driven largely by EverQuest, DC Universe Online as well as Palia from Daybreak's portfolio. Palia once again, doing well in terms of revenue growth. We saw 160% growth year-over-year, local currency. and it just celebrated 10 million lifetime players just last month. And we have a significant update coming up in next week, Royal Highlands expansion that's happening on May 12, which we expect to see another step-up in terms of user engagement growth going forward. Big Blue Bubble returned to growth again. So it's been about seven quarters since we saw year-over-year growth with Big Blue Bubble with My Singing Monsters strong performance in Q4 with the viral uptick again with their new influencer strategy, Clubbox, which has been doing really well, and they're continuing to see that sustained momentum around their business and the game. And that we saw a 3.6% increase in their net revenue year-over-year for Big Blue Bubble. Piranha also had a nice quarter, about 26% of local currency-based net revenue growth year-over-year. MechWarrior 5: Mercenaries DLC 8 also coming up later this month and EBITDA margin at 39% for Q1, which was a nice profitability for them. Next slide, please. So 2026 is shaping up to be one of our most robust pipeline in terms of our product slate in our history. We have Far, Far West from Fireshine that just released last week on April 28 as early access, 96% positive -- overwhelmingly positive rating on Steam as an early access title, which is amazing, together with that they shipped 700,000 units in the first week. We're seeing a nice momentum with this title. It's early access. It's only on PC, but we expect this game to continue to grow and sustain not only the sales, but being able to eventually bring this product out to multiple platforms, including consoles. We're very excited for that prospect going forward. So in Q2, we additionally have Palia: Royal Highlands, as we talked about from Daybreak, that's coming out next week, and we have MechWarrior 5: Mercenaries DLC 8 coming out later in May. And additionally, going forward, we have Fireshine, another title, Denshattack! mid-June time frame, which has a nice following on the wish list as well as. We're excited for that title also. Q3, the biggest release will be Aliens: Fireteam Elite 2, which we disclosed earlier today. And then we have an announcement with the reveal of the trailer that's going to be happening in about 8 hours tomorrow morning or tomorrow morning, California time. So we're very excited to finally bring this game, reveal gameplay and the trailer, et cetera. We're partnering with IGN who have an exclusive announcement relating to this title for the first 24 hours before we take it global. And in July, we have EverQuest Legends that's coming out from Daybreak as a more casual, more approachable type of gameplay that EverQuest team is being able to bring, which we're very excited about, and we're targeting that release for July. And we have My Singing Monsters anniversary, more collaborations with influencers, Clubbox strategy that we're going to be leveraging there as well to continue to drive engagement and user growth as well. And Fireshine has a couple of additional products that are coming out in Q3. And for the remainder of 2026, we have Fireshines with unannounced titles, six of them -- and we had live-service updates, expansion tax, et cetera, that we're very excited about that we continue to do year after year. So when you look at this overall slate for 2026, it is our biggest slate in EG7's history. We're very excited to be executing against this for the remainder of the year. Next slide, please. Fredrik, over to you.

Thank you, Yi. In the first quarter, net -- sorry, next slide, please. In the first quarter, net revenue was SEK 345 million, down from SEK 455 million, representing a 13% FX-neutral decline. As I already mentioned, Daybreak, Big Blue Bubble, Piranha delivered growth in local currencies, but the unfavorable comparison is attributable to product release timing differences in Fireshine. The headwind currency effect in the quarter was SEK 50 million. LTM net revenue was SEK 1.5 billion and adjusted EBITDA margin was 15%. Both these KPIs are lower than historic average. Given our exciting release pipeline and cost optimization measures, the company is well positioned for solid potential growth in both top and bottom lines for the remainder of the year. Next slide, please. More predictable revenue comes from the live-service and back-catalog titles. Revenue from this portfolio was SEK 314 million. Of the last 12 months, net revenue amounted to SEK 1.5 billion, of which SEK 1.3 billion derives from the more predictable revenue base. This portfolio has delivered a stable, highly predictable cash generation for many years. In 2025, 69% of this portfolio was Big Blue Bubble and Daybreak, excluding Palia, the 2 most cash-generative businesses who generated 22% EBITDA margin in the full year 2025. And you can assume that to have grown a little bit in local currencies given the organic growth that we have in those businesses. Next slide, please. Daybreak is the largest contributor to the net revenue, generating SEK 190 million. This is flat in Swedish krona compared with last year, but the strong 17% organic growth in local currencies. The underlying operational growth in Q1 comes from 122% growth in Palia. And as I mentioned, the growth in local currencies was 160%, which is an increase from the 70% that we had second half of 2025 compared to 2024, which was the first period after we consolidated Singularity 6 where Palia is included. And it was also a strong performance from both DC Universe and EverQuest. The adjusted EBITDA came in at SEK 30 million, corresponding to 16% EBITDA margin. Big Blue Bubble delivered net revenue of SEK 61 million, corresponding to a 4% organic growth in local currency. After implementing a new influencer strategy, we had an activity peak in December and a more stable performance throughout Q1. This gave an adjusted EBITDA at SEK 30 million, which means first time in the past 12 months back at Daybreak's level of contribution. Next slide, please. As already mentioned, Fireshine had a soft quarter and challenging comparable figures, which is explained by release timing effects. Net revenue was SEK 45 million and the comparable figure last year was SEK 145 million, of which SEK 96 million came from three specific physical releases: Sniper Elite, The First Berserker and Atomfall. Given the low level of revenue, Fireshine did not reach profitability this quarter, but the start of Q2 is promising following the successful digital release of Far Far West, which over the first weekend reached over 500,000 units and now is up at 700,000. Petrol generated SEK 28 million in net revenue with yet another negative EBITDA. Based on this, we have executed a cost optimization restructuring in that business unit with the aim to deliver profitability from Q2 and on. Next slide, please. Piranha delivered a net revenue of SEK 21 million, corresponding to 12% growth of 12.5%. Adjusted EBITDA was SEK 8 million, corresponding to a 39% margin, up from 17% Q1 last year. And to strengthen Piranha 's long-term profitability further, cost-saving measures were executed in the beginning of the year, aiming to save approximately SEK 50 million on an annual basis would start Q2 2026. Next slide, please. Our financial situation remains solid. Operational cash flow increased to SEK 89 million from SEK 80 million last year. And the main difference is attributable to the increase is attributable to timing effects of collecting sales money from quarters with high sales. And Fireshine had a good sales in Q1 2025, as mentioned, but the cash did not flow through until Q2. We see an similar adverse similar effect, but smaller this year following the release of Jurassic in December 2025. We invested SEK 174 million, where SEK 101 million is the accelerated settlement of the earn-out to the seller of Daybreak and SEK 48 million represents investments in Palia and Cold Iron. The level of investment in the more predictable revenue base remained low. By accelerating the settlement of the earnout to the sellers of Daybreak to improve the next 12 years cash generation by USD 1 million to USD 3 million per year, we also drained the cash to the level where we reached a net debt of SEK 55 million. The cash [ box ] was SEK 293 million. And together with the unutilized rolling credit facility of SEK 100 million and a bond frame of SEK 1 billion, EG7 has plenty of financial strength going forward. And that's all from the financial discussion. So over to you, Ji.

All right. Let's go to the next slide, the last slide, key takeaways. All right. To summarize. So I think the first thing is that our underlying business continues to be very resilient. 91% of our net revenues is what we consider to be very predictable with live-service games and also that catalog sales and the decline of that year-over-year slight at 1.5% and some of the decline in terms of our net revenues where we had 24% decline in [ SEK ] is clearly explained by really two components here which is the FX related as well as Fireshine release slate more backloaded this year compared to last year. So we feel very good about our underlying business with nice foundation of our live-service games. Momentum is strong. Secondly, with our live-service games where Daybreak showed very nice growth for the quarter, close to 70%. Palia, one of the newer games that is continuing to build momentum around new players with 160% growth year-over-year. And Big Blue Bubble was back to growth, and we're seeing those trends that could be sustainable on the local currency organically growing, which we feel very good about for 2026 and beyond. And we continue to evaluate our business in a very disciplined way operationally, continuing to make sure that a lot of the business units that we have are operating well and maintaining sustained profitability and cleaning up balance sheet and simplifying things where it makes sense, earn-out where they break being settled, which should be increasing our cash flow generation for the next 12 years by $1 million to $3 million a year. And Q2 is off to a great start, Far Far West, really kicking it off with the released last week, 700,000 units 1 week is an amazing start. So we're very excited for this title and what it could achieve going forward. And Palia up next week with this big annual expansion coming out. And following that, we have multiple additional titles that are releasing throughout the year, including Aliens: Fireteam Elite 2, which we're very glad to finally reveal coming in late Q3 alongside a number of the other titles like EverQuest Legends that we're very excited for. So 2026 is going to be one of our most the strongest pipeline in our history and combining that with the additional, I would say, simplification of the overall structure with Cold Iron, which used to be owned by Daybreak, -- now we get to bring it back. And I think the deal structure that we're proposing is quite disciplined and clean in terms of maintaining the economics where EG7 Daybreak does have that first recoup priority over the investment that is making. So that's not changing and any funding upfront that we're making for the transaction. Relatively small, that is meant to really purchase the back catalog revenue from the first title, which we think would also generate a positive return for that investment here. So overall, net revenue top line number was down. But quarterly, we feel pretty good about the Q1 performance and looking forward to Q2 and beyond for the rest of the year. So that's the end of the presentation, and then we'll switch over to Q&A.

Yes. So here is the question from [ Ilya ]. When will the Steam page for Aliens: Fireteam Elite 2 go live to enable wish list tracking?

It should be happening along with the games trailer release, which is happening at 8:30 a.m. Pacific Time or I guess -- yes, tomorrow morning, Pacific Time. So it's happening in less than 8 hours.

Yes. And also a question from Ilya about marketing. When will the active marketing campaign begin for Aliens: Fireteam Elite 2 not just press announcements on outlets like IGN, but paid user acquisition, trailers, [ influencer ] activations and platform features.

Yes. So I mean that there's a full go-to-market plan relating to the games release. So tomorrow morning, once again, Pacific Time, we're revealing the trailer exclusive with IGN for 24 hours. And after that, it's going to be going broad with some media spend behind it in order to push and broaden the awareness relating to the titles announcement. And over the next number of months, we will continue to invest in awareness and marketing that builds up to the eventual release in Q3. So more to come on that front. But yes, we have a robust marketing plan going forward to support its release.

Also one question from Ilya about the Cold Iron acquisition rationale. since EG7 hold the economic rights to Aliens. So what is being purchased with additional consideration?

Yes. So once again, in terms of the economics of the deal, there's really two components to it. One is the upfront $3 million payment. And as I mentioned before, that's largely tied to the acquisition of the back catalog revenue from the first title that Cold Iron continues to monetize. So that's the first component. Second component is related to really this title and the studio itself. The economics that we have for the transaction itself is very much the same as what the publishing deal is, but we get to bring it in. This related party situation with this particular studio and the game has been, I think, a confusion for the market, investor base, et cetera. But without changing the economics, being able to bring this in where Daybreak EG7 would be owning the studio, being able to have full control over this project on top of that, bringing in the talent to be able to utilize a lot of the technology, a lot of the investment that went into building Aliens: Fireteam Elite, the first game as well as the second game, that expertise around third-person action shooter, being able to bring that in-house for other types of games in this big genre that we could be investing and making going forward is also very attractive. So I think from an overall structure and overall economics perspective, not a lot of change other than really bringing this in the -- under the same umbrella as it used to be, where Cold Iron used to be owned by Daybreak and being able to also price out the transaction in a way that upfront consideration is meant to generate a positive return against the back catalog revenues that Aliens: Fireteam Elite continues to generate, we think it's structured quite nicely for the benefit of all the shareholders and ultimately, with potential upside from what we could do with Cold Iron going forward beyond just the Aliens: Fireteam Elite 2.

I can take this one. What explains the high other revenue in Q1? So normally, we have items that is not related specifically to selling games that are accounted for in other revenue. And in this quarter, specifically, it's -- the amount is close to SEK 20 million or around SEK 20 million, which is higher than it normally is. And the explanation for that increase in Q1 is the accelerated earnout to the sellers of Daybreak because we had a book value of that liability, which was approximately SEK 60 million higher than what we paid. So we have a profit of SEK 60 million, and that is what is included in other revenue. Here is one question from. Could you elaborate a little on Fireshine 6 unannounced games? Is it digital only?

So the games that are unannounced are smaller digital games that they will be disclosing over the number of months going forward, yes. But we can't provide much more information on those at this time.

So here is some questions from Hjalmar at Redeye. What potential do you see for Far Far West from here? Is the strong sales trend continuing? Do you expect it to be a game with a long tail revenue? And how large is the potential audience?

Yes. I mean it's difficult to say ultimately what the ceiling is for the particular title, but I think certain data points that we already have in the first week are very, very encouraging. So prior to the game's release, you had over 700,000 wish list. On top of that, in the first week, we sold 700,000 units, and it's a 96% overwhelmingly positive rating on Steam, which is highly unusual for an early access title. So I think the combination of how well it's received by the community, which speaks to the quality and the type of game that it is, it's a Co-Op Shooter, which also has elements of what made Deep Rock Galactics of the world really popular. So the overall combination that makes this game not only high quality but unique in terms of its gameplay as well as having certain tried and true gameplay elements that a lot of the community already very much enjoy from other popular games. The overall combination has resulted in this great success. And we're really excited for it. It's only on PC so far on Steam. It's only been a week. We think there's a nice runway for this popular -- this title to continue to generate popularity and continue to attract users as a Co-Op game that there should be also word of mouth as people talk to their friends about picking up and play this game. So a lot more to come. I think very exciting once again, just the first week, but we do have to see how the trend unfolds from here on out. But a lot of the data points point to a sustained success going forward, not only on PC, but being able to go multi-platform.

All right. And another question for Hjalmar is what we can expect financially from Far Far West. Should we expect profitability in line with the historical digital publishing levels? And the answer to that is yes. And obviously, digital releases, they are also scalable. So depending on the success and the number of units, it could be higher margins, but it's -- you can assume same as historical profitability more or less. Here is a question also from Hjalmar. What should we expect for EverQuest Legends? Any notable impact on financials in Q3?

Yes. I mean we don't know. We expect that it's something obviously brand new that we haven't tried. It is a more casual version of EverQuest, also very much solo, meaning you don't have to play and you don't have to have a lot of other people playing with you, which is very different from EverQuest. So we do think that it sits next to EverQuest live currently, where that's the traditional tried and true. We know exactly how that game plays and so many people love and continue to play the game. But we also wanted to make this EverQuest Legends available to more casual players, players that do not have the time commitment required to play the EverQuest live as it is today. So we're really extending the audience where we get to hopefully recapture some of the labs players that may have left because they just don't have the time and they can't get a lot of their friends to pick up the game and play together. So now or you could play it on your own. So we're very excited for that, and there's nice momentum around the beta, lots of people, a lot of community activity and support on [ Discord ]. So we're seeing a nice momentum around it. So we're looking forward to bringing this out to the community in the next couple of months. But as to ultimately how we could do, we're optimistic. We're not investing heavily into it. It's a relatively small investment. So we expect that this is going to be a positive outcome. But as to how big and how long the runway is, I think that's something that we need to see before we could provide any further, I would say, guidance around it.

All right. Another question from Hjalmar. Do you see potential growth in the My Singing Monster revenue from now? Based on the new initiatives? Or is it more likely to remain stable?

We're excited for its return to growth, right? So Q1, we're seeing positive year-over-year growth for the first time in seven quarters. So it's been some time. We saw that huge uptick back in 2022, 2023 and now being able to get back to growth again from last year with the successful rollout of this Clubbox strategy that really took a hold up sort of their future going forward in terms of what they want to do starting in Q4 last year. We had [ Pain ] also collaboration that just happened last week, and we're seeing nice response from that. And I think Big Blue Bubble has been quite successful being able to attract influencers that really like the game and being able to work with them to bring out fresh and attractive content for a lot of the audience where we get to collaborate with influencers, a broader audience as well. So there's more collaborations to come. And I think that Blue Bubble feels very good about the momentum they have and the expectation is that there's a shot being able to show additional growth going forward.

There's a question how we should market [indiscernible], but it's an angle more to do we get any support from the IP owner with regards to marketing?

Yes. I mean, look, I think in terms of how a lot of these work would be -- you're working in partnership with the franchise owner. And the benefit of working on titles with well-known IP like in Aliens IP is that Disney and 20th Century, they continue to invest, right? So whether it's a TV show or movies or et cetera, even other video game titles, we do think that all boats rise as Disney and 20th Century continuing to invest, which they have been for the last couple of years. So we're looking forward to that type of support. And of course, from Disney's perspective, they want this to be successful, and they're going to be pushing on their side as well to get the awareness up and for us to be able to collaborate partner really pushing the game and get the awareness out and getting this in players' hands for them to really enjoy.

How firm is the release window in late Q3? Could it also be Q4?

We have a very high degree of confidence at this point, not to say that it couldn't slip because this is game development. It could always happen, but at the same time, based on our current trajectory, we're feeling quite confident.

What are your expectations for investments after the release of Aliens: Fireteam Elite 2?

Yes, I think a combination, right? So we continue to look at various opportunities, both on the M&A side as organic investments in our projects. So we do think that market has interesting opportunities. We haven't announced anything. There's nothing, I would say, that's very actionable at the moment, but we're looking at a lot of transactions. So it's going to be the same strategy, a combination of looking for good value with significant upside that those types of deals we like to do in the marketplace together with that, looking for opportunities to invest in our own projects. EverQuest Legend, smaller investment, but that's our own project or it's our own IP that we get to grow. We see upside from a number of Daybreak existing portfolio of titles that are older. But nonetheless, we're demonstrating that there's still growth left to do because our view is that ultimately, no one else will make another DC Universe online. No one else will ever make another Lord of Rings online, meaning these are one-of-a-kind unique properties that Daybreak EG7 currently control and continue to service, and we want to be able to continue to expand. So those types of investments are what we continue to consider. Palia, we're very happy about where it's trending and more to come in terms of where else we're going to be specifically investing in. but our strategy will largely remain very similar. Fireshine continuing to invest in cool products like Far Far West. So we like the opportunities that are out there. And I think a number of our business units are doing a great job investing smartly and yielding positive returns with those investments being made.

I think we have a couple of more questions. How big is the Palia: Royal Highlands expansion? Do you expect to increase the player count? And what is the potential for incremental monetization following that update?

Yes. I mean I think the expectation is that with this particular update, just as we experienced last year with the big expansion update, -- we'll see a nice influx of new players and then also bringing back reactivating a lot of the lapsed players. So we expect to see a nice uptick in our user base and engagement. And there are new content and new features that are rolling out with this update next week that is meant to really provide additional ways for players to be able to engage and enjoy the game. But alongside that, there will be additional options for people to also spend. So there's mounts coming and there's a number of other very cool gameplay-related enhancements that I think players will really enjoy. And combination of all that is what -- what we're looking for, not only an increased overall active user base, but also monetization that goes alongside that.

What should we expect from Petrol going forward? Will it be profitable following the latest cost optimization?

That's the expectation. I think, unfortunately, we've been saying this for the last few years. But at the same time, gaming market on the sort of lower to middle sort of tier has been more challenged versus the big guys, right? So on the marketing side, it tends to be where a lot of the gaming spend first gets pulled back. But nonetheless, we're seeing positive signs. They're continuing to lock up additional contracts with some of the big publishers. They tend to focus heavily on AAA guys, whether it's Activision or Take-Twos of the world. And they're seeing good results there. So in terms of revenue uptick, additional opportunities on contracts, et cetera, those are becoming more firm and growing. And along with that cost cut that we just recently implemented, we expect them to be at a profitable level and then be able to sustain that going forward.

Thank you, Ji. I think by that, we close the Q&A session. And if you have any further questions, you can continue to e-mail the Investor Relations e-mail address, and then we will answer you in due time. And with that, I think this presentation is over. So we thank you all for listening in.

Great. Thank you, everyone.