Robin Lundell: Moderator during this call. With us today, we have Ji Ham, CEO, and Fredrik Rüdén, Deputy CEO and CFO, who will guide you through our Q3 earnings release from this morning. We will round up this presentation with a Q&A session. If you have any questions, you can email them to the investor relations email. With this, I hand it over to Ji.
Ji Ham: Thanks, Robin. Good morning, and thank you for joining. Agenda for today, we will start with the quarterly highlights. Then Fredrik will cover the financials more in detail, and then we will close with key takeaways. Let's go to slide two. Main headline for the quarter: Q3 was our strongest performance in seven quarters. Our net revenue came in at SEK 496 million. That is a growth of 39.5%, organically 39% as well. Adjusted EBITDA came in at SEK 126 million, growing 99% from year before. Strong margins at 25.4% compared to 17.8% the year before. Operating cash flow strong at SEK 109.6 million, which more than doubled compared to last year. Solid contribution came from our biggest business units, Big Blue Bubble. My Singing Monsters' 14th anniversary drove strong engagement spending.
Ji Ham: Fireshine, 2 product releases, Denshattack! as well as Duskfade. Additionally, Far Far West content update for the quarter contributed nicely as well. Daybreak, EverQuest Legends performing well above expectation, released on 28 July, and we expect that title to continue to contribute nicely as a live service title. The other headline, Aliens: Fireteam Elite 2, launched in August and added for growth, but missed our commercial expectations. After careful consideration, we have opted to write down its book value, SEK 362 million of write-down, non-cash, no effect on cash flow or liquidity.
Ji Ham: But given its initial performance, we wanted to remove further uncertainty in its performance from our reporting going forward with this write-down. We maintain long-term licenses for both Aliens: Fireteam Elite and the second title, and we expect both to contribute ongoing profits, but no additional revaluation going forward would be needed with this approach.
Ji Ham: The Switch 2 version for the game is still planned for Q1 2027, with continuing support for the community plan going forward. Next slide, please. Our biggest business units deliver strong growth in both net revenue and adjusted EBITDA for the quarter. We will start with Fireshine. Net revenue came in at SEK 98.6 million. Significant growth of 67%. Adjusted EBITDA, SEK 27.1 million compared to SEK 1 million the year before. 2 game releases, Denshattack!, 191,000 units sold, plus Game Pass players, as well as Duskfade delivering 76,000 unit sales. Far Far West also had an update, Frostburn, was a nice success with over 60,000 new players coming in. The continuing shift towards this higher digital revenue share is lifting margin up for Fireshine, which delivered 27.5% adjusted EBITDA margin for the period.
Ji Ham: Daybreak now, with the net revenue for SEK 269.5 million for the quarter, also a nice growth of 50%. Adjusted EBITDA came in at SEK 57.1 million. That is a 63% growth over a comparable period. New launches are what is driving the growth here. Aliens: Fireteam Elite 2, despite a lower-than-expected performance, contributed SEK 51.7 million of net revenue, and EverQuest Legends delivered SEK 30.4 million of net revenues. EverQuest Legends, once again, it released on 28 July. It is adding recurring subscription revenue for Daybreak, what we expect to continue to sustain for years to come as another extension of the IP license EverQuest, contributing to the overall growth of our live service portfolio, and lifting the EverQuest franchise revenues overall. The other live service portfolio, very stable. Some late September content releases will contribute to revenue bump in Q4.
Ji Ham: Cold Iron acquisition closed in August, as disclosed, and staffing was reduced at the studio due to the lower performance of the game. Next, Big Blue Bubble. Great performance for the quarter, with net revenue coming in at SEK 79.3 million. That is 44% increase over last year. Strong margins at 48%. Player numbers elevated since the user acquisition push from the end of last year, and in-game spending has been significant. All the major metrics for this year have been trending in a good way, and anniversary features and collaboration for the period with My Singing Monsters Karaoke, and also continuing collaboration with big influencers during the quarter, Baby No Money, a famous Canadian influencer, which collaboration also contributed to the overall nice performance for Big Blue Bubble. Piranha net revenue was down 26%, but this is largely due to timing differences.
Ji Ham: Last year in Q3, we had MechWarrior 5 DLC coming out in Q3. This year, MechWarrior 5 DLC 9 came out in Q4, right after the quarter ended on 6 October, so that revenue lands in Q4. So timing difference is the reason behind this particular revenue decline, but we expect that to be made up in Q4. Strong margins at 33% EBITDA margin, and we expect that to sustain nicely. Petrol net revenue did come down 15% year-over-year. Advertising business in the gaming market continues to be soft, but cost optimization over the last year lifted margin to 8.9% adjusted EBITDA margin. So Petrol is contributing positively to the overall group's profitability. Next slide, please. After the period ended, Fireshine successfully closed on Fair Games acquisition. It closed on 7 October.
Ji Ham: It is the studio behind Necesse, a survival crafting game released in 2019, has sold over 2.5 million units, generating 14 million of gross revenue since its release. High-quality indie title. It has 94% very positive rating on Steam. Pro forma year-to-date performance, if we were to include it, would have contributed net revenue of SEK 14.8 million and SEK 6.6 million of adjusted EBITDA. This adds to our predictable revenue base going forward, and expect this to continue to grow with plans to release across additional platforms.
Ji Ham: Small, but the type of deal that we like. It is an established game, proven audience with a clear path to grow. We have a full pipeline of content releases for Q4 and beyond that. Already live, we have MechWarrior 5 DLC 9 that just came out in October, as we talked about. The Lord of the Rings Online's expansion came out mid-October.
Ji Ham: We have major content update for EverQuest franchise, for EverQuest II, and EverQuest Legends all coming in Q4. We have Palia finally releasing on the Switch 2, together with Echo Expeditions content update in December across all the platforms. Big Blue Bubble, there is a collaboration happening with another influencer, AmaLee, Clubbox Act, that is already live. We have a major collaboration with Weird Al that is coming up later in Q4, which we are very excited about. For Q1, we have Aliens: Fireteam Elite 2, which will be releasing on Switch 2, and larger Far Far West content releases also planned.
Ji Ham: Additionally, looking forward, the board has approved game prototype investment of up to $6 million. Further investment decision beyond that will be decided in 2027, based on how those prototype evaluation go. With that, I will hand over to Fredrik for the financial discussion. Fredrik?
Fredrik Rüdén: Thank you, Ji. Next slide, please. Next slide, please. In the Q3, net revenue reached SEK 496 million, representing an FX-neutral organic growth of 39%, making it the strongest quarter over the past seven quarters. As Ji mentioned, Fireshine, Daybreak, and Big Blue Bubble all delivered strong organic growth in local currencies. Adjusted EBITDA doubled to SEK 126 million, up from SEK 63 million previous year, corresponding to a margin of 25%. Operational cash flow more than doubled to SEK 110 million. LTM net revenue was SEK 1.75 billion, and adjusted EBITDA margin was 20%. Both these KPIs improved from previous quarter for the second consecutive quarter in a row.
Fredrik Rüdén: Next slide, please. More predictable revenue comes from the live service and back catalog titles. Net revenue from this portfolio increased 13.4% to SEK 353 million from SEK 311 million last year, corresponding to an organic growth of 11% in stable currencies.
Fredrik Rüdén: Over the past five consecutive quarters, this portfolio has, on an LTM basis, had an accelerated growth in stable currencies, increasing from 1% in Q3 2025 up to 14% in Q3 this year. This is a good indication how we perform in a longer perspective. Over the last 12 months, net revenue amounted to SEK 1.75 billion, of which SEK 1.34 billion derives from the more predictable revenue base. Please note that according to our definition of this, the revenues from Aliens, which is SEK 52 million, and Far Far West are excluded, but the revenue from EverQuest Legends, which is SEK 30 million, being a live service title, is included in this portfolio. Next slide, please. Daybreak is the largest contributor to the net revenue, generating SEK 270 million, and that correspond to an organic growth in local currencies of 50%.
Fredrik Rüdén: The growth comes from the launches of Aliens: Fireteam Elite 2, and as mentioned, that was SEK 52 million in contribution to net revenue, and EverQuest Legends that contributed with SEK 30 million. Where EverQuest Legends performed well above expectations, Aliens: Fireteam Elite 2 did not meet our commercial expectation, and as Ji mentioned, resulting in a write-down of SEK 362 million, which has no impact on cash flows. The adjusted EBITDA came in at SEK 57 million, corresponding to 21% EBITDA margin. Big Blue Bubble's net revenue increased 44% up to SEK 79 million from SEK 55 million previous year, corresponding to 45% organic growth in local currencies and 12% growth quarter over quarter.
Fredrik Rüdén: The 14th anniversary campaign with connected content upgrades drove higher player engagement and in-game spendings in the quarter. This gave an adjusted EBITDA at SEK 38 million, corresponding to 48% margin. Next slide, please.
Fredrik Rüdén: Fireshine had yet another strong quarter, driven by the digital releases of Denshattack! and Duskfade, and the Frostburn update for Far Far West. The net revenue was SEK 99 million, which is an increase of 67% from previous year. The EBITDA margin was 28%, delivering an adjusted EBITDA of SEK 27 million, up from SEK 1 million previous year, which further highlights the scalability in Fireshine's digital business model. After the quarter, Fireshine acquired Fair Games, which is the studio behind the title Necesse. For Petrol, the measures to lower the cost base and streamline production continued to show results. Net revenue was SEK 26 million, and adjusted EBITDA was SEK 2 million. Petrol secured three new projects in the quarter and continues its effort to diversify its portfolio outside the traditional gaming market. Next slide, please.
Fredrik Rüdén: Piranha delivered a net revenue of SEK 22 million, corresponding to a decline of 26%, and the decline is mainly explained by different release timing effects, as no new DLC was released in the quarter compared to the successful release of the seventh DLC in Q3 last year for MechWarrior 5: Mercenaries. Adjusted EBITDA was SEK 7 million, and that corresponds to a 33% margin. After the quarter, on 6 October, the ninth DLC for MechWarrior 5: Mercenaries, Ashes and Ascension, was released and has been well received by the players. Next slide, please. Our financial situation remains solid.
Fredrik Rüdén: Operational cash flow more than doubled to SEK 110 million compared to SEK 51 million in Q3 last year. We invested SEK 83 million, which is up from SEK 64 million in Q2, and that increase is mainly related to the acquisition of Cold Iron that was decided on the AGM in May. Net cash was SEK 20 million, and the cash box increased to SEK 368 million. Together with the unutilized revolving credit facility of SEK 100 million and the bond frame of SEK 1 billion, EG7 has plenty of financial strength going forward. By that, I hand it over back to you, Ji.
Ji Ham: Thank you, Fredrik. All right, let's go to the next slide or the last slide. Thank you. We will summarize with the four points here. Q3 was our strongest performance in seven quarters. Net revenue, significant growth with 39.5% growth. Adjusted EBITDA also grew at 99%, and margin came in strong at 25.4%. Operating cash flow, SEK 110 million. While Aliens: Fireteam Elite 2 did fall short of expectations, strong performance from EverQuest Legends, Big Blue Bubble, and Fireshine more than made up for that, resulting in one of our strongest quarters over the last two years. As for Aliens: Fireteam Elite 2, we have written down the investment to remove any uncertainty associated with the title from our balance sheet. However, we still expect profit contributions from both Aliens: Fireteam Elite 2 and 1, with their long-term licenses active for years to come.
Ji Ham: Our main business units are all contributing to strong growth. Fireshine delivering 67% net revenue growth, Daybreak 50%, and Big Blue Bubble at 44%. Our predictable revenue base is also growing 11% FX-adjusted growth year-over-year for the year-to-date period, and 14% growth when you look at the last 12-month period. Fair Games acquisition will increase that further. A full pipeline of content coming out in Q4 and Q1, MechWarrior 5 DLC, as well as The Lord of the Rings Online expansion, EverQuest Legends.
Ji Ham: Big content update from EverQuest franchise and Palia releases coming later this quarter, and Aliens: Fireteam Elite 2 coming to the Switch 2 Q1 next year. In closing, many positives with one major disappointment here, but net-net, the group delivered one of its strongest quarters, and the company maintains a solid foundation for its future. So that wraps up our Q3 presentation. Thank you, and now we will move to Q&A. Back to you, Robin.
Robin Lundell: Thank you, Ji and Fredrik. We will start the Q&A with some questions from Hjalmar at Redeye. The first question is, what specific measures are you taking to improve Aliens: Fireteam Elite 2? For example, performance, access, new content, or pricing and promotions, and what is the timeline for this?
Ji Ham: Yeah, so the primary focus for the remaining team is improving the quality. The performance coming out of the gate is obviously not what we expected, largely due to optimization and quality of life issues. So the team is heavily focused on that as the number one priority, and they are making good progress there. The Switch 2 release coming up for Q1 2027, we want to make sure that we address a lot of those issues so that we do not have those issues coming out on the new platform. Additionally, there is promotional pricing that we would be utilizing for Q4, along with the holiday sales, et cetera. We will participate in multiple platform sales, and going forward in 2027, we will be looking at, depending on its performance, any additional measures relating to pricing.
Robin Lundell: All right. The next question is also related to Aliens. Impact on similar projects with same budgets. Are these kind of game projects still relevant, or would you rather focus on smaller budgets or later stage projects?
Ji Ham: Yeah. We are looking at a range of opportunities. There's definitely smaller projects that Fireshine has been focused on. They've been delivering great results. From time to time, opportunistically, we are looking at mid-sized budget games, and Aliens was one of them. With that said, given the performance, we will be taking more measured approach for investments going forward, a balance between M&A versus investment in new products going forward.
Robin Lundell: All right. Another question is related to EverQuest Legends. Do you see potential to expand the game further, and do you see potential for more new games on the EverQuest IP after this success?
Ji Ham: Yeah. We're quite excited for the performance. It was a very small investment on our part, but nonetheless, the performance has exceeded all of our expectations. We expect that to deliver significant profitability for this particular year. It's not a one-off, a box product. It's a live service product. So we expect that to contribute meaningfully in increasing the overall revenue base for EverQuest as a franchise. There is some cannibalization and overlap between EverQuest and EverQuest Legends, but relatively small. EverQuest II continues to grow. So overall, we're very excited for the franchise and what additional opportunities that we may be able to invest in along with that IP, which we consider to be the most important IP for Daybreak.
Ji Ham: The answer is yes, we are exploring additional opportunities given the success for EverQuest Legends, but nothing to announce yet at the moment, but we look forward to sharing more as we go forward.
Robin Lundell: All right. Thank you, Ji. And the new prototype investments of 6 million USD, in which segments are these?
Ji Ham: Live service games. So smaller investments, they are meant to be sized appropriately for us to be able to develop the prototype to really validate the game design and the potential opportunity for both. And we will be investing in that over the next 12 months or so. Along with that, based on the progress, we would be able to decide whether it is an investment that we would continue or not. But both games are meant to be live service titles. Both games are meant to be premium titles within live service. So one of them is going to be an owned IP. The other one is a third-party IP that we are licensing.
Robin Lundell: Thank you, Ji. And Fireshine margin. Do you expect a 2026 step-up in profitability to remain in the coming years with more digital mix?
Ji Ham: We expect Fireshine's overall margin to continue to improve. Having said that, it is heavily dependent on the release schedule. Q3, we had nice releases with both Denshattack! and Duskfade coming out. Whenever there is brand new digital titles coming out with the front-loaded revenue uptick, we will see a ramp in margins for Fireshine. There are going to be quarters where they will have less new projects coming out, in which case those margin levels would come down. It does fluctuate up and down, but long term, with digital releases becoming the primary revenue source for Fireshine, we expect their margins to trend towards where we are currently, when you look at the last 12 months or so.
Robin Lundell: All right. Thank you. Do you have any new sign-ups for My Singing Monsters? Do you see potential to grow the game further?
Ji Ham: Yeah. I think the biggest upside for My Singing Monsters for 2026 has been introduction of Clubbox, which came out early part of this year now. That is working in conjunction with collaboration with a number of influencers who have really enjoyed this game and have been great partners for My Singing Monsters. But the new feature that rolled out with Clubbox was a significant improvement to the overall game in terms of engagement and also monetization. So payer conversion rate went up pretty meaningfully along with that update early part of this year, and that has sustained throughout the entire year. So we expect that to be the new normal for payer conversion, which uplifts the ARPU and ARPPU for the game going forward. So we are very excited for that.
Ji Ham: They are continuing to operate with a lot of excitement relating to additional content updates and looking to expand the audience further going into 2027.
Robin Lundell: All right. Thank you, Ji. Why the acquisition of Fair Games instead of just becoming a publisher?
Ji Ham: Yeah. We had an opportunity to acquire that particular studio and the asset at a very attractive pricing. Given that it is currently only on PC, it is a high-quality title, great team, and being able to partner with them to be able to bring that particular game to multiple platforms going forward. Fireshine has had a lot of success with Core Keeper in the past as well. It is a similar type of genre. There is expertise within the organization to be able to take that to the next level.
Ji Ham: We look at that as an arbitrage opportunity where we could expand upon that game sufficiently, where we would see significant growth beyond the initial acquisition. We found that to be very attractive. Fireshine team, obviously, with their expertise, we are looking forward to them taking that game broader distribution across geography as well as multiple platforms.
Robin Lundell: All right. Thank you, Ji. We have a last question related to tax. You reported a positive tax of SEK 80 million despite a loss, and deferred tax assets increased to SEK 384 million. What does that mean, and can the deferred tax assets be used?
Fredrik Rüdén: Yeah, I can take that question. The positive tax is mainly the deferred tax effect of the impairment of Aliens: Fireteam Elite 2. The impairment is tax deductible over time, which increases our deferred tax assets. It has no cash effect today, but it will reduce our future tax payments as it is used against taxable profits in the future. We only recognize deferred tax assets to the extent we assess it has a probability to be used in the future. We test that every reporting date.
Robin Lundell: All right. Thank you, Fredrik, and thank you, Ji, as well. I think this concludes our Q&A session. If anyone has any further questions, you can reach out to our investor relations email. Thank you, everyone, for listening in, and have a good day.
Fredrik Rüdén: Thank you, everyone.
Ji Ham: Thank you, everyone.
