Good morning, everyone. Welcome to EG7's Second Quarter Earnings Release. My name is Fredrik Rüdén, Deputy CEO and CFO, and with me, I have the company CEO, Ji Ham. We will start this session with a presentation and end it with a Q&A. I hand it over to you, Ji.
Thanks, Fredrik. Thank you all. Good morning for joining us. We'll start with the key performance figures. Next slide, please. For the second quarter, net revenues came in at SEK 379 million, with an adjusted EBITDA of SEK 38 million. Performance improved year over year. Net revenue grew by 7.4%. Currency movement has impacted our result pretty significantly this year. Without the FX effect, net revenue grew by 17.2%, and organic growth came in at 6.7% when you exclude FX as well as the contribution from Palia. Adjusted EBITDA grew by 12% year over year, and margin came in around 10%, a small increase from last year. Next slide, please. Palia's release was the main highlight for the period.
A successful release on PlayStation 5 and Xbox on May 13th contributed SEK 38 million of net revenue for the second quarter, and that represents around a 200% increase quarter to quarter. All the major KPIs saw significant increases, like to date downloads of over 8 million and 215,000 peak daily active users, representing more than 3x the level before release, and 1.2 million peak monthly active users. For July, average daily revenue came in at 3x the 30-day average before the update. The team has an exciting roadmap ahead with continuing to build up the momentum for the game. We have the Animal Husbandry feature releasing shortly in September, a multiplayer co-op housing feature targeted for the first half of 2026. Content update will also see a more robust update going forward.
Currently, monthly updates are going out, but we will be including larger quarterly content as well, which will reflect the seasonal changes. Just as we just released the Elderwood content update together with the console release, we intend to have big annual expansions during spring and summertime going forward. With the right approach and execution, we are very excited that we have an opportunity here to be able to establish Palia as one of the leading cozy games globally. So far, Palia has attracted over 8 million users, and we have some big titles in the genre with Animal Crossing: New Horizons, a cozy game from Nintendo which sold over 48 million units just on the Nintendo Switch. You have Stardew Valley, a multi-platform indie title that has sold over 41 million copies.
The Sims 4 from EA had over 85 million players live to date as of last year, which is likely higher now. Based on the player base of these titles, this illustrates the overall market potential for the genre. Combining Palia's quality gameplay with the unique differentiation that Palia brings, which is the only large-scale multiplayer online cozy game in the marketplace, our aspiration is to be able to take Palia and establish it as one of the biggest and the best in the genre going forward. Next slide, please. Additional updates for the period. We have Piranha successfully releasing its first DLC for MechWarrior 5: Clans. Performance was good, in line with expectations. Early trends are on target compared to prior DLCs for MechWarrior 5: Mercenaries.
Next up is the DLC 7 for Mercenaries coming up in September, and future plans for additional DLCs for both Clans as well as Mercenaries will be announced thereafter. Cold Iron Project is making good progress, steady, positive progress. It's in the final stages of development and, subject to progress, we're aiming to share an official announcement around the timing of the release in the near future. On the strategic M&A front, we're continuing to see a flow of special situation opportunities in the marketplace. To date, we have evaluated several, but passed on most of them. Interesting opportunities, but we have a lengthy balance of risk and reward profile for most. In the current marketplace, when you look at the climate, it's a tale of haves and have-nots.
At the very top of the markets, when there's headlines relating to the biggest guys, they are showing good performance and they're doing very well, benefiting from their established franchises. When you look at the mid to lower end of the market, the market remains quite challenging. There is still too much supply and volume, and currently there's just not enough capital availability to fund a lot of these games to completion. As a result, we do expect additional rationalization in the marketplace, especially in the mid to lower end of the market over the near term. EG7, as a group, we feel like we have a good position currently to be able to target opportunities as they come up, given our solid financial standing as the market continues to rationalize over the coming quarters. Next slide, please. Over to you, Fredrik.
Thank you, Ji. Next slide, please. Net revenue in the quarter was SEK 379 million, up from SEK 353 million in the comparable figure last year, representing 70% FX-neutral organic growth. Adjusted EBITDA was SEK 37 million, which gave a 10% adjusted EBITDA margin. LTM net revenue over the past year shows steady improvement and reached SEK 1.813 billion , representing growth over the past four consecutive quarters. The LTM margins are stable at. The adjusted EBITDA margin was 19%, which is what we've had over the past five quarters on average. Next slide, please. We have a foundation of more predictable revenues and cash flows. More predictable revenues come from the live service and back catalog titles. Net revenue from this portfolio was SEK 290 million, corresponding to 77% of the net revenue for the group.
Over the last 12 months, net revenue amounted to SEK 1.813 billion, of which SEK 1.276 billion derives from this portfolio. The portion of revenue has been stable at 70%- 74% in the past five quarters. Next slide, please. Both Daybreak and Big Blue Bubble are negatively impacted by currency fluctuations. If adjusting for it, they would both show an increase from Q1. I will get back to this later in the presentation. Daybreak Games is the largest contributor to the net revenue, generating SEK 190 million. The adjusted EBITDA came in at SEK 2 million, corresponding to a low 1% EBITDA margin. The lower margin was primarily driven by SEK 37 million additional cost of the capitalization from acquired entity, of which SEK 10.5 million was marketing expenses in conjunction to the release of Elderwood expansion.
Singularity 6 capitalized a significant part of their cost up to the release date of Elderwood. We expect capitalization to increase in the preparation of the next major upgrade for Palia. The second quarter included the full Eastern campaign for Big Blue Bubble, who generated SEK 61 million in net revenue and contributed SEK 25 million to the adjusted EBITDA, corresponding to a 41% adjusted EBITDA margin. Next slide, please. Piranha delivered a net revenue of SEK 23 million with an adjusted EBITDA at SEK 13 million, corresponding to a 55% margin. The executed cost savings measures had a positive effect on margin. Meanwhile, net revenue was helped by the successful release of the first DLC for Clans, which came out May 8th. The winding down of Toadman was completed according to plans in the beginning of the third quarter. Next slide, please.
The strong release pipeline for Fireshine in the first quarter was followed by a fairly slow second quarter. Net revenue in Fireshine was SEK 74 million, and adjusted EBITDA was SEK 3 million. PETROL has been profitable following the business optimization efforts executed in the beginning of the year. PETROL generated SEK 30 million in net revenue with a 3% adjusted EBITDA margin. Next slide, please. We have experienced some strong currency fluctuations in the second quarter, and they totally amounted to SEK 36.5 million, mainly hitting Daybreak and Big Blue Bubble. What I would like to highlight here is that we consolidate on accumulated figures, which means that we will see a revaluation effect on previous quarters to be recognized in the most recent quarter.
What we see in 2025 is that we have a positive FX effect in Q1 of SEK 6 million that will then be revalued in Q2 to SEK 36.5 million. For the full period, the first six months, the effect is SEK -30 million . The effect is stronger in Q2. That is what I'm trying to show here. Next slide, please. After issuing SEK 350 million unsecured bonds in Q1, we started the quarter with a strong SEK 579 million opening cash balance. The working capital movement has so far for the year and for several different reasons been negative. We expect this to balance out over time. During 2024, our investment in what we call new growth initiatives, Clans and Palia and Cold Iron, peaked at SEK 238 million. Now we invested SEK 49 million in Palia and Cold Iron, who are the two remaining projects here.
The second quarter ended with a cash of SEK 155 million and a net cash position of SEK 102 million. I hand it over back to you, Ji.
Thanks, Fredrik. Next slide, please. Next slide. Okay. In summary, a good quarter, stable one. Solid net revenue growth of 7% year over year, adjusting for FX once again, or would have been a nicer growth of 17%. Palia's release on PlayStation 5 and Xbox was a nice success, and we have more to come on that front going forward, and we're excited for that. First DLC for MechWarrior 5: Clans was also a nice outcome there. Our position is very good. Solid cash flow continues to be one of our strengths with our live service games.
Our operations have been optimized to a point of nice lean operations and a strong liquidity position, all of which provide us with a great position to execute against our strategy. We are patiently seeking growth opportunities. There's good volume of potential M&A deals out there, and we're being patient and disciplined. We do want to make sure that we find opportunities that fit and align well with what we're trying to accomplish strategically and provide compelling upside for the group going forward. That concludes our second quarter earnings presentation, and now we will move to Q&A.
Thank you, Ji. I'll try to coordinate this as I get some questions along the way here. I can start with one question from Caro Kardiki. Could you elaborate a bit on the types of targets you have evaluated recently?
Yeah. Can't get into too much specifics, but in terms of the type of situations that we are encountering, we could talk about. They're not that dissimilar from what we've done with Singularity 6 . There's been a significant amount of capital that's been invested into the middle to lower end of the market over the last number of years in quality games, great teams. Because of the dearth of capital in the marketplace, given where the industry has been, there are certain studios that have great products that just do not have enough capital to get to the finish line. They're almost there. Being able to evaluate opportunities where we can see, touch, feel, play, and be able to underwrite the risk of these titles based on actually getting our hands on it, especially ones that are closer to the finish line, has been highly valuable.
Nonetheless, whether it's because it's an original IP or we may not like the genre that some of these games are in, even though they're quality products and quality teams, we haven't found the right fit as to what to invest in yet. We're seeing a number of these opportunities, and those are one pocket. Another pocket is there are also ones looking for liquidity where they do have an existing title, existing business, but they're looking for opportunity to exit. We're looking at this range of opportunities that fit with our strategy, and we are optimistic that there will be an opportunity for us to grow with M&A. For now, over the last number of quarters, we haven't pulled the trigger yet.
Thank you, Ji. I have some questions from Yalimar at Redeye here. How has the revenue from Palia trended after the release? Is it still growing or declining?
Yeah. Okay. Sorry, the second part was the trend after?
Yeah.
Okay. Yeah. So I mean, it's not that dissimilar from what you would expect from any type of games release. We saw a huge buy initially when the game went out on PlayStation, Xbox, as well as reactivation of a lot of players on the existing platforms. Along with the significant content update, we saw a lot of players come back, re-engage, spend a lot of time playing, and we're also able to generate significant revenues from that. Because this is a live service game, you will see spikes, and then the number will decline somewhat. The idea is that we continue to provide content to keep players engaged and also to reactivate and attract new players.
The trend will be a big spike, slow decline, and our goal is to be able to sequence content updates, compelling updates in terms of what the players may enjoy so that we continue to build. These spikes, slight decline, spikes, slight decline, et cetera, so that over time we continue to build that foundation of our user base to be able to sustain a long-term success here. We do look at Palia as a type of game that we can establish that long-term success, live service game, similar to a number of our portfolio games that have sustained for a very long time.
There is a follow-up on that also, which I think you didn't cover also from Yalimar. How is monetization on Palia now, and what is the potential? What will drive revenue growth, more players, or high monetization?
Yeah, it's a combination of both. The key driver is the player base, but alongside that, continuing improvement on player conversion. It's a free-to-play game, right? In terms of all the players that are playing, one of the efforts that we are prioritizing is increasing the conversion rate for those that are enjoying the game. Alongside that, ultimately being able to increase average revenue per paying user, all of which would translate to increasing average revenue per user if we are successful with a number of the features that we're rolling out. There's a pretty robust plan around that. A combination of both user acquisition, retention, and improving the conversion and average revenue per paying user, all of those metrics are what we're targeting.
We have a question that also came from Rasmus at Cheuvreux and also from Yalimar at Redeye. I'm not sure if we can answer this, but how substantial is the impact on EverQuest from these copy that are out there?
Yeah. You know, given that it's a live litigation, there's not a lot of commentary that we could provide on that currently. As we stated in our report, EverQuest is trending below our target for the year as a result of the Heroes Journey situation. We are going through our legal proceeding. The latest was that we just had a court hearing on August 12th, and we expect to hear back from the court with the decision relating to the preliminary injunction, which is what we filed for, over the next four to six weeks.
Thank you. What is the reason for the positive tax? I can take that one. We have SEK 15.4 million related to deferred tax assets from the acquisition of Singularity 6 that was recognized in the income statement in Q3. This derives from write-downs on capitalized R&D from before Singularity 6 was part of EG7. Based on the strong performance, we could recognize that now in the second quarter. Let me see. Do you expect Big Blue Bubble? This is a question from Yalimar. Do you expect Big Blue Bubble to see higher profitability going forward, assuming no changes in currency rates?
Yeah. Their second quarter results came in a little below our expectations, a little lighter on the user engagement side. We're looking forward to their typically third quarter, which is one of their best quarters along with their anniversary celebration. Big Blue Bubble has great content and a campaign plan with that, and we expect that we should see an influx of additional players coming back. A lot of the metrics that we care about in terms of ARPU, conversion rate, et cetera, are sustaining as they've been. We do expect them to rebound and get to a better profitability for the second half of the year.
We got this question also. What explains the low margins in the quarter? What shall we expect from it going forward?
Yeah, I think the biggest reason for the lower margin, especially on the Daybreak side, is related to the marketing spend for Palia, as well as the revenue recognition timing. We had SEK 10 million of marketing spend along with the launch that we recognized immediately along with that spend in the second quarter. Alongside that, there's a little bit of a mismatch in that live service games, when you generate revenues with content release, you don't recognize them immediately. You recognize them over time. That mismatch is creating a lower profitability for this particular quarter. There will be higher profitability, especially with marketing spend going down and also the revenue recognition over time. As that gets trued up, we expect the margin to improve.
All right. We have a question with regards to what's the difference between EBITDA and EBIT? The difference is SEK 74 million in total, of which acquisition-related amortization is SEK 30 million. It mainly derives from Daybreak and Palia, where it's write-downs on software and customer base, I think it is. We have amortization on capitalized R&D and publishing rights, which is almost the same size. There are some smaller items like financial leasing and depreciation of tangible assets. Here is one question. You have had SEK 12 million in restructuring costs in this quarter. What shall we expect from restructuring going forward?
Yeah, I think we're largely finished with a lot of the optimization, you know, along with Toadman and PETROL beginning part of this year. We don't really expect anything going forward. We feel very good about where we are as an organization. I think we're able to scale from here in terms of the business that we're managing. As to the level of cost and how we're currently organized, we feel very good about this level. We don't really expect additional optimization or restructures going forward.
We have received a question from several different with regards to the release date of the Cold Iron. The question is if it's reasonable to assume that it will be in 2025 or if it will be delayed in 2025.
Yeah, it is something that we are actively evaluating. I think the key thing for us is that it's an important title for EG7 as a group. We want to make sure that the product that we bring to market ultimately is something that drives significant positive return for the shareholders. We are very mindful and prioritizing the quality and also making sure that the timing is right. The timing, we're working closely with the IP franchise ownership, as well as Cold Iron, and also on the publishing side, on our side, to coordinate and align around the right timing that provides the game with the best chance for success. This is real-time, something that we're actively working to determine. We, of course, want to say more, and we want to be able to announce the title sooner rather than later.
At the end of the day, the most important thing that we're focused on is quality and ultimately maximizing the upside potential with the product. I think recent examples that we've seen in the marketplace, Killing Floor 3 is a great example from Tripwire, where I think there was significant expectation for that game to do well. Ultimately, the quality wasn't quite where it needed to be. It underperformed pretty significantly. We do not want situations like that, as we want to avoid, obviously, those situations as much as we can. The other example that we have is picking our release timeline based on trying to satisfy a, let's say, earnings target. We did that in the past. I think MechWarrior 5: Clans last year, last October's release, probably would have been the worst time to release it, nine days before Call of Duty came out.
Part of that reason was because, hey, look, we made a commitment to delivering against certain earnings, and we needed or we wanted to make sure that we deliver against that. Not optimal. That's not the best time to be releasing a mid-sized game against a AAA game with hundreds of millions of dollars of marketing spend behind it. Those are the types of considerations that we're thinking through as an organization to make sure that the product that we release is something that the shareholders, the players, that everyone could be very happy about the quality. Ultimately, that's what determines the performance for the game. More to come on that front. Once again, we are eager to share more, but at this stage, in real time, we're determining that. As soon as we have information that we can share, we'll be back with that information.
Thank you, Ji. I think that concludes our Q&A session. If anyone has any further questions, you can forward that to the investor relation email address, and we will answer them after that. Thank you, everyone, for listening, and have a good day.
Thank you.