Nitro Games Oyj

STO:NITRO

Earnings Call Transcript 2021-Q1

[Jussi Tähtinen, Co]

Hello, good morning.

[Antti Villanen, Co]

Good morning.

[Jussi Tähtinen, Co]

[Foreign Language] It's Jussi Tähtinen here again, and we're well on our way to the second quarter of the year. So it's time to recap the first quarter. And I think in a nutshell, it was a great start of the year. There was tons of actions and activities that happened during the first quarter here in Nitro. So we better get started. Before we go into all the new stuff, just as a quick reminder to all of you new shareholders, perhaps, who we are and what we do. Nitro Games is a mobile games company. So we are all about this stuff. And we're a Finnish company, two studios in Finland, we do shooter games on mobile for global distribution. And in terms of highlights from the first quarter, as I mentioned in the beginning, there was indeed a lot of things going on. And I think the overall, what this means for Nitro is that it's kind of taking us to the right direction. We've been pretty systematic in our approach and in our focus on quality and making sure that we do the right things, especially during last year. And now slowly, but surely, it seems that things are starting to pay off. And what this means in practice is that it reflects in our revenues, which increased a lot compared to the previous quarter in terms of percentage. But of course, we're still small, but then again, we're going into the right direction. And our cash position is now even stronger than it was beginning of this year, thanks to a fund raise that we did during the first quarter. We raised in total SEK 35 million, which helps us to further execute our strategy and focus on doing the right things.

[Antti Villanen, Co]

We also were pretty active with our business development efforts. And now we were capable of securing 3 new deals.

[Jussi Tähtinen, Co]

Which is fantastic.

[Antti Villanen, Co]

Which is really fantastic. But the deals are really good. We have now 3 new revenue streams, but most importantly, we have 3 new partnerships.

[Jussi Tähtinen, Co]

Indeed.

[Antti Villanen, Co]

And those are what we are building on with the long-term partnership in our mind.

[Jussi Tähtinen, Co]

Yes. I think we'll talk more about the deals moving forward, but already worth stating now that those are really fantastic things for Nitro, especially with the long-term in mind. And in addition to the new stuff, we obviously have our game portfolio, which we just expanded end of last year and had 3 games. Now there's 1 more unannounced game for the Snapchat platform, but more about the games on portfolio later on today as well. And then, if we move forward, I often mention that team is our most valuable asset. And that proved to be true now, especially during the first quarter, when we had to go through a lot of changes because of are starting a lot of new projects and basically preparing for a lot of new things here in Nitro, while at the same time, keeping our head count pretty much as is. So this is one of the beautiful things in our organization, in my opinion, that people are so senior and so experienced that we are able to be in this constant change mindset without it actually making things too difficult. The first quarter wasn't definitely the easiest one out there, but it was challenging in a very positive way, I would say, so...

[Antti Villanen, Co]

And even with the COVID situation and remote working, all the changes we were capable of pulling out with the really nice fashion and there wasn't the turbulence at all.

[Jussi Tähtinen, Co]

Yes. I'm pretty surprised, to be honest, how smoothly certain things went I was personally prepared to have a lot more challenges, but that's a fantastically positive thing to have. And then in addition to our own capabilities, we also have our external partners.

[Antti Villanen, Co]

Yes. And as Jussi mentioned, our internal teams, our strongest assets and very quick after that is our external development partners, we have a continuous partner program that we've been running now already for more than 8 years and working with several partners and building those relationships in mind that we can scale our development, our projects, we can keep our fixed costs low. And then we can identify the best possible studios out there to help us in any development needs anytime we need.

[Jussi Tähtinen, Co]

Indeed, indeed. And if we look at some of the key people we have here in Nitro, Leo Kihlman, our Director of External Development is nowadays focusing entirely with our partner studios because we have more and more great stuff coming from that direction, and they have more and more, how to say, bigger role maybe in the overall business of Nitro. And I'm really proud how good partners you guys have found throughout this year. So right now, the machine is working pretty nicely. And as mentioned earlier, we haven't done any radical changes to our in-house staffing during all of this. So we have doubled the amount of projects we have and everything, but we've been able to scale with our existing staff, and that's fantastic. If we move forward, let's have a look at our strategy and owners because in the end of the day, the goal of any companies, obviously, to deliver value to its shareholders. And when talking about the shareholders, Nitro indeed has a very strong foundation. This is something we've already said a lot earlier. But this strong foundation materializes in times when we need to do something to support our long-term strategy. And as an example of that now during the first quarter, we did start of the share issue SEK 35 million, where we were happy to see our biggest existing owners participating. And that just further underlines our position that were part of the Nordisk Games family.

[Antti Villanen, Co]

Yes. And even we are a small part, but we are very proud, small part of being the being in the Nordisk Game family. There are lots of synergies in operative level, lots of lessons to learn from other studios and other management, lots of centralized services. We've been using the quality assurance services and desk labs and so on. And also, there are some fellow companies with shooters on their portfolio, and there could be some synergies in development side also.

[Jussi Tähtinen, Co]

Yes. There's a lot of talent in that family. And happy to say that a lot of that is focused on the shooter category. And moving forward, the strategy that we have is a portfolio strategy. And what this means for Nitro is that we're not a "one-trick pony". We've never been like that. We've always had the portfolio mindset, and it is very much in our DNA to build things enough scalable fashion in a way that we can do several projects simultaneously. And why we do so is that the nature of the free-to-play business on mobile is that most of the games fail. And technically, what that means is that you want to have a system where you can develop new titles in a scalable fashion that you're not tied into the success of any given 1 project and because of the very driven nature of the business, which is a positive thing because it has a upside in the end, we've also -- like we're seeking stability by working with partners. And this is what we call our service business. And in this service business and in our own business, big part of the scalability is our shared technology and tools that we have.

[Antti Villanen, Co]

Yes. We are using our tools and tech, both on our own internal development. And our external development partners are utilizing those. But on top of that, those are acting as pretty good sales tools also. We have lots of requests coming from the market, and several of our partners are using in some form of either our MVP PROCESS or Nitro+ or Nitro PLATFORM. And those are all the tools that both supports our internal, external and partnership projects.

[Jussi Tähtinen, Co]

Yes. And overall, all these tools and processes exist for the reason of making sure that we can keep the good because with every project we do, whether the project itself is commercially successful or not, we'll learn a lot. So we want to keep the good learnings, whether it's technology game features, whatever it might be. And get rid of the bad ones, which means that…

[Antti Villanen, Co]

As fast as possible.

[Jussi Tähtinen, Co]

Yes, indeed, indeed. And that's where the tools and process is come to play because that is evolving over time a lot. And in our service business, maybe a quick word, what we've done historically.

[Antti Villanen, Co]

Yes. I think the one thing to highlight is that there are a bunch of Tier 1 companies in the -- from the industry. We've been working with very big companies. We have lots of experience on increasing the projects from the small first start on projects in the long-term partnerships for several years. We have really wide network, working contacts, existing contacts and very good relationship with the several of Tier 1 companies from the industry. And that also brings stability to our sales efforts towards the service business.

[Jussi Tähtinen, Co]

Indeed. And I think the fantastic thing about these partnerships that we often don't talk about that much is that with every partnership we have, we get a lot of learnings and sometimes even some new talent to Nitro. Like some of the people that we showed on the previous slides actually have joined Nitro as a result of these partnerships, which is very good, of course. But that's enough about the high-level stuff and the background, let's deep dive into where do with stand now and what all fantastic things happened during the first quarter. And because Nitro Games company, it's all about games and the game projects we have. Let's begin by having a look at our game portfolio. And obviously, one of the biggest things in Nitro is a Lootland which I'm proud to say that as of now, the team is done with the heavy lifting on that one. And we are busy going through staffing for the next phase of the project. So a lot of the guys who were working with Lootland during the first quarter will now assign to the new projects so that they going to start again building something new, and we are prepared to take the next steps with that game. And then we have the game with the Nerf IP. This is the big brand that we signed in the end of -- at the end of last year. And this game is coming together fantastically. One of the sort of big focus points internally here in Nitro is quality and quality on all fronts. And with this project, especially, I've been really happy to see how much the guys have put an emphasis on the quality of the core game play. I can't wait to share more about the game in a public fashion. It's awesome.

[Antti Villanen, Co]

That was because of the guidance from the IP holder has been really good and relationship with the Hasbro is very transparent and daily basis going to communication and all that. So it has been a really good project in many ways.

[Jussi Tähtinen, Co]

Indeed, indeed, which, of course, is all playing down the groundwork for what's to come once we actually get to the test when we start launching the. And then and then we have a new title, which we haven't announced yet. And this one is currently in pre-production phase. So as we discussed earlier, I think in the previous webcast, we had, we're looking to get this game into market testing still during the first half of this year. So far things going smoothly. And as I mentioned in the report in the text, we've already gotten some interest for this one in the business development. So looking to announce things with this one once all the plans are clear, but so far looking good.

[Antti Villanen, Co]

And on top of that, we took a new step for the new platform, the Instant gaming platform.

[Jussi Tähtinen, Co]

Indeed, indeed. And this is obviously the new title we're doing with Snap -- for the Snapchat platform. Again, unannounced game. But because where Nitro Games, you can kind of figure out what that could be, obviously, in a more casual and social direction. And I'm very happy with the progress so far with that one. The team has already delivered the first playable versions and so on. So the sort of whole concept of Instant Gaming is not that far from our P&A margin as one could imagine. So very much…

[Antti Villanen, Co]

On top of the development and the progress with the game, I think the progress with the client and the relationship is also seems to be very transparent and going in the right direction and we could expect that to be continued.

[Jussi Tähtinen, Co]

Yes. Yes, especially with the partner, like Snap, you want to build things with the long-term in work beyond any 1 single game project. But all in all, our game portfolio, is now 4 games, out of which 3 are unannounced. So a lot of upcoming good is for this year. And -- but that's not all. Let's move forward and have a look, see what happens in our B2B service business.

[Antti Villanen, Co]

Yes. In that front, as mentioned already, we secured several new revenue streams and PlaySide being one of the most interesting client from that front. It's one of the Australia's largest independent video game developers on a publisher, and we are developing the game for them that is not yet announced. And then we have another interesting project with one of the big ones from the U.S. Both of the projects are such in a nature that that could be something in the future with those partners and those negotiations are ongoing.

[Jussi Tähtinen, Co]

Indeed, indeed. So if with our own portfolio, we want to, I would say there are a lot of things to validate the games and ourselves and so on. That's obviously the same thing with our partners. And as we mentioned earlier on, when we spoke about the company strategy, doing the startup service business is key part of Nitro strategy. And sometimes, we do titles and projects based on our own IP, sometimes it's the partner IP, sometimes it's some super-secret white label delivery to our partner and everything in between. But the key thing is in the word synergies that we have with our own internal stuff. And then let's move forward to financials. So how did the numbers look like as a result of the first quarter. So compared to the previous quarter, that in the Q4 last year, our revenues increased more than 90%, while at the same time, we get our EBITDA pretty much on the same level. So what that means in practice is that as a result of the new deals that we've done and working with our own portfolio, we are starting to see small increases in our revenue. Of course, percentage was big, but still from money point of view, it does still so much small. And most of the things from the new agreements, we expect to materialize moving forward because we, for example, the players we deal with, only signed, I think it was the last day of the quarter. So they didn't obviously have too much of an impact for the first quarter yet.

[Antti Villanen, Co]

So I think that the -- in the risk point of view, now we are in a good position where we have several revenue stream instead of having only 1 client project going on, but there are several revenue streams and several partnerships to build on.

[Jussi Tähtinen, Co]

Indeed, indeed. And that's a really important thing because if you've been following Nitro for a long time, you have seen the impact of somewhat volatile revenues from big partner projects because they are ever-changing. So with this type of approach, we can actually, as you said, decrease the risk a little bit, and that should translate into the amount of volatility that we see in our revenues moving forward. But overall, long story short, what we see in our P&L just further strengthens what we've seen in our operations for quite some time, we're definitely focusing on the quality, focusing on doing the right things. And step-by-step, things are going and developing in the right direction. And then if we again have a look at a big picture, what does all this has to do with our road map. So this year, it's all about our new game portfolio. This hasn't changed and it won't change during the year, hopefully, at least. And as a quick recap, we've been a public company since 2017. We've been around as a games company since 2007. So we've been around for a while. And the first few years as a public company, we focused on building our team, our technology, our portfolio, our capabilities overall. And now this year, we are taking advantage of a lot of that. We have a lot of new releases coming up, a lot of new exciting partnerships, which all reflects into our new game portfolio one way or another. And why are we doing this like this is that it's driving us towards our long-term vision, which is to become a household name in the category of shooters on mobile. Today, we didn't talk too much about the mobile games market because we had all the other fantastic things to talk about. But again, during the first quarter, we saw a lot of interesting actions on the shooter category and everything is still been pointing into the direction where we can expect the category to grow. There will be more and more companies coming with maybe PC and Consoli, Piston mobile, other non-game related IPs, seeking to find their way to mobile and that's whether we are...

[Antti Villanen, Co]

And also the inside of the category, there are kind of shares that are growing to be solid business cases to be built from the quite small niche and more users coming into the niche, and those also growing quite big.

[Jussi Tähtinen, Co]

Indeed, indeed. And if we now have a look in the form of a summary in terms of what's cooking, what's happening in Nitro? What could and should you expect maybe moving forward? We obviously have our game portfolio, where we have Lootland. And like I said, we're busy preparing the next steps with that one now that the theme is done with the heavy lifting. Then we have 3 new unannounced titles, all of them 3 have some very interesting things happening this year step by step. And in addition to those, we have new deals in our service business.

[Antti Villanen, Co]

Yes. New deals, new revenue streams, new partnerships and as on internal development, we are proving our games on our external partnership projects. We are proving ourselves to the partner network and the key there and aim is to build long-term partnerships with more than just 1 project.

[Jussi Tähtinen, Co]

Indeed. Yes. And I'm really happy how things have developed and how everybody involved with the business development has been able to attract such good partnerships. They're all a little bit different to each other and there's the put of opportunities, but everything serves our long-term vision. And that's the role.

[Antti Villanen, Co]

There's lots of seats for the many beautiful flowers.

[Jussi Tähtinen, Co]

Indeed. That's well put. Let's end on those words. So that's all for now to recap first quarter was a great start of the year. And as Mr. Antti said it, as a lot of seeds for beautiful flowers to grow. Thank you.

[Antti Villanen, Co]

Thank you.

[Jussi Tähtinen, Co]

Any questions?

[Operator]

[Operator Instructions] And as there seems to be no audio questions, I'll hand it back to the speakers.

[Jussi Tähtinen, Co]

Thank you so much.

[Antti Villanen, Co]

Thank you so much.

[Jussi Tähtinen, Co]

We just checked our inbox as well and looks like. We've again done a good job of being preemptive since there were no questions in e-mail either. That means that we are done with this webcast. Thank you for joining. Thank you for supporting Nitro and have a great week, and we shall see each other soon again. Bye-bye.

[Antti Villanen, Co]

Bye.