Nitro Games Oyj
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Earnings Call Analysis
Q3-2024 Analysis
Nitro Games Oyj
Nitro Games has reported consistent growth, with the first three quarters of the year showing a trajectory close to last year's full-year results, but with a key difference: the company is now profitable. This contrasts with the prior year when it was not. Their focus has been on improving revenues incrementally and maintaining strict cost control, which has been a central part of their strategy moving forward. The absence of capitalized development costs this year has also notably contributed to a healthier profit and loss statement, signifying a more streamlined operation.
The company has been proactive in cleaning its balance sheet by reducing debt and has successfully paid off all acquisition fees for its primary game, Autogun Heroes. The management expressed satisfaction with their cash position, indicating that despite settling various obligations, their financial standing remains robust.
Autogun Heroes is the focal point of Nitro’s current game offerings. The company remains committed to enhancing the game in collaboration with their publishing partners from Supersonic, planning iterative improvements based on user data every three to six months. This proactive approach is geared towards scalability and competitiveness, in a mobile market that has become increasingly challenging.
As part of their growth strategy, Nitro Games is exploring opportunities beyond the mobile platform, indicating plans to develop and introduce their titles to a broader audience. This includes making games more approachable for non-gamers, thereby expanding their potential market presence. They also anticipate launching into various platforms synergizing with existing franchises, reflecting a versatile business approach.
Management emphasized a long-term focus, operating on a sustainable business model rather than quick-win tactics. This philosophy has led to improved EBITDA margins, stabilizing after dips attributed to prior high marketing expenditures and one-off costs associated with fundraising. Future profitability appears promising, supported by deliberate growth during challenging market conditions.
Beyond their games business, Nitro has been strengthening its B2B service offerings, working with esteemed partners like Digital Extremes and Netflix. This diversification of revenue streams is portrayed as an opportunity to apply their expertise in action and shooter games while nurturing long-term relationships that enhance collaborative potential.
The gaming industry continues to face mounting challenges, such as evolving market dynamics and regulatory pressures affecting free-to-play models. However, Nitro believes these challenges will help to separate the strongest players from the rest, positioning them as a resilient entity that thrives amidst uncertainty. Their distinct identity as a powerhouse in shooter games further bolsters their market standing.
Going forward, Nitro Games expects to reach scalability with Autogun Heroes in the coming months, paving the way for greater marketing investments tailored to boosting user acquisition and overall game performance. While management refrained from setting specific revenue targets, their optimistic outlook is contingent on achieving key milestones in the ongoing development and enhancement of their gaming portfolios.
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Hello. Hello.
Good morning.
Indeed, it's us, Jussi and Antti here again.
From Nitro.
Exactly. And this time, we are delivering our Q3 interim report and traditional webcast.
Yes, welcome.
Very much welcome. Let's get going shall we?
And for those of you who might be new to Nitro Games, we are your powerhouse for action and shooter games. We come from Finland. We have two studios here. We are a little bit more than 100 people, a little bit more than 50 here in Finland and then the other half are here and there and everywhere's in our network of partners, studios, contractors, freelancers, and so on.
And we are one of the oldest Finnish gaming studio.
Indeed, indeed. We've been around since 2007, and we've been listed at Nasdaq First North Growth market in Sweden since 2017.
Exactly. Our vision and focus is in shooter and action category games and whereas there are lots of good examples from the industry where companies are focusing on strategy games or somebody is focusing for casino games or somebody focusing on personal games or something like that. But focusing to the shooter and action category has been starting to pay off and a brand of Nitro Games to be the powerhouse in the category of shooters and access seems to be well received in the market, and there are more and more traction and more and more people know us from the excellence on those games. And I think we're focusing on that area now for already quite many years in U.S.
Yes, yes, 3, 4 years depending a little bit on where you draw the line.
Now, it seems that it's started to pay off and brand recognition and our expertise recognition in that category is clearly something that is benefiting the company in the long run.
Definitely, definitely. And every time in our history when we do some changes or we go in some different direction or we sharpen our focus around something, it always takes super long to hammer through that message and I think, in this case are the concept that Nitro focused on action and shooter games started to be recognized for the things that we've already done and obviously that's there. Now maybe what we're hammering on right now is that we're not just mobile, we're doing cross platform, working on many different platforms. That's one thing that we're busy hammering right now. And one day, that will be checked and there will be again something new that we do, but that's us.
Action and shooter games are in high quality. And I'm happy to say that what we just released this morning is our fourth consecutive report that's profitable. And this hopefully starts to deliver the message that this is not a one-off thing that we did one year ago or anything like that, but a result of very systematic step-by-step approach. We love to use the word step-by-step because that's how we do things in Nitro in many ways and I think our focused theme for the year has been stable growth. So that's something that we've very much been able to deliver. And I think -- me personally, I think it's exactly what this time in the world needs, not just from Nitro, but in general, from gaming companies like we keep our heads cool. We focus on our own game and we're push it forward.
And I think it's a step-by-step approach applies also for the -- our B2B service business and our client ships there. And one good example out of the step-by-step deepening the collaboration and continuing the collaboration is the latest deal that we signed with the Digital Extremes and expanding the collaboration, but that is also something that we've been very good for past few -- quite many years, actually. Even in the collaboration continuous deals with existing clients and going deeper and further with the project together with our clients. And I think we are very happy to show that also with the Digital Extremes, we again achieve the small milestone in the long journey.
Yes, indeed. And I'm so proud that we are able to do these long-term partnerships because it speaks volumes of how we operate and how we are perceived as a partner. And of course, it's important for us also that we find partners that we like to work with because it's games business, it's entertainment. We're supposed to be having fun when we go through difficult challenges how that works.
Other stuff about the recent highlights. So one thing is that our cash position continues strong. We've been active in so-called cleaning of our balance sheet, reducing our debt, and we've now paid all the acquisition fees for Autogun Heroes as planned and all those things. And regardless of those, our cash position still continues strong. So that's very much a good thing. And then also during the quarter, Nordisk Games, they sold their position in Nitro Games. So we want to thank you.
It was wonderful [indiscernible].
Yes, yes. So they were there when we needed them and they helped us to grow. They helped us to reach profitability. Now we're happy to stand on our own legs and go forward from here. So thank you.
Thank you.
If we look at the -- what's happening now during the second half of the year and obviously beyond that as well. This slide is pretty much like almost exactly the same that we showed in our previous webcast because not much has changed in terms of the plan. And of course, we've updated the numbers and so on. But basically, the core message is exactly the same. So when it comes to our games business, Autogun Heroes continues to be our focus title. When it comes to Autogun Heroes, we continue to focus on the improvements in the game to get the game towards scalability together with our publishing partners, Supersonic from Unity.
And where we go with that is that we have done a bunch of different improvements in the game during the third quarter. And as of right now, we're busy measuring some of those and see where we stand. And parallel to that, we continue developing the game forward based on the road map that we revise with Supersonic guys, basically all the time but bigger revisions with roughly every 3 to 6 months periods depending on how the data looks like. And I think overall, what we can see in the mobile free-to-play space is that it continues to be very attractive. It continues to very much be almost half of the total games market depending on how you look at it, but especially from the point of view of revenues. But at the same time, it continues to be in this ever-changing evolution, mobile free-to-play seems to be making new trends all the time.
And also regulations are playing here, much more bigger role on free-to-play mobile than other segments.
Definitely. And how that impacts now Autogun Heroes is that we're maybe going more and more in the direction where we are a little bit expanding the target audience by making the game more approachable to a little bit larger audience. And in that way, we are aiming to get more competitive edge when it comes to the marketing side of the game, how we wouldn't be so much targeting and stuff like that.
And also exploring other platforms to expand the IP wider than the mobile audience or it might be even the same audience, but still playing the games with the other platforms in -- some day future.
I think it's safe to expect that there will be most of happening with Autogun Heroes are expanding, like you said, and are definitely focusing on building the brand and the IP moving forward. So watch us.
It is something that we've been quite [indiscernible].
Yes. So that's one thing we want to mention in our games business. So we operate with previously, we often call it as our MVP process. We still kind of like follow the same process, but it evolves all the time. But right now, what's happening behind the scenes here in Nitro office and what our team is working on is that more and more new things brewing. We don't talk about new things in detail until we actually announce and they come to life. But there's more and more new things brewing, some of which are very much powered by AI in many ways.
And I'm super proud of what we've been already able to achieve with the use of AI-driven tools and stuff like we have our own AI running for different things. And I think our teams are very clever in having the right type of approach when it comes to using that and avoiding the hype and bubble that's always around any cool new technology. There's always hype, so much hype going on, and we try to avoid that.
And I think the approach that the team has been taking and we as a company is the AI assisted. It's not -- it's assisting humans to make better decisions, better games, whatever better quality and all of that. So I think the approach is something that plays to our benefit in very long run.
Yes. Indeed. And on the games business, I get tons and tons of questions from our shareholders, which are lot and quite many of those are that, okay, what's going on with new games, what's going on with Nitro and all those things. So with new games, there's more and more [indiscernible] in both internally, but are also in the third-party game side. So we are looking into a handful of games, I would say, at the moment on the third-party games side. And maybe one of those will happen at some point, we'll see.
And internally, there are also some new stuff going on. I think it would be safe to expect that if and when we are bringing something into the -- out, it most likely be in a shooter and action category.
Yes. That's a pretty good explanation. Yes. And with NERF: Superblast, we're seeking to continue forward with the game. And as mentioned already earlier this year, we are basically going out how we want to position it in the long run. There's been some progress on that front, but we'll let you know once we have the conclusions on that side. Now we can go to B2B services.
Yes. On our B2B service business, as already mentioned, we are focusing on step-by-step long-term collaboration with our key clients, and we are very happy that we have two great companies to work with. Both like a top tier in their own world, being the Digital Extremes and Warframe and Netflix with their unannounced IP project. That's very, very exciting part of them. Both of them are in kind of a bit of a stretch with the technical side of things where we actually love the challenge, and we are actually -- can bring something new into the market and go beyond the kind of traditional ways of bringing the games and in a sense, like a dream project for our team and also very good as a reference is to the -- our BD funnel, where then we can to showcase what we are capable of.
And it [indiscernible] that many studios into the world that can pull off such a project that we are working on technical point of view. And that's definitely where our background coming from building our own engines and whatnot and using pretty much all the commercial engine, we are really shining on all that area. And definitely not pushing us into the fierce price competition as where we can produce the quality and bring that expertise to the use of our clients. So in many senses, it's working very well.
Yes. And I think one thing that you mentioned is the passion projects for the team, and that's something that I hear, not Nitro, but people are outside of Nitro quite often refer to our B2B service business consulting business. But I think that's a little bit misleading in the sense that for us, we work on projects that we have passion in. We work on projects that we take great ownership in. We treat those with as much love as if they were our own and so the fact that we work on those together with a partner doesn't sort of -- it doesn't make them any different internally in a way. So those are very much something that we are super excited about and proud and we take the positive ownership of those as well.
And while we are working with our current project, we are naturally all the time looking for the new projects and our BD is very strong and efficient and nowadays spread around at least the Western world and lots of activities on those front and the funnel is healthy. So we are getting progress in many cases, and we are getting low cost sort of the fun work.
Yes. And I think overall, when we look at the gaming market in mobile and free-to-play, it seems that the direction is more about competing on the sort of marketability of the games and the landscape is in constant evolution. And things get more and more challenging in a certain way, but also things get bigger and bigger. So it's kind of like positives and negatives at same time, which is exciting. On the B2B service business, I think it seems that on one hand, the sort of challenges that the industry has been facing tend to continue. There's not too many companies making deals out there and not too many opportunities. But at the same time, I think it helps to isolate the best ones from the rest.
And I'm very much in the category that I believe that Nitro is definitely in the category of one of the best. And like that, that's something that's really working in our favor at the moment. So in tough times, it's the best ones that shine and that's us.
Yes. Whereas in our games business, we are exploring the new platforms, new meaning outside of the mobile, also in B2B service business. The focus has been enough more and more in a cross-platform, more cross play or multi-platform projects. And it's a little bit how you want to define those. But anyway, one could expect that the projects that we are working in the future is more than just a mobile. There might be some existing game that we are part of boarding into the mobile and then operating both in mobile and other platforms, even multiple projects.
Exactly. So cool. And then the last part financials we will discuss more about those shortly. But I think in a nutshell, the growth continues. Profitability continues, and that's a result of us being able to increase our revenues by making a little bit better business step by step, but also us being super focused on the cost control side. That's not the most [indiscernible] of things to advertise, but that's something that we've been laser focused on making sure that we are optimized on that side through all these quarters, and that's the way we plan to be moving forward as well.
Back over to finances.
Yes, yes. Yes, let's talk about the numbers. So first 9 months for the year, I think our first observation is that the growth continues like we just said, and we're almost already close to what last year was in full with the big difference that now we're profitable as last year in full, we were not so. So that's obviously a big positive thing. And I think what's more interesting is that if you look a little bit behind the numbers and observe a little bit more detail of how we've structured this year compared to previous years that this year, we haven't capitalized any development costs.
That's something that we might do at some point moving forward. But this year, we haven't had the [indiscernible] to do so. So that hasn't happened, which makes the P&L more healthy in a way. That's a common practice that, I would say, almost all the game companies do out there that when they're developing something new and so on, then they capitalize but this year, our focus has been on our existing projects, so there hasn't been [indiscernible] capitalizing. So it's more pure in a way.
And this has also on the flip side of the coin, helped us to reduce some load from the balance sheet. So the balance sheet looks better and better quarter after quarter in a way. And that's good. And basically, our focus has been very much on the long run. We're not optimizing, facing water or we're not going into playing any shorter tactics, but observing the long run and making sure that we have a good solid way forward.
And if we look at the development, this is showing revenue trailing 12 months and our EBITDA margin from every quarter. And in here, I think that's sort of systematic long-term approach can easily be seen. And the EBITDA margin is dip here in Q3 last year and second quarter last year. Second quarter was basically when we started to invest heavily into the launch phase of Autogun Heroes and pushed into marketing. We continued that through the third quarter. And then third quarter also took a big dip because we did the preferential rights issue and there were so many one-off costs associated with the fund raise at our EBITDA margin.
But after that, starting fourth quarter, we've been profitable and really much in a stable fashion being able to control the level of EBITDA. We have obviously improving towards the end, while the revenues have continued. So that I would say is a really good example of the long-term focus that we have. And of course, thanks to our games business and especially now when we're expanding, we increased the chances of this focused potential step by step moving forward. So that's positive.
But maybe it's time to hear from you guys. So let's see what questions we have. And there was a list in e-mail, I noticed earlier. So let's see, there's one question about our collaboration with Digital Extremes that is it still two different projects or what it is and it's Warframe at the moment. So there was another project which are Nitro announced and out that we -- I think it was in January this year or February when we announced that, that got completed. So now it's a Warframe.
To be very clear, to Warframe mobile, it's several subprojects. It's one huge game.
So there's tons of vectors to work on, on that one. Then there's questions about the Android version of Warframe mobile, what is the status and is Nitro working on that?
We can't comment too much on that front other than what Digital Extremes speaks out in public fashion. I think they've already publicly earlier said that there will be an Android version and stuff like that. So we'll see how things are all moving forward on that one.
Then question about the focus for Autogun Heroes in Q4 and moving forward to next year and how much development resources are dedicated to the game and what key features or improvements are you planning for? And how do we expect this to impact the UA activities and spend from Supersonic?
Good questions. So Autogun definitely in focus very much in our games business. We have the full team working on Autogun Heroes at the moment. I think if you count in all the external help we get from time to time, it's a little bit more than 20, around 20-ish people. Then there's a constant of supportive functions like data and stuff like that on the sidelines. Then there's a bunch of people from Supersonic side who work on the game. Some of that's very much manpower involved with that. And something that I think is often not understood correctly.
If you look at things from an outside when you have a live game where you operate, you roll out new updates, you run live events, you have existing players to serve on all these things. It's super labor intensive just to keep the game running. So the concept where the whole team could be focusing on just building something new streaming that never happens anywhere.
Balance is serving the existing clients and balancing to serve the new players and introducing new features, it's very, very complicated to handle.
But to answer the question in more detail, what's happening now is that we are still doing those new things like we have done with all the updates thus far. And how the road map looks like we don't sort of, how to say, we don't spoil surprise beforehand. But what we can say is that the themes are that there will be a little bit continued technical improvements because that's what you want to do all the time if ask me. There will be focus on retention driving features, basically optimizing the existing one and also building new, we call them progress and [indiscernible], but new systems to take the players through different journeys. That's what we want to do free to play.
And there's a little bit of making the game more accessible to wider audience, like we said, that impacts in different things, how we introduce things to early games players and things like these. And then there's the concept of all things in the longer-term social features that we drop in one by one as the right time comes. And how do all of these then impact to what Supersonic is doing that, obviously, as a publisher, they are investing in the user acquisition to measure these changes and so on, and we are seeing where we stand. What has happened on the marketing side, how those things evolve? It's a constant evolution on that side.
Market is evolving and how the competition is evolving, and it's a very big puzzle to look all of the vectors of that and then make the calls.
But through all of these, we are seeking to get closer and closer to the point and eventually reach it when the game is scalable. And then that means that then it is time to start investing more into the marketing of the game. When exactly this will happen? Of course, no one knows. Are we going in that direction? Very much, yes. So that's something that we are now working on. And then the numbers will match.
Yes. And whenever the one day comes, everything that previous that will continue on.
Yes, yes, definitely. Definitely. Then there's questions about Netflix and their recent activities, there was some article that they closed down some AAA gaming studios and how does this impact the collaboration? I think we will not go in as far as you know, commenting on what they're doing elsewhere, some of...
Our relationship is very transparent. We are discussing about all the topics with them.
I don't comment on any changes in our direction, and we have been very happy with the collaboration so far. And I think that whatever things that are elsewhere, that's not our job to comment on those. But from our point of view, we're very happy with how things are progressing.
Then that's a question about Medals of War. That's one of our older mobile games. We call them old classics. Just recently got an update in iOS app store, what are your plans for this game?
That's a good question. There are no active plans. So what has happened recently is that we did indeed update the game in iOS App store, and that was basically just a special service for some fans who wanted us to do it. So there was a group of players who wanted to continue going through that game and playing. So we made a couple of tweaks so that we can keep it up there and a lot running. So there you go. That wasn't a commercial decision, but just we wanted to spread feel good and as a service to the fans.
Can you tell us something more about plans for NERF 2024? Or Superblast to sign a publishing agreement with Supersonic Cars on one like them or anything like that?
You never know. So right now, we're exploring different opportunities. So we're looking into, obviously, how the game would best benefit from what has happened to the free-to-play mobile games market. We are, of course, looking into partnerships, that's very much in our DNA. And we're also exploring all the different avenues for different type of ways of utilizing them maybe on other platforms and stuff like this. So there's plenty of things we are exploring at the moment. But that's in our experiment. It's very much going as planned. And once we have conclusions, then we'll talk more about those.
Then let's see if there's anything more here. No. And then let me check from the feed. Did you pay back NG, Nordisk Games everything or is there more?
We are paying with a payment plan where we have regular installments. So we don't pay the loan back in full in [indiscernible] long term, but I think we press released this in March or earlier this year there, you can see more details and then you can check the remaining balance in our balance sheet. So we have now paid close to half of the loan, not exactly but close to half of the loan, and we will continue paying exactly as planned.
Do you think the collaboration with Digital Extremes will lead to a strategic partner in them?
You never know. We're all about long-term partnerships and I think right now, we're very much focused on driving our business forward. So that's in our interest but at the same time we are building long-term partnerships on all fronts because that's how we work. And what happens as a consequence, you never know.
And sometimes these kind of partnerships might lead up with the strategy of collaboration and some of that stuff.
Happens in this business. How would you rate collaboration with Supersonic this far? Are you satisfied with UA they do or is there still work to do there?
I would rate the collaboration A plus, that's a word, so something...
That's a bit of a challenge on their end because of the geopolitical situation, and those are a little bit affecting on the collaboration also as the people are a bit of a distracted by what's happening there. But other than that, I think it has been really, really, really good.
Culturally, partnership wise, I think that's something that we Finns love a partnership where we spit things out pretty directly, some might perceive that as harsh. And that, I think, is something that works really well. We have very direct communications in the very much positive sense of the word. So it works really well for us. And I think these geopolitical things obviously beyond our control, we can't do anything for them. What comes to the UA stuff, it's a thing where everybody, of course, wants to see the game reaching scalability and skyrocketing yesterday. I'm sure everybody is in the fold. But then again, that's not how free-to-play works. Free-to-play works in a way that you make data-driven decisions in an environment where conditions change all the time, and you keep improving on both fronts. So obviously, we can't say that we would be satisfied with everything until we've actually hit it really big.
And that is the area where they are very good on analyzing the potential of the game and market climate and how the UA is performing and all of that, they are very, very strong.
And I think the big impact to us is that compared to when we tell publishers that they can jump into conclusions this much faster because there's so much of data from any other game from the same time [indiscernible]. So they can kind of like throw the hypotheses and analysis much quicker than we could do with just one game and that's super valuable.
There's questions about Supersonic and UA. I think these are somewhat the same than the previous one. And I think there's questions if something has changed since we started the collaboration with them and things. I think the answer is both yes and no. So the market is in constant change, and therefore, we must add up to that with our game all the time but that's the same for everyone. No surprises there. Has something else changed in terms of like what we are seeking, what type of success we are anticipating moving forward, where we want to be with the game? I would say absolutely no. That's like based on all the latest discussions sort of like we haven't decreased the level of expectation towards the game. We haven't decreased the part. It's still not very high where we want to be.
And that is also something where we are very much in the same boat of the partner, but it is looking to same target level.
Yes. Then this question about our margin profile in our B2B projects comparing to what we might have done in the past and things like this. I think of course, it's not in our interest to go into commenting too much in detail about our specific margins or specific things. But I think in general, what we can say is that, for one, we're able to work on better and better themes as time goes forward, which means that they are also paying better and better. That, I think, is one thing. And that's exactly how you want to do business. You want to climb up the ranks and that's what we're doing.
In terms of margins, where, on one hand, we're spending more and more because we're working on bigger and better things. But of course, it means that the more you work in specific category and niche stuff, the better you get at it, which, of course, helps with the profitability. So that's a complicated thing. But I think that as you can see from our P&L, we have definitely been able to improve the profitability of Nitro. So maybe then the answer is yes, but it's not as straightforward as just increasing some margins on whether that's not how things work.
Long question. Let me read it first.
This one's from Norway.
Actually good to hear from people from there. Rather long question, but basically, I think asking about how we structure our offering in B2B service business and how these projects generally work and stuff like that.
So I think, one, the role of the B2B business for Nitro is that we get paid. And without going into details, we favor deals where we get paid, I will say, regularly and pretty short intervals. There are companies out there who do this very differently like they develop something for a long time, then they deliver some milestones and then they get paid if it's approved.
Maybe use some factoring services to the cash flow.
We don't do stuff like that. We have done things like that in the past, but we want to, I would say, derisk the approach for Nitro.
Deliveries of milestones and checkpoints with the client are quite short interval. And most of the time, we are getting paid from the same interval that we are checking and in something with your clients. So that seems to be working. Also, it brings commitment from the client side of that so that they are all the time on top of what's happening with the project and now quite often our projects are such that we are not alone developing something, but it's a kind of true collaboration with the client that there are sometimes 40, even clients have some those few people and then our team. But anyway, it's more like a collaboration than working for something or someone.
Yes. And I would say that maybe one big difference compared to us and some of the other companies out there is that the way we work is super transparent. We are like -- since our DNA, even if Nitro was very multi-national and very multi-cultural in touch as well, but still the DNA of the company is very Finnish. And that's like we share everything fast. We share it as it is, pros and cons, positives and negatives. And I think that helps with the collaboration, we call it one team mindset that it's in the best interest of everyone to go through all the things as openly as possible, as soon as possible because that helps to prevent small things from becoming big topics over time.
And even it is a hybrid working model in a new normal, our people tend to spend quite a lot of time with the client or clients are visiting us, there are much every month or every second week somewhat from somewhere. Either out of our people flying somewhere or our clients coming to us and so it's through one team mentality within all the projects.
Yes. And I would say that maybe even if -- I think we're pretty good in making deals because we've been doing this for close to 20 years together with you and also as a company and all that stuff. But that's not where the secret sauce is. The secret sauce is in making sure that people function well together and that's where the magic happens.
We will be focusing more and more in kind of some dynamics inside the Nitro, but also together with our clients. So trying to match with the personalities from our clients for the people who are good match with those personalities and also it's a people businesses than end of today in the service business that we only to have a one together.
Yes, yes. Cool. I think that concludes the questions. So thank you all for joining, and just wrapping up, and we will see you next year when we push out our year-end report. That's going to be in February, but I can't remember the exact date, but that's on our website, so you check from there. Thank you for tuning in, and wish you a great time. Bye-bye.