Earnings Call: Q2 2021

Aug 23, 2021

Quarterly report

Greetings from Nitra Games. I'm Jose Tatinenta, CEO and Co Founder. And with me today, I have Matti Villarend, another Co Founder and CSO. Indeed, indeed. And, we are here to deliver you an update about what's cooking in the world of Nitro after a fantastic summer and our first for half the year report that we just put up. So without further ado, let's get on with it. Just as a quick recap, if you're new to Nitro Games, we are a Finnish mobile games company. We do free to play mobile games, and we focus into the category of shooter and action games on mobile. We have a global team indeed with the capability for multi project model and multiple revenue streams That have been heavily utilized during this first half and Exactly. Summer. Yeah, exactly. And Earlier this year, what we have seen is a record order intake. We've been pretty active in the field of business development and What a few deals. Yeah, that was especially during the summer and the late first half we were Successful of signing several new orders and that will lead into the Wonderful projects and the team is excited and there are also many of those projects, I think that might have something Something new future after the first, first, first projects. Indeed, indeed. All of this is super well in line with our strategy where we where we focus on offering our services to partners, which obviously gives us shorter term revenues, great partnerships, but certain type of long term opportunities as well. And then we also work on our own games, which is obviously the hit driven part of our business where we see for the scalable revenues. And overall, where we stand now, we're in a pretty happy place. We have 7 projects in total, which is quite a lot for Nitro. And This means that thanks to our scalable foundation that we built last year, but especially put into use this year, we're now able to expand our resource I think that's a good sign of, that we are capable of running to multi project. Yeah. Multi project model and create multiple revenue streams for ourselves. Yeah. Yeah. It helps to control the downside while still without not giving up the upside. Okay. Let's check about our team then. We've been talking a lot about that. So Nitro is a Finnish company. We have 2 studios in Finland. Obviously, as a result of We, like everybody else, is more or less in a remote working mode where we don't really need to pay that much attention to where people are actually physically everything happens digitally and online. And, in our Finnish studios, we have 40 professionals in house, and that covers everything from management to business development to game development and publishing. And where we see scalability is our External team. Yeah, alongside with our internal team, we have our external development network that we've been building for Building for years and with that partnership network, we are able to Create those scalable external opportunities with the cost efficient way we can run the multiple projects, we can create ourselves Talent. We have those talent pools available and partners in place. Yeah. Yeah. And it it it works in so many Fantastic ways. Like we've been using outsourced services for since we started basically, because we were a small studio located in Finland, and we need a lot of talent that Greetings from Nitra Games. Wasn't available in Finland back then. So we've honed the ways of working pretty well, and now we are able to flexibly work on multiple time zones and all that. And the beautiful part of this process is that it also means that we're doing constant due diligence to new new studios we partner with. And also that means that sometimes you find more strategic partnerships where you cooperate with somebody for a really long term from one project to another. Yeah, I would say well, in a couple of cases, we are closer into the partnership than outsourcing even that We are paying for those services, but still it's now the partnership kind of indeed. Good times on that front. And if we look at The key people in Nitro in house, the way that we work is that we are seeking to keep our Fixed costs and fixed in house headcount more or less stable, which means that we do recruitment basically all the time, but we focus on recruiting key people into the staff that then again are able to run the show and run different projects or or customer management and things like this. And that's why we've split our organization into basically 3 pieces. So we have our internal where we do the stuff that we do in house in our 2 studios in Finland. And then we have management and shared services where we have a lot of different processes and technologies that we shared throughout Nitro so that the external side And building the scalable base for all the operations on there. And on the external operations side, we are on the one hand looking for those business opportunities and on the other hand keeping those partners outsource service, those companies and guys happy and outsource the partially the projects or sometimes even the whole projects Yeah. To all of our partners. Yeah. And I think it's a good foundation to have because it means that we are by no means not done yet when it when it comes to the amount of project that we can handle in a scalable fashion. And if we look at the foundation still, the owners of Nitro. Nudis Games has been on board with Nitro now for quite a while, since spring 2020 as a leading investor. And we've earlier been discussing about how great of a support we've received not just in the form of the funding but overall being part of this Moody's Games family of Commerce. I would say that that started to be even more valuable nowadays than Just a pure investment side of things but being a part of the family, sharing the resources, sharing the know how, having some collaboration projects. And it's increasingly important for us also to be part of the family. And it also helps when we are expanding our business, whether it's through seeking for new partners in the development side or new partner studios and or whether it's about seeking new business opportunities, being part of a larger group of companies, and therefore having more muscle and firepower there as well. Course, it helps. And also sharing the best practices and know how and information and even even sometimes like a PD deals and that that kind of things. Indeed, indeed. And thanks to the good ownership, we have been able to Pursue and think about the execution of our strategy long term now. We understand that things that we have done Earlier this year have not yet really materialized in our P and L, so they're not visible in our financials per se. But in terms of What we've achieved on the operation side, we are starting to see how the strategy actually comes together. So we've been able to build More and more opportunities into our game portfolio, more and more new upcoming launches, while at the same time we've been able to expand our business that we do with partners. Yeah. On the service business side, we have gotten some very good new clients and Also we've been serving our existing clients and finding new opportunities from those sides. And With the partners on our client side, of course, we are looking for stability in the form of the revenues and multiple revenue streams, but also the kind of back end deals are something that we are always looking for and scalable revenues on that area also. Yeah, yeah. Basically, the dynamics are pretty similar despite the big difference in deal terms. But if you look at our phone games and the process we do with partners. Free to play mobile gaming is a hit driven business. So not every game is going to fly, not every project is going to succeed. So that's why you have this approach of multiple opportunities on both sides of the strategy. And let's then look at How this translates into our project portfolio at the moment? We've been using this term multi project approach a lot recently. And this slide basically visualizes all that. So we have 7 opportunities, Ongoing 7 projects going on, ranging from different games with upcoming events to different projects that have some of which have just started as we speak more or less, as well as all sorts of things brewing in the background all the time. So From time to time, in addition to the ones that we have announced, we have smaller service projects in the background under Nitra Labs brand that we built, where we do things here and there, smaller and shorter projects typically, as well as we have the constant game concepting flow as part of our MVP process where we come up with new things and do market testing with those. And Every now and then we find something that's strong enough to be added into our portfolio. Yeah, every now and then some of our clients are interested about those same processes of Finding the finding the scalable free to play game through the same process that we are using for our own games and we've been able to sell that services also for for some of the clients. Yeah. The good example is the project that we have with the UK based PC and console games developer, where, what we're doing right now is basically offering exactly that game prototyping and concepting and marketability testing. And, that's what's basically covered under the existing order. And obviously, should things go well, then there's an opportunity to maybe continue together forward with one of those concepts or then we might just conclude that of their deposit and we do something else. Also what we have gained Kind of new areas for us, for example, to snap as a channel like an instant or chat game or how you want to define But there is a little bit new area of gaming for us. But still it seems that there is a continuous project Possibilities on on on that area also. And it seems that some of some of the companies in the industry have found a way of delivering continuously. Yeah. Games into the channel and this this all of these instant gaming or chat gaming platforms are quite interesting. Yeah. Indeed, indeed. I've been personally really proud about how the collaboration with Snap has started with the first game that we have now. I think Our guys and the team has been super clever about how to bring our expertise on action and and shooting to the new instant gaming platform. And I think we've already gone through 1 of our milestones, and we are at a point with the project where I think we've succeeded in pressing Snap as well, pretty good so far. So really looking forward to see how these things unfold 1 by 1 as we move forward. But overall, We call it expanded project portfolio. And this is the mindset that we are thinking moving forward within the long run as well. So we are looking to keep adding quality projects into our portfolio, whether they are in the opportunity of new games, where we have new opportunities in terms of upcoming launches, only projects with partners where we have different type of dynamics, typically increasing revenues and some longer term opportunities on the strategic I think one key thing here is that even though we are only roughly 40 guys internally, still we are capable of running the Yeah. Multi project model because of our extensive partner network, and we can get the scalability on on on that way. Indeed. Indeed. And if we look at the financials for the first half of the year, as we mentioned earlier, a lot of Greetings from Nitra Games. Things that we've done this year doesn't yet materialize in our financials other than new process that we have started. Some of those materialized costs, obviously. But if you look at the way that we work, you can see the sort of same mindset here in the financials as well. So these external development partners, these are not fixed costs for us, but they are temporary costs, which you can see materializing on the materials and services, which is a number that lives by the amount of projects we have. Whereas the staffing expenses and everything, those are obviously part of our fixed costs end of the first half of the year and some of the stuff we have signed after that period. So like I said, most of the new things not yet visible in our P and L for the first half of the year. If we look at the development from revenue and EBITDA point of view, with a little bit of longer horizon, Recent few quarters, we've been able to increase our revenues, but obviously, we are still talking about levels that we are by no means happy with. But bigger horizon and the direction where we're seeking to go is obviously increasing our revenues step by step moving forward and improving our EBITDA to get this company towards profitability. And if we look at the bigger picture in terms of our roadmap, This stuff looks more or less the same, that it has looked pretty much this whole year. And that's a good thing because we haven't had really the need to change Anything in our roadmap because we've been pretty damn happy with how we've been clocking actions this year step by step. We understand that it takes A little while until all of those actions actually materialize in our P and L. But then again, we are very well funded, supported by good owners. We have a strategy that's Started really well now. So the roadmap overall looks pretty pretty healthy for I would say that the foundation is is solid. Yeah. And step by step approach Feels right for us that we don't try to jump over some steps, but we are going step by step towards the profitability. And Now the latest multi project model has been proven to work and I think that that is something that we will We will definitely leverage into the future indeed and and look for the growth paths from that area. Yeah, definitely. And then in the little bit longer horizon, our vision, we want to be the household name in the category of Shura Games. And what we've been seeing recently is Everything supports this. We are seeing more and more interest in terms of the IP coming to mobile. We are happy to see the continuous sort of Consolidation thing going on in in gaming. That's obviously building opportunities for Nitro as well. Assuming we continue forward with our sequential improvements. That means that we also unlock new opportunities for Nitro to grow. And everything we're doing at the moment supports that really well. So As of now, it looks pretty good moving forward. Indeed. Yes. Thank you all for joining on this fantastic Monday morning. That's all in terms of an update from us. And now we are happy to hear if there's any questions or comments. We are here. Thank you. Thank you. Thank you. Parallel to waiting for that, I'm checking my Inbox if there's any questions via email, but none so far. Looks like we've been pretty self explanatory. We have one question from the line of Danish Freiher from Redeye. Please go ahead. Okay. Thank you. Good morning. How are you? Good. Very good. Yes. So I had a couple of questions. Could you maybe Give a brief update on the internal development projects. Are you still expecting to soft launch loot land, the NERF game and The Snap Games in 2021. Yeah. So here comes an update. I also changed the slide to visualize that. So indeed, With our own projects, things are progressing really well. Lutland is actually something that we've just recently signed with an external development studio. So since Nitro signed so many new projects earlier this year where we assigned some of our in house resources, we decided that it's best to take the next steps with Lutland with an external development partner. And that obviously has an impact on schedules a little bit with that project because we did our jobs well. We Due diligence with a few different partners and listened with few different ideas. So obviously, those things take a little bit of time. But that said, overall, with all of our things, we have been already doing test launches earlier this year because following our process, we are pretty much more or less live all the time, one way or another, and testing At least at least gathering the market data. Yeah. Yeah. And Greetings from Nitra Games. Even if we don't want to go into specific details about exact dates for soft launch because we don't set those in advance, all the projects that we have are still in the market testing phase this year. And, all of them have already gone through, 1st steps one way or another. So all of those expectations are still pretty much there. Okay. So if I understood you correctly, the migration from in house to external development for Lutland will maybe cause some delays, That you're still targeting 2021. Yeah. The thing is that, like, there might be Certain things that they bring it to the table in terms of new ideas and how much it will take time to implement those and stuff like that. Those are things that we obviously don't know. But at the same time, we continue forward with this data driven mindset. So we keep testing things on the market as we go, like we've done so far. So overall, the schedules haven't really moved anywhere. Okay. Thanks. And A follow-up question on the Lutland partner. Could you tell us maybe anything about the partner without, Of course, going into any specifics maybe. Yeah. But Yeah, so about the part of Lutland that follows the same mindset that we've had with a Few different projects in the past where we work with external studios around the world. And in terms of the partner for Lutland, That was a result of, us selecting from a few different opportunities we had. We spoke with few different candidates. And These guys are a European studio. They are a studio where we we have a relationship with for several years now. So we know the people already very well. So it's not a new partner in that sense for Nitro. And they are a studio which has very similar data driven mindset compared to what we have. And they are a studio who can really Put stuff on screen and on devices to be tested with this quite fast to market. I know a lot They have also. Yeah. Without sacrificing the quality of the thing. And the things we were really the most impressed with was that how The ideas that they brought to the table, like what's happening in the category right now and and and how to finalize the game game, but also how to further develop it for years to come moving forward. And those were the things that impressed us the most in this case. So European studio, who we've known for a while, I'm really happy to cooperate with them. Okay. Very interesting. And Speaking about the shooter category for mobile and free to play, so you're up against industry giants in that category with PUBG and Fortnite, Call of Duty and so forth. And there's no price segmentation in free to play. So how do you What's your view on that market and competing against those giants? And how do you sort of filter through the noise or stick out in that market? Very good one. Well, let's first bring one terminology to the table. We like to talk about shooter and action games these days. And the reason for that is that a lot of the shooter games coming to mobile do not come in the form of, like, 1st person shooter, for example, that they might come down as a top down shooter thing. Like, Doom just hit the test markets recently Call of Duty kind of or PUBG kind of experiences. And I think the IPs are something that can drive the business and Having a nerve on one of our IPs, one of our games is one avenue that could differentiate us from the market. Yeah. And it's basically twofold the answer. So with our own titles, it's like Antti said, we can take a lot of leverage from the IP, which gives us solutions to discoverability and visibility and attention and all that. And, ensures that we have a product to Customer fit really well honed because if you know the brand, you know what to expect from the game and so on. But then on the other side of the coin, it's not just about competing with the big ones, but also working together with them. Like, for example, Digital Extremes are one of the big companies in the industry backed up by even larger companies. And they have an insane track record for tens of years, bringing some of the best, you know, games in this category on the market to PC and console. So it's not always about us competing against the Giants, but sometimes maybe we work together with them and help to bring their stuff to mobile. Okay. Great answer. Thank you. Thank you. And final question. So working with a lot of external development partners, have you thought about Any sort of acquisition strategy maybe acquiring some partners that you're really pleased with or other studios? Yes. We have obviously thought about those things, and we have been pretty open about saying that it's definitely an opportunity for Nitro when the time is right. And like I said, when we are choosing the partners for our collaboration projects. Obviously, we do due diligence very much similar to things that you would do if you were to, you know, acquired a studio or partner or something. So obviously the screening process is ongoing all the time. Yeah. And With Nitro having this mindset now that we do sequential improvements in the right direction and keep improving our business towards profitability step by step, Obviously, that means that there's at some point a day when Nitro is in good position and then maybe we already have the partners found at that point. Okay. Thank you so much, gentlemen. That's all From me for now. Have a great day. Thank you so much. We'll be in person again. Indeed. And there are no further questions, so I will hand it back to the speakers. Okay. Thank you. In this case, It sounds like we are done. Thank you so much. Thank you so much for tuning in and look forward to a great second half for Nitro. Thank you.