Earnings Call: Q1 2021

Apr 26, 2021

Slides

Hello, good morning. Good morning. And good morning. It's Jussi and Antti here again and we're well on our way to the Q2 of the year. So it's time to recap the Q1. 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 Q1 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're all about this stuff. And we're a Finnish company, 2 studios in Finland. We do shooter games on mobile for global distribution. And in terms of highlights from the Q1, 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 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 Q1. We raised in total SEK 35,000,000 which helps us to further execute our strategy and focus on doing the right things. We also were Pretty active on our business development efforts. And we were capable of securing 3 new deals. Which is fantastic. 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. And those are what we are building on with the long term partnership in our mind. Yeah. 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 one more unannounced game for the Snapchat platform. But more about the games and portfolio later on today as well. Then then then if we move forward, I often mentioned that team is our most valuable asset. And that proved to be true now especially during the Q1 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 headcount 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 Q1 wasn't definitely the easiest one out there, but it was challenging in a very positive way, I would say. So 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, yeah, I'm pretty, 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. 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 the 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 any any development needs anytime we need. Indeed. Indeed. And if we look at some of the key people we have here in in Nitro, Leo Gilman, our Director of External Development is nowadays focusing entirely on working 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 Tafan. That's fantastic. If we move forward, let's have a look at our strategy owners, because in the end of the day, the goal of any company is 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 terms when we need to do something to support our long term strategy. And as an example of that now during the Q1, we did this direct the charity shop, 35,000,000 Swedish, where we were happy to see our biggest existing owners participating. And that just further underlines our position that were part of the Nudis Games family. Yeah. And even we are small part but we are very proud small part of being the being in the Nordisk game family. There are lots of synergies inoperative level, lots of lessons to lessons to learn from data studios and other management. Lots of centralised services, we've been using the quality assurance services and and Test Labs and and so on. And also there are some fellow companies with the shooters on their portfolio and there could be some synergies in In development side also. Yeah, there's a lot of talent in that family and happy to see that a lot of that is focused on the sugar 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 in a 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 that 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 one project. And because of the very driven nature of the business, which is a positive thing, because it has insane 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, a big part of the scalability is our shared technology and tools that we have. Yeah, we are using our tools and tools and tech both on our Own internal development. Our external development partners are utilizing those. But on top of that, those are acting as pretty good sales tools also. We have a lots of lots of requests coming from the market and several of our partners are using in some form out either our MVP process or Nitro Plus or Nitro platform. Yeah. And those are all the tools that both supports our internal, external and partnership projects. 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 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 also As fast as possible. Yeah, indeed, indeed. And that's where the tools and processes come to play because they keep evolving over time a lot. And in our service business, maybe a quick word, what we've done historically. Yeah, 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 we've been working with the very big big companies. We have lots of experience on increasing the project from the small first start on projects into 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. Indeed. And I think the fantastic thing about this 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 NITRA 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 we stand now and what all fantastic things happened during the Q1. And because we're a 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 Lutland, 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 Lutland during the Q1, we've now assigned the new project so that they're going to start again building something new. And we're 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 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 gameplay. I can't wait to, you know, share more about the game in a public fashion. It's it's it's awesome. The other thing also, the guidance from the from the IP holder has been really good and and relationship with the with the hospital is is very transparent on daily basis going to communication and all that. So it's been really, really good project in many ways. Indeed, indeed, which of course is all laying down the groundwork for what's to come once we actually get to the first point, we start launching the game. And then and then we have a new title, which we haven't announced yet. And this one is currently in reproduction 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 we're looking to announce things with this one once all the plans are clear, but so far looking good. And on top of that, we took a new step for the new platform. Instant gaming platform. Indeed, indeed. And this is obviously the new title we're doing with Snap for the Snapchat platform. Again, unannounced game, but because we're 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 1st playable versions and so on. So that sort of whole concept of instant gaming is not that far from our DNA margin as one could imagine. So Premise also On top of the development and the progress with the game, I think the progress with the client and the relationship is also Yeah. Seems to be very, very transparent and going in the right direction and we could expect that to be continued. Yeah, yeah, especially with a partner like Snap, you want to build things with the long term in mind beyond any one single game project. But all in all, our game portfolio, it's now 4 games out of which 3 are unannounced. So a lot of upcoming goodies for this year. And but that's not all. Let's move forward and have a look, see what happens in our b to b service business. Yeah. In in that front, as as mentioned already, we we secured several new revenue streams and PlaySide being one of the most interesting interesting client from that front. It's one of the Australia's largest independent video game developers and 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 one from the US soil. Both of the projects are such in a nature that there could be something something in the future with with those partners and those negotiations are ongoing. Indeed, indeed. So if with our own portfolio, we want to how to say it, do a lot of things to validate the games and ourselves and so on. That's obviously the same thing with our partners. As we mentioned earlier on when we spoke about the company strategy, doing this type of service business is a 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 to a 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 Q1? So compared to the previous quarter that being 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 wise big, but still from money point of view, they are still somewhat small. And most of the things from the new agreements, we expect them materialize moving forward because we, for example, the place until we 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 Q1 yet. Also I think that the in the risk point of view now we are in a good position where we have a several revenue stream instead of having only one client project going on, but there are several several revenue streams and several partnerships to build on. 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 and 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 into the right direction. And then then then if we again have a look see at the big picture, what does all this has to do with our roadmap. 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. 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 1st 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 Q1, we saw a lot of interesting actions on the tutor category. And everything is still pinpointing into the direction where we can expect the category to grow. There'll be more and more companies coming with maybe PC and console IPs to mobile, other non game related IPs seeking to find their way to mobile. And that's where we are. And also the most part inside of the category, there are kind of VHS 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 probably quite big indeed. And if we now have a look see 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 Lutland. 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. Yeah. New deals there, new revenue streams, new partnerships. And as as on our internal developer development, we are proving our games on our external 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 one project indeed. Yeah. 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 different type of opportunities, but everything serves our long term vision. And that's there are lots of seeds for the many beautiful flowers. Indeed. That's well put. Let's end on those words. So that's all for now to recap. Q1 was a great start of the year. And as Mr. Antti said it, there's a lot of seeds for beautiful flowers to grow. Thank you. Thank you. Any questions? Thank And as there seems to be no audio questions, I'll hand it back to the speakers. Thank you so much. 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 email either. That means that we're 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. Bye.