Nazara Technologies Limited (NAZARA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Nazara Technologies Limited Q1 FY '27 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nirant Dhumal from ICICI Securities. Thank you, and over to you, sir.

Good morning, everyone, and welcome to Nazara Technologies Limited Q1 FY '27 Post Results Earnings Call. The call will start with brief management remarks on the earnings performance, followed by a Q&A session. Nazara management will be represented by Nitish Mittersain, MD and CEO, Nazara Technologies Limited; Rohit Sharma, Executive Director, Nazara Technologies Limited; Rakesh Shah, CFO, Nazara Technologies Limited; Anupriya Sinha Das, Head of Corporate Development, Nazara Technologies Limited; Shreyes Menon, Whole Time Director, Smaaash; Terry Lee, CEO of Fusebox Games; Susan Planck, CEO, Curve Games -- COO, Curve Games; Maxime Loppin, CPO, Bluetile Games; Manish Gaurav, Whole-Time Director, Paper Boat Apps Private Limited; Jeff Amis, Co-Founder and CEO, WildWorks, Inc.; Mayank Kumar, CEO, Absolute Sports Private Limited; Akshat Rathee, Founder, NODWIN Gaming Private Limited; Senthil Govindan, CEO, Datawrkz Business Solutions Private Limited; Chris Jones, CEO, Space & Time. Over to you, sir.

Hello. Yes, hi, everyone. Good morning, everyone, and thank you for joining us this morning. This is Nitish. Q1 FY '27 marks a significant step forward in Nazara's evolution into a global gaming operating platform. Yesterday, we announced our Q1 results, the appointment of Raymond Stauffer as our new CEO effective 1st September, subject to relevant regulatory approvals, and an acceleration of the previously announced Bluetile and BestPlay transaction to acquire 100% ownership for a fixed all-cash consideration of USD 303 million. Consolidated revenue came in at INR 429 crores. And EBITDA was INR 46 crores. We reported a PAT loss of INR 82 crores, largely attributable to the share of loss from associates and impairment loss. Excluding the impact of NODWIN's deconsolidation, comparable revenue grew approximately 9% YoY. Our gaming revenue increased 14% year-on-year to INR 275 crore, with an EBITDA margin of 19.5%, and all our gaming businesses remained EBITDA-positive and showing positive growth. Our shared capabilities across UA, data, product and growth are translating into stronger performance across the gaming portfolio. A long-standing concern on Kiddopia stagnation has changed in the last quarter. And Kiddopia revenues grew 19% year-on-year as user acquisition scaled behind improving unit economics. Fusebox, which runs a popular game, Love Island, increased 12% year-on-year to INR 82 crores, whereas our kids IP, Animal Jam, revenue also grew 11% year-on-year. The Board on the recommendation of its investment committee has approved an amendment to the previously announced transaction structure to acquire 100% of Bluetile and BestPlay for a fixed cash consideration of USD 303 million. Under this amended structure, USD 89 million will be paid at closing, with the remaining USD 214 million payable in agreed tranches by 1st April '27. This new structure provides certainty of ownership and acquisition price, full economics upon closing, single owner governance, immediate operating integration, greater strategic flexibility and access to the cash generated by the business. For reference, the Bluetile and BestPlay business reported INR 518 crores of revenue and INR 55 crores of EBITDA in FY '27. And subject to the final closing, we are expecting to start consolidating this entire business from Q2 of FY '27. We have also appointed Bluetile's CEO and Founder, Raymond Stauffer as CEO of Nazara Technologies effective 1st September '26. Raymond brings the founder's mindset and a proven record, especially on AI-enabled development, operating discipline and capital-efficient growth. And I think he and his team will be able to significantly boost and help all the other studios within the Nazara umbrella. As Founder and Managing Director, I will continue to share Nazara's long-term strategy, portfolio direction and key relationships, working closely with Raymond and the Board. Nazara enters its next phase with greater scale, stronger leadership and significantly deeper operating capability. With that, I'll hand over to Anupriya to discuss segmental performance. Anupriya, over to you.

Thank you, Nitish. Good morning, everyone. I'll cover the segmental performance. In Q1 FY '27, our gaming segment revenue grew by 14% year-on-year to INR 275 crores. And EBITDA reached INR 54 crores, resulting in an EBITDA margin of 19.5%. Within mobile gaming, Bluetile and BestPlay, which will be consolidated from Q2 FY '27, delivered 54% revenue growth year-on-year with gains reinvested in the user acquisition. EBITDA held flat as UA spend rose from 78% to 85% of revenue though revenue net of U.S. spend still increased from INR 73 crores to INR 80 crores. As Nitish mentioned, Kiddopia revenue grew 19% year-on-year in Q1 FY '27 with higher U.S. spend deployed against improving unit economics. The 24-month LTV/CAC continues to trend upwards, though the step-up in investment acquisition -- in user acquisition has moderated the near-term EBITDA. Animal Jam revenue increased by 11% year-on-year, supported by a consistent content cadence and continued growth investment. Fusebox, the developer and publisher of Love Island game grew by 12% year-on-year as the studio scaled Love Island, which ranked #1 in free apps and #5 in top grossing apps in the U.S., while investing in Big Brother's growth and the development of the new game, Traitors. With Q1 FY '27 revenue of INR 53 crores and EBITDA of INR 14 crores and a 27% EBITDA margin, PC and console population remains strongly profitable, while funding the release slate. Transactional sales for Human Fall Flat and For the King II both increased year-on-year, while more than 60% of the development investment during the quarter was allocated to new signings. The new releases will begin from Q2 FY '27. Margin will be lower -- margins were lower relative to Q1 FY '26, which had benefited from the first-party studio release of Badlands Crew last year. Offline gaming delivered healthy profitability at a 33% EBITDA margin with Q1 FY '27 revenue of INR 34 crores and EBITDA of INR 11 crores. Funky Monkeys revenue grew 58% year-on-year driven by both same-store sales growth and store expansion, while the Smaaash 2.0 reimagined format is in -- development is in full flow. Within our other businesses, Datawrkz delivered Q1 FY '27 revenue of INR 126 crores and EBITDA of INR 3 crores. It supported the continued operating discipline. Space & Time grew EBITDA year-on-year, demonstrating margin resilience through a softer demand environment. Ad tech business' next focus is on scaling higher-margin product business such as Vizibl and expanding into newer markets. Absolute Sports posted Q1 FY '27 revenue of INR 28 crores and EBITDA of INR 1 crore. Sportskeeda delivered positive EBITDA at a lower cost base with the full effects of cost actions expected from Q2. While Pro Football Network delivered best Q1 yet with a 19% EBITDA margin versus breakeven in Q1 FY '26. NODWIN's Q1, traditionally its slowest quarter, saw stable revenue growth with losses substantially lower year-on-year. Comic Con Mumbai was sold out show and the IP is expanding to 14 events in India this year alongside the registration of Comic Con World as a global IP. NODWIN is targeting organic growth of 30% plus for FY '27 and is progressing towards its IPO readiness. With this, I conclude my remarks, and we will open the call for Q&A.

[Operator Instructions] The first question comes from the line of [ Aditya Jawal ] with [ AK Investment ].

Great set of numbers. My question is to Raymond, if he is in the call. Raymond, can you just briefly talk about your journey regarding Bluetile. How did you scale up? And can you also briefly touch upon -- I mean your background from Google where you were leading some trust and profit products, but how did this gaming came into your thing and also when I see your numbers, in the 7 years you have scaled beautifully, there were any inorganic acquisition that you have gone through or it was all organic? That is my first high-level question to Raymond. Hello? Is Raymond on the call?

Hi, this is Nitish. Raymond is not on the call because he had a flight -- he was on a flight during the timing of this call. He is represented by Maxime, who is going to take over as the CEO of Bluetile and BestPlay once Raymond moves the Nazara side. So I think Maxime can answer some of this on behalf of Raymond.

I'm Maxime. Okay. I can't talk too much about Raymond's experience. I mean he will talk to you about it more in depth. What I know is that I've been working with Raymond for a while now and it's an absolutely extraordinary feel. Now about the second question, no, it's not organic growth. So the way we spend money here at Bluetile is that it's based on the profitability of the campaigns, so the UA. And we have released several new games, new features for the games for BestPlay, and we've seen a great return on investment on many different campaigns. So that's why we decided to increase the spend and therefore the revenues. So most of the increase in revenues is driven by paid acquisition actually. And we did this in order to increase the revenue baseline and the user base basically. And that should give us full flexibility in the future to adjust revenues or EBITDA. But no, this was driven by a paid acquisition.

That sounds good. Secondly -- this question is for Nitish. Basically we are acquiring -- I mean, we have changed the deal that we will go in all cash in deal. That is basically a liquidity exit to all the Bluetile and BestPlay investors. Then we are also appointing Raymond as the CEO. Then what would be their skin in the game in this? I mean, for a long-term shareholder perspective. And also day after tomorrow we are having a board meeting for preferential rates. Is it for them? Yes, can you just throw some light there?

Right. Yes, so I obviously cannot comment on the fundraise and the preferential ratio for [indiscernible]. But you can be rest assured that we are working on structures that will incentivize the management team and including Raymond as CEO Nazara group. But over the next few days we will communicate more on that.

The next question comes from the line of Samarth Patel with Equirus.

I had couple of questions. First one was on Curve Games. So if I remember correctly, in the last con call you had mentioned that we will have six new releases this year. So where do we stand today? And, in terms of margin, should we expect margin to stay at this level throughout the investment phase that we are doing on the Curve Games? That is my first question.

Samarth, let me first answer that and then get Susan to deep dive into it. I think fundamentally what we've done over the last few quarters since we acquired Curve is to really push and encourage the team to start signing up new titles. Curve has been well known in the indie space for being able to select and bring excellent successful titles to the market. But over the last few years, their ability to invest into signing new titles was significantly depressed, which was kind of constraining them. So I think we've kind of unleashed them from that constraint. And I think they've done a very good job in terms of building a strong pipeline. Susan, if you may come in and talk a bit more specifics around what's happening and what we expect in terms of the title road map, et cetera, it will be helpful.

Thanks, Nitish. Hi, there. Susan Planck, Curve Games. Yes. So as Nitish said, we have been investing in new titles under Nazara since the acquisition last year. Our new development titles generally have a cycle, development cycle of 12 to 18 months, which has meant there has been some delay in reaping the benefits of the new signings under Nazara. However, we are looking at releases upcoming within the next 3 quarters of FY '27, starting actually with Sovereign Tower, a title we're really excited about that's actually coming out later this week. We've then got Dragon Shelter releasing in September and then a number of other new titles that we're incredibly excited about that are yet to be announced coming before the end of the year. With respect to the margin, yes, our 27% EBITDA margin that we saw in Q1 of FY '27 is lower than our expectation for the full year. And indeed, the margin in excess of 40% that we delivered last financial year, the new titles that we have signed will contribute significantly to increasing that margin in the subsequent quarters of the year.

This is Rohit. If I may also add, in terms of the -- on your question to the margins, our own first-party studio, IronOak, which makes the game For the King, For the King II has been seen in the last couple of months a good upside on its numbers, and this will continue. And, therefore, as we go along, we will see better margins in the business. And IronOak is also now working on some new titles, which again, because will be first-party titles, will give us a better margin as we go along in the next couple of quarters.

Understood. That was really elaborate and very helpful. Now my second question is on the offline gaming. So I mean, what is the total capital commitment that we will have to the offline business over, let's say, next couple of years? And just extending on to that, I mean, which quarter the Smaaash 2.0 will actually open? If you can help me with those sequence.

Yes, sure. See, right now we are doing 2 things. Nitish again. Right now, we are doing 2 things on the offline gaming. One is, like you said, we are working on establishing the Smaaash 2.0 product market fit, and the first reinvention is going to happen in the Mumbai, Lower Parel longstanding Smaaash where we have already started with the design and back-end product and technology. We are going to start implementing. So I think Q4 of this year FY '27, Jan to March 2027 is when we will look to launch it at this point of time. In terms of Funky Monkeys, they continue to expand their centers quite successfully, and we will continue to encourage them to do that. We are funding it through internal approvals as well as some debt and some capital infusion by Nazara. Right now, our overall commitment across these 2 businesses, including some stake increase in Funky Monkeys is approximately INR 50-odd crores. And beyond that, we have not decided any specific capital allocation especially till we see the Smaaash 2.0 product to market fit.

Very helpful. Now my last question is on NODWIN. So, I mean, in the last quarter we also spoke about raising anywhere between let's say, $100 million to $200 million kind of capital. And I mean NODWIN is also preparing for IPO. So where do we stand in that process and does the secondary sale form part of how the Bluetile consideration will get funded with the preferential allotment that we talked about?

Yes, we have Akshat, the Founder and CEO of NODWIN. It will be best for him to answer this.

I'll answer the first part, Nitish. The second part might be more appropriate for you to take. Look, NODWIN has been able to go and do a significant turnaround. Our shows are now selling out across the world. We are expanding some of our Comic Con, our premier IP from 11 shows that we did last year to 14 domestically and 2 to 3 international ones also. We are also having -- we've had a bumper year on our esports IPs and with the clarity of esports in India being a special category that has been made through the PROG Act. We are looking at significant tailwinds as part of our IPO process. And as you know, when you go out in the market and all of you analysts, some of -- we have been talking to some of you, and we'll continue to go and talk to some of you to go and look at some guidances. The world is a little crazy place right now, as you can understand both geopolitically and figuratively where we are. So our process continues. We have very strong traction that is coming in for people who have interests in pre-IPO versus normal rounds, funding rounds primary. And then it is over to the shareholders soon, that we want to go ahead and have this conversation of where we will take the company forward in all. And I think we have the utmost of support from Nazara and its management, and Nitish specifically, to go ahead and chart our own path.

Yes. Can you just repeat the second question, please?

So my question was that, I mean, the NODWIN secondary sale, would that be part of how the Bluetile consideration gets funded along with the primary raise that we might do?

Bluetile consideration, we have multiple options. One is that Bluetile already has certain amount of cash on its balance sheet post our acquisition. I believe it's about give or take around $20 million that we will have access to. There will be additional cash flow generated by Nazara and Bluetile up to that period which will be leveraged. There will be some component of debt, that we would take. There will be some equity and there will be stake sales. So I think we have multiple options that we will -- we have factored in to conclude that transaction.

The next question comes from the line of Kunal Bajaj with Choice Institutional Equities.

So I have a couple of questions regarding margins. So we see that EBITDA margins declined meaningfully this quarter. This is on the back of higher UA expenses. So should we expect a relatively sharp normalization over the next few quarters or the recovery is likely to be gradual? That is one. And regarding Bluetile margins as well, we see Bluetile margins in Q1 is around 11% as compared to 17% in the corresponding period last year. So what are the key factors behind the decline?

Yes. I think I'll answer for both the businesses or all the gaming businesses. I think the good news is that this is a good reason for the EBITDA decline, which means that while maintaining the guardrails of the LTV CAC rate, the revenue we want to make versus the cost we want to spend on user acquisition while maintaining strong guardrails on that. We are seeing the ability to enhance AI implementations, data analytics and their acquisition capabilities, ability to scale up. So we are basically scaling the user acquisition in a very profitable manner. And If we continue to see that, we will continue to drive it there. So we've not kept any caps to it. So I think the way to think about it is, if we are able to see tangible growth on the revenue side, we are not driving it at a cost of margins. It's just that the margins are deferred because all the user acquisition cost is being absorbed upfront. Eventually, this will, of course, normalize into much higher EBITDA margins being reported.

Okay. Just one more bookkeeping question. So how do we see the quarterly D&A charges going forward?

Quarterly which charges?

Depreciation amortization charges going forward.

I think, again, we amortize -- so we amortize the intangibles that we take on book for the acquisitions. And currently, outside of Bluetile, they are broadly steady state what we have been reporting, and will continue at the same -- broadly at the same level. Bluetile will obviously add its own amortization, which I don't have a specific number right now, but that can be easily calculated, or we can share it offline.

Sure. Just if I can pitch in last question. Out of the $214 million transaction, which we are expecting to be completed by April 1, 2027, so do we have the breakup of $214 million as in by which time...

Yes, yes, yes. Anupriya, can you share that, please?

Yes, sure. So out of the $214 million that we will acquire, we will get around -- we are looking to the consideration which is due in 90 days from now onwards is roughly around $75 million. A total of $131 million beyond that, which is around $35 million in December, and the subsequent last amount in the March -- by -- before 1st of April, 2027.

[Operator Instructions] The next question comes from the line of Jinesh Joshi with PL Capital.

Yes. Thanks for the opportunity. Sir, my question is with respect to the change in the mode of consideration with respect to the payouts relating to the Bluetile acquisition. In the earlier version, the interests of the shareholders were pretty much well-aligned given the fact that the payouts were staggered. Any which ways, in the earlier scheme of things, 100% consolidation was to happen from day one. Although there was some bit of valuation uncertainty which was there in the earlier version. Apart from that, I mean, which will get eliminated now in the new version, given the fact that you have a fixed amount that you need to pay over a fixed time period. But when it comes to the payouts, obviously, that was spread out over 3 years. And now by April 2027, you have to make the balance payment of $214 million, which might lead to some kind of dilution, right? We are looking out for some pref, and maybe you also mentioned that we take some debt. So any specific reason to upfront the payments, maybe take debt, dilute rather than wait it out for three periods? Because consolidation, any which ways, was to happen from day one without any minority interest accrual.

Yes. I think there were multiple considerations here. One is obviously the trajectory of Bluetile and BestPlay, made the investment committee that we have formed feel that the payouts eventually may turn out to be much larger because they were all performance-based payouts with annual payouts which could exceed, go up to 180% of the committed payouts. I think that was one consideration on what the payouts can be. I think the second was, since we thought that Raymond was really a good fit to come in as overall CEO, I think having continued performance metrics for a specific business would cause some level of conflict and disalignment which we wanted to avoid. So I think those are the two key reasons besides a few others. In terms of the consolidation question, while we were going to, as per accounting standards, consolidate, there would still be 50% leakage of the cash generated by Bluetile and BestPlay back to the founders, which in this case will now completely accrue to us. I think that is one advantage that we have. Lastly, in terms of how we intend to finance, I think, again, our investment committee has laid out a complete plan of action, which I will not be able to share right away. But there's a thought-through plan on how to execute this transaction, as well as how to align Raymond and his team on the overall success of Nazara versus just Bluetile or BestPlay on a standalone basis.

Sure. Sir, my second question is with respect to the tax notices that some of our real money gaming subsidiaries had received in the past. And I think Supreme Court has upheld that these are legitimate notices. But I understand that we have fully written down our value of investments in PokerBaazi. But given the fact that we had some kind of ownership in these companies, will any kind of tax liability accrue to us is what I just wanted to know.

No, I think our exposure is limited to the extent of our investments in these companies. And from a conservative approach, we have written them out completely.

Sure. And, sir, one last question from my side. The share of loss of associates in this quarter was at about INR 62 crores. If I look at the performance of NODWIN, it was relatively steady on Y-o-Y basis. I think the share of losses have magnified. So is there anything specific one-off in this quarter with respect to these losses?

I think most of the impairment and share of losses you're seeing are write-off on the remnant values related to the Moonshine transaction.

Sorry, relating to the?

The Moonshine investment. So it's not related to NODWIN per se, but related to the Moonshine loss. Earlier we had written off about 90% of the risk, but there was some carrying value. After the recent judgments, we've written it off completely.

The next question comes from the line of Rahul Jain with Dolat Capital.

First of all, I mean, how the day-to-day responsibility, Nitish, changes for you now with the CEO change that has happened where most of your energy will be devoted incrementally? I think we could start with that, then I have some more questions.