Nitro Games Oyj (NITRO) Earnings Call Transcript & Summary

Good morning. [Foreign Language]

Good morning. [Foreign Language]

[Foreign Language] Welcome to the Nitro Games First Half Year Report 2020, and my name is Jussi Tähtinen and I'm the CEO and Co-Founder of Nitro Games.

Hi. My name is Antti. Good morning on my behalf also. I'm a Chief Strategy Officer and Co-Founder, together with Jussi, also a board member.

Indeed. We have a lot to talk about today, so to save your precious time, let's move forward. Our vision is to become a household name in the category of shooter games and this is something where we focus exclusively. So Nitro Games produces shooter games on mobile phones, and that's what we do.

As we've been following and been in the industry now for 15 years, we've seen several platforms, several console platforms and generation comes -- come and go and shooters have been becoming a dominant genre in pretty much all of the, so to speak, traditional platforms. And now, we are seeing the same trend happening here in mobile games also. And that is the trend that we are also betting on, and our focus is heavily tied on the rise of the shooters on mobile.

Indeed, indeed. Let's move to the next slide where we talk a little bit about what's actually happening in the category of shooter games on mobile. Since mobile gaming is a very different beast than what comes through PC and console gaming, not least due to the size of the screen and the type of input you have with the touchscreen controls and so on. That sort of what type of shooter games comes to mobile is a little bit different than what we're seeing on other platforms. You can basically simplify things a lot and look at the evolution of shooter gaming on mobile in 3 different waves. Things started a few years back with the sort of first shooter games coming on mobile. And at that point, you have like a lot of sniper games where basically, your focus is on the aiming and shooting part of the game play, which have been somewhat successful. And then you had tactical shooters, which are typically pretty slow paced to allow for network lag and to allow for the complicated controls to work on mobile. For example, a War Robots was a good example in this category. Then came the second wave that kind of like loot bank, so to speak, and this wave was heavily dictated by battle royal. So this is a game mode that we've obviously seen on other platforms in the past, but that came to mobile and took the mobile shooter gaming with a storm. You had games like Fortnite, PUBG Mobile and then Garena Free Fire, which are still very popular around the market. What we're looking at right now and have been looking since last year basically is sort of third wave, where we are seeing the shooter category being so big already, that it's kind of starting to expand to different sub genres and different type of approaches. And this also means...

And kind of polarizing also.

Yes, yes.

To different ends.

Yes, you're seeing a lot of differences between the different ends. And let's say, you have a CALL OF DUTY on mobile on the other end, which is very much visually and from game play point of view, mimicking the type of shooter experience on PC and console and bringing that to mobile. And on the other hand, you have games like Zooba, for example, where it's a super casual take on the topic and controls are a lot easier and the sort of a IP and understanding and getting to know the game is a lot easier. So 2 very different audiences as well.

This recent market development supports and validates our take and our strategy on shooters on mobile very well. We see the market growing. We see that the subcategories are born inside of the shooter category. And now this trend also is really visible. And on our business development activities, where, as we are all the time talking with the pretty much all the Tier 1 companies in the world on gaming, we see lots of interest and request is towards the different sort of shooters on mobile, whether they are kind of console kind of realistic shooters or really casual like more casual core game play and deep meta game kind of approaches. And this plays to our benefit also.

Indeed, indeed. You don't have too many game studios out there that are even capable of doing what we're doing here in Nitro. So that puts us into a pretty damn unique position. Regarding those 2 different sort of opposite ends, the other one is the sort of more casual direction. So let's talk about that when we move forward. This is our game Lootland. So Lootland is a cooperative casual arcade shooter. And what that means that it's a game that's very easy and sort of approachable to game with. But then again, as a true mobile game, it has a very deep meta game layer and the goal of the game is to offer like almost endless amounts of content for the players to enjoy for several months, several years and so on.

The value proposition of the game is to co-op with your friends on a real time, on an environment that are kind of funny and welcomes you easily to play short sessions with your friends. It's social, it's easy to play and to highlight, you play with your friends. We also are heavily utilizing our NG Platform on the development of the Lootland, and that gives us lots of benefits, especially what comes into the real-time multiplayer tech.

Yes. And as part of this project, we've been also revising our real-time multiplayer component in Nitro Games Platform. So looking to provide even better and smoother multiplayer experience moving forward. As Antti explained, the game is very much relying on the co-op and are being very much multiplier driven. And if you don't have any friends, you don't need to play with them or if you want to do it without them. What we built into the game is a system where it also automatically pairs you with other players out there. So you don't need to worry about having friends joining the game online at the same time. You can still enjoy it with other players out there. And how we have built Lootland is that we have very clear focus on different type of player characters with different type of roles, and that makes it easy to understand what's happening in the game as you play forward. Even if you are playing with somebody you don't know and you can't communicate with. And this roles and the evolution of the roles through evolution in the meta game, also serves the purpose of making sure that no 2 game play session are ever going to be the same so that helps to support the endless content in the game.

Since the core game play itself is quite simple, and it's easy to approach, easy to pick up and play. We have built the game, especially the meta game and live ops side that the long-term experience in our mind that reflects then into the long-term retention and long-term monetization opportunities inside of the game. We also have been developing a lot of live ops tools and live ops systems to support the long-term playability of the game and also the idea of having the kind of endless content into the game. And as Jussi said, as the -- none of the game play sessions are never the same, we are capable of offer the players new content all the time. And new game play experience.

Indeed, indeed. With the live ops stores that have in Nitro Games Platform, we're basically able to modify the game play experience with new events, change the game rules and things like this without updating the game client. So that's a big plus for us. So overall, to summarize Lootland, it's a game where you shoot. It's a game where you loot and then you repeat this. So it's a very, very straightforward core loop, but designed in a truly mobile-native way where you -- the effort and focus is actually on the meta game play and the long-term progression. If we move forward, let's talk about our strategy.

Our strategy is to build a portfolio of shooter games on mobile. We want to own the category. We want to be a leader on that category. With the portfolio, we are not only minimizing the risk, what is in the game development and publishing, but we also want to maximize the potential what we have. We have reusable tech components and all of the tech components are basis on our own tech NG Platform, also the live ops stores, all that are part of our tech. And those are the tools to minimize the risk. And then maximize the potential.

Indeed, indeed. So if we look at our portfolio and where we are focused right now. Lootland is very much a cornerstone in development at the moment. So we have a team working on that. We've been lately strengthening that team with even more resources. And the game is currently in development towards soft launch, while we hand in hand develop the server-side technology and the live operations tools for that. The other stuff in our portfolio, especially during the second quarter, there was a lot of focus on theHunter: Mobile, which is a project in our service business where we sell our development services for other game companies out there. In this case, for Expansive Worlds, who are part of the Avalanche Studios Group best known for their excellent shooter games on PC and console. So with theHunter: Mobile, we're bringing the hunting experience from PC and consoles to mobile and this game is currently in soft launch stage. We basically more or less completed all the development efforts for the game. And as a next step, we're looking to complete the soft launch testing process and then conclude on the next steps together with Expansive Worlds. Then we have Heroes of Warland, which is a game that we worked through a series of updates and finalized the development work on that one during the first half of the year. And then also did extensive market testing to validate the results and collect the KPIs. And with Heroes of Warland, we've decided not to continue forward with that project. Since basically the game did not meet our high standards for the performance that we expect on the market. And basically, right now, the whole mindset in Nitro is actually that we are considering ourselves to be in a super strong position right now. So we are looking to be a lot more selective when it comes to the games that we work on. We're looking to focus and steer our focus and efforts on those ones where we see the biggest potential and then let go of those titles, which are not going to be the greatest ones. So moving forward, we're looking to be super selective and let go even good games if we don't see that they're going to be the ones that drive us towards our vision of becoming the household name in this category. However, with Heroes of Warland, you obviously have a lot of learnings that continue to live on. But in this case, there's tons of technology and best game play features that we are taking advantage of since they all part of Nitro Games Platform. And we are already using those in our new MVPs and new games moving forward.

We are currently running the MVP-process heavily, and we have a few games in different stages in prototyping, in preproduction, none of them not yet announced, but utilizing the tech, the learnings, processes and also to some game play features that we had in Heroes of Warland will give us a benefit of getting the new games in the testable shape.

Indeed.

Quite, quite fast. And those are something that we will talk more about in near future.

Indeed, indeed. So all in all, Lootland is very much our cornerstone where there's heavy focus on right now. And we have new stuff brewing in the MVP-process. And while at the same time, we are looking to be super selective, we are pretty damn excited about the stuff that we have brewing. So excited to see how those move forward. Then let's talk about the team. So Nitro, overall, we're 2 studios in Finland, and we consider the team being our most important asset and during the first half of the year and also after that, we've been investing into making the team better, while at the same time, we've been making sure that we can manage things in a good fashion despite the ongoing COVID-19. For us, it's been something that's pretty natural, I would say, because we've had this dual studio setup where we have 2 different locations. So everybody is used to remote working and having Zoom meetings and so on all the time. So for us, it hasn't really changed that much the way that we work, despite the fact that people don't hang around at the offices. And as I explained, we've been strengthening our team both during the first half of the year and also after that, the way that we've been doing is through selected key hires. So we have not like massively expanded our personnel costs or anything like that. And this is something where we clearly see that us focusing on the category of shooter games, combined with some recent progress that we made on that front and the latest releases that we've done has definitely helped us on attracting better and better talent in Nitro.

Also as we have got better talent, it has also reflected in our discussions in the business development. It seems that the more senior and better team we have, the more interest there is towards us in a market. And with the clear focus towards shooters and also the team packing up with the knowledge and expertise that focus, we are stronger in our business development, day by day.

Indeed, indeed. And the other strong asset that we have in addition to the team is our reusable tech Nitro Games Platform, which is basically something that we've been building for several years now. It's an never-ending project in a way that it continuously evolves and it improves as game projects come and go. And basically, the impact that we have from Nitro Games Platform is the fact that when we are investing in the new game project, we are not investing into a one-off opportunity, but we're actually investing into the cornerstone of our portfolio, which is the underlying technology, and the capabilities of the team. And these 2 things go hand-in-hand very much.

The validation that we have from our Tier 1 partners, such as Wargaming and Netmarble, Avalanche, Unity, Amazon is also helping us on our discussion in a business development side of the things when we are discussing about the potential publishing opportunities or potential service business projects and though these validations and the current ones that we have are ongoing, those are also proving the power of the NG Platform for the partnership projects.

Yes, I guess it makes it so much easier when people have allied that can the guys pull this off when you can show that you've actually done it, and you're going to be using a lot of the same solutions you have used historically. As a next step, let's move forward to financials. So as you know, we just released our half year report earlier this morning. And if we look at the sort of key things in the report, what we're seeing on a high level is that we will continue to grow our revenues while keeping our costs at bay. So we haven't been going crazy with the cost base. And overall, the revenues for the first half of the year were actually bigger than the whole year 2019. And at the same time, if we compare the amount of losses that we're still making to how much we made in 2019, we have been able to decrease those significantly. If we look at the development from 1 6-month period to another, we can see that we have been able to systematically work our way up with the revenues. While are focusing on improving the EBITDA at the same time. Then let's talk about significant events during the second quarter of the year.

Yes. During the second quarter, we had a 1 really significant event, we became a part of the Nordisk Film Games family as they invested SEK 45 million into the Nitro Games and became the largest shareholder. Also, we reworked our Board of Direction -- Directors with Mikkel Weider and Pim Holfve joining as new members to the Board of Directors and bringing lots of gaming industry knowledge into the company. The whole being a part of the Nordisk Film Games family has been really positive to company, especially on the support that we are getting from the Nordisk Film Games, the support in a business development, the support in different HR things, data things. There are lots of things the guys have done really well in the -- in Nordisk Film, and now we are able to utilize all those tools and learnings and processes and resources that they have there. And on a personal side, it feels that it's really good chemistry with the people that we are working together with and at the same time, Nitro Games keeping its independency, and we have our own strategy that we follow and get support for that strategy.

Yes.

We also -- we signed a deal with the Expansive Worlds and announced the title, theHunter and started the soft launch with that one.

Yes, exactly like we already spoke before.

Yes.

I think overall the -- what Antti mentioned about the Nordisk Film Games means that since now we have the clear focus to become the household name in the category of shooter games on mobile all the way from new employees to the Board level, and everybody shares the vision and everybody supports that vision. That combined with fact that, obviously, this also means that we got a lot of new cash, puts us in a very strong position, which helps us to be super selective, be more focused than before and really focus on delivering shareholder value with our vision long term. And if we talk about long term, on this slide, we can see that our vision is somewhere in the future for years to come. And what that means in practice is that we are delivering the best shooter games on mobile, we're going to be building a portfolio of this shooter games, and that's our way to deliver scalable growth and shareholder value in the long run. What that means for this year is that our focus, the whole company focus is on a scalable free-to-play game. A scalable free-to-play game basically means a free-to-play game product where through market testing, you have been able to validate that, long term, you can invest money into the marketing and you're attracting new customers to the game, and it's going to churn up more revenue than what actually comes into that. So a profitable business case. So that's what we're after this year.

And at the same time, we are continuing actively our business development activities and many of the projects and deals that we are -- we have had and what we are working on are such that, that we might have a scalable free-to-play game and scalable revenues through those also.

Yes. Yes. And on that front as well, we are following our vision and focus by focusing on shooter game on mobile.

Being really selective on that front also.

Yes. Indeed, well, that was a lot to talk about. So that concludes our presentation as of today. So a big thank you for tuning in and following. We've understood that we have quite a few new shareholders out there. So welcome to the house of Nitro. And hope to work hard and smart moving forward to deliver more shareholder value.

[Foreign Language]

[Foreign Language] Thank you. Let's see if we have any questions or if we are done with the -- looks like we have absolutely none, at least in my Inbox. So I guess that concludes our report webcast today. Thank you, and see you guys next time.

Thank you so much.

Thank you very much. Thank you.