Nitro Games Oyj (NITRO) Earnings Call Transcript & Summary

Greetings from Finland, Good morning, my name is Jussi Tahtinen, and it's great to be back here. It's been probably at least 3 years since the previous time I was here in ProHearing, so very much looking forward to telling you all about -- not about myself actually, but about Nitro Games, what a fantastic gaming company from Finland. And before we actually go into the presentation and to get rid of that echo over there, let me show you what is actually that we do. [Presentation]

So that's us. We do action and shooter games. We come from mobile, but recent years, we've been expanding more and more to other platforms as well. And today, I will tell you more about what this actually means and why it should be interesting to you guys as well. And myself, I'm very much a gaming guy. I have a background of playing against my whole life. I just turned 43 over the Easter that means that I've been playing this game for more than 40 years. I have also been making games for, I don't know, at least 30 years of my life, first as a hobby and then the last 25 years as a profession as well. So I know a little bit about games and how to make them. And myself, I'm still passionate about this thing as a hobby as well, so I play games all the time with my mobile phone, with my PlayStation, with my PC. So I'm your typical consumer as well, who plays around with different devices, different games in different locations. And let's start by going through a little bit about the market like what is this games and where are we actually operating? How does it look like? So global games market is on its way to soon become $200 billion business. The predictions are expecting that, that will happen in 2025, 2026. So in not so distant future. And roughly half of that $200 billion, we expect to come from mobile games. As of last year, the number was just below 50%. So mobile gaming actually represents roughly half of the whole gaming ecosystem. And the rest is divided between PC and consoles and a little bit of browser gaming stuff that you do in your web browser. And our overall as of now in the world, what we're looking at is roughly 4 billion people who play games. So that's a big part of our whole population on this planet who are engaged with games. That means that it's not just guys like me, but it's people like my kids, my mother and everything in between. So the whole gaming as a culture and as a hobby has been expanding over the previous 20 years quite heavily. And why it's been expanding has been mostly because of accessibility to new hardware, which means that we can enjoy games wherever and whenever we want. And also because there's so many different categories in games, there's something for everybody. But here in Nitro, what we do is specifically action and shooter games. So stuff that I showed you on the video, games where things go boom. That's what we do. And why we're focused on that category specifically is for 2 reasons. One, action and shooter games have always been a dominant category in gaming, no matter which generation you look like, whether you look at the early days of gaming or you're looking at the PC gaming or the gaming consoles. And now these days also mobile, you will find shooter games and action games or something close to that very much in the top of the charts. There's some charts from PC and console like what the players are playing, which type of categories and quite many of those tick the box. And that moment, combined with the fact that we're seeing more and more users engaging on multiple platforms that's described in the second chart over there, means that our customer actually is engaged with the games at he or she loves on mobile. For example, during the day, then they might fire-up their consoles in the evenings when they're sitting in front of the couch, might be that over the weekends they have more time and they engage with longer sessions on PC and everything in between. So our customers are on all of these platforms, so that's where we want to be as well. And our secret source as a company that sets us apart in this business from so many others is that we're not your typical mobile games developer who is used to operating on mobile phones, but we're actually a company with more than 15 years of history, and we started by making our own game engines, the softwares that run games on PCs back in the day. Then we worked a little bit on console and now recently we've been combining all our expertise into one because that's where the market is headed at the moment. So that makes us unique. We can pull off things on these devices that not too many companies out there can. And that's what's built the opportunity that we're looking in Nitro at the moment. Our strategy to take advantage of that opportunity that we're seeing is a portfolio strategy. And our portfolio is split into 2 categories. We have our own games where we invest our money, and those are the games that we expect then to become the sort of hockey sticks. Those are the games where we see the biggest hit potentially taking Nitro Games as a company to a whole new level. Games are very much a hit-driven business and most of the games out there that we do and that everybody else does tend to fail. So the usual case with our game development project is that it doesn't become commercially viable in the long run, most of them fail. So that's why you want to have a system and a portfolio and an approach how you can persistently focus on a specific category, which you then master, you become better and better step-by-step and you develop better and better games until you hit the sweet spot and have that hit game. That's what we do in our games business, and I will tell you more about our latest game Autogun Heroes today in this presentation because that's something where we definitely hit that sweet spot. And then to balance things out, we also offer our expertise as a service to our B2B customers. That's where we work with the biggest brand in the world, and that's the part of the business that's still delivering us profits that we then, again, used to invest in our own games. That's also a tool for us to add up to new technologies and learn new things and work on so many more projects because it gives us an opportunity to work on bigger projects that we could potentially afford working on our own. So we have a little bit of both sides of the coin in our strategy. We will talk more about all the projects a little bit later today. And overall, in the grand scheme of things, where are we going with this strategy, and this is something that makes me super excited right now -- right now, is that we've been doing things with the ongoing strategy since beginning of 2017. That feels like a lifetime ago, but we also had a life before that before we listed Nitro. But in 2017, we listed our company Nasdaq First North here in Sweden. And since then, we've been building our capabilities and game portfolio and project portfolio and push this company forward until we reach a very important point, end of last year, in the last quarter, we finally became profitable and reached breakeven. So that was a big moment for us. And now this year for us, it's all about continuing from that with stable growth moving forward because now we know that our products are working. Now we know our plan is working. Now we know that we can sustain our operations and move forward. And we are also, at the same time, approaching towards the end of our strategy. So it's now closer than it was, for example, 5 years ago, definitely. And where we want to be as a result of this strategy and if we succeed at, we want to be the household name in the category of action and shooter games. We want to be recognized as the company that you think of when you want to play a game in this category. We want to be recognized as that company that you think of if you're a big operator in this business and you want somebody to develop the next best game for you. We want to be the company that all the biggest IPM brand holders are thinking when they want to see someone taking their global brands on mobile or cross platform in this category. And that's something where we're already living that fantasy step-by-step, day-by-day, every day more and more. And how we do this is that we're based in Finland, but we have what we call global scalable talent pool, fancier words, but essentially, it means that Finland is a small country like, got Sweden in half and that's us. But we're equally as expensive when it comes to salary and stuff. So some might say not the ideal place to start a global scalable business. But what we have in Finland is insanely good capabilities in engineering, and also in developing global businesses and start-ups because we're such a small market, we don't have anything called domestic market because we're too small. So everybody has the global mindset when they are born because you need to get out of the country if you want to do something. And that's how we've developed Nitro. We have the best people, the best experts in our 2 studios in Finland. And then the scalable resourcing we arranged from our different partner studios, which we have here and there on everywhere. This is a network that we've been building since 2007 when we started this company, when we realized that we do not want to hire all the people that we need in Finland, but we want to have a system that scales up and down. And in order for this thing to work, we've been doing this for quite some time now, in my opinion, the best management team out there in this business. So this is our management board, the so-called C level people who have been with us either from the beginning. So more than 15 years together or then joined along the way, and supporting us. We have a bunch of leads and professionals that we've been hiring during the years from all the best game companies out there to make sure that we excel in all the key different areas that we work on. So that means that we're able to tackle anything from game concept creation, market analysis, to game production, the development, to live operating the games, offering services, offering support and last but not least, doing marketing as well. And that's what makes Nitro also unique, where a company who has much bigger capabilities than companies in this scale usually have. And of course, it's not just us. We have a bunch of fantastic people working with us in Finland, but also in the other studios as well throughout the world. And that's why we often want to say that our team is our most valuable asset. So don't look at our games, don't look at our approaches because those things come and go, but look at our people. Those things tend to last, and they are the ones who deliver the magic. Of course, we also have an awesome Board of Directors. So this is a healthy combination of industry expertise. My co-founder, Antti Villanen sits in the Board. He comes there with the business and mobile gaming expertise, segment group industry investor as our leading investor, they control roughly 25% of Nitro. And then the rest is split between different private investors who mostly are investors who focus in this sector who might have had their own game companies and now they invest their own funds. And then, of course, retail investors out there through Avanza, Nordnet and so on. All in all, in total, we are looking at roughly 4,000 shareholders in Nitro. And some new stuff. So the cool thing about Nitro is entertainment games. And this is something that we just announced on Friday last week. So our latest game, Autogun Heroes has just completed what we call launch phase, and we've now greenlighted the game to live phase. And what that means and why it's so big moment for us is that we started to launch this game in June last year. And what that means for us is that, that when we opened up the game in app store and Google Play globally, excluding China and Russia, and we started to promote the game through territorial marketing campaigns in different countries. And we started to accumulate players for the game and monitor the long-term performance of the game, and we also started to make money with the game. This launch phase lasted for roughly 6 months. And after that, we spent roughly 3 months in preparing a partnership together with an industry-leading publisher called Supersonic. And why we wanted to have such type of partner with the game is for one reason and one reason only. We want somebody who is super good in delivering tons of downloads of the game. During this initial launch phase, we delivered roughly 1 million downloads to the game and delivered roughly EUR 1.5 million with those downloads. And of course, those players are still in the game, some of them and accumulating the revenues even further. But with Supersonic, we're looking at a company who last year was the #2, if you look at the global chart who delivered the most downloads, they have delivered more than 5 billion downloads since 2020. So they know what they're doing when it comes to delivering downloads. And we, as a public company right now and according to our strategy, we are focusing on increasing our profits moving forward and making sure that we find ways to grow the company while keeping ourselves profitable. So we want to have a partner who takes their skin in the game and delivers those downloads for us, and then we share the revenues. So Nitro and Supersonic starting now from April move forward hand-in-hand. We take care of keeping the game up to date, servicing our players, and they take care of bringing the users to the game and then we split the revenues. So this is something that we are very much looking forward to now, and we plan to go forward step-by-step, month by month because the life cycle of a free-to-play mobile game like this can easily expand for several years. And of course, down the line, we're also looking at what other things we can do with the IPM brand because it's all our trademarks, all our characters and so on. Other things happening in our games business is that we also have our previous game, NERF: Superblast, where we utilize the NERF blaster brand by Hasbro. We have an exclusive license for that. And our plan with these 2 games that we're focusing on at the moment in our portfolio is to commercialize this through these type of partnerships. With Supersonic, we already figured out the way to commercialize and already started. And now once we get that off the ground next in line, we're looking into what's the best long-term plan with NERF: Superblast. That's a game that we started to release in end of 2022, and we've already achieved many great things with the game. We know the players love it. It's been featured by the store fronts like game of the day and so on so many times. So we continue to focus on these titles and seek to commercialize the most out of those 2, not just this year, but moving forward as well. And then the other part of our business, B2B service business, this is where we work with the biggest brands out there. We've been working with Digital Extremes for several years now. And now in February, we finally launched their classic game called Warframe on iOS, and that was done by us. And obviously, we keep servicing in that game, keep developing it further and hopefully expanding to other platforms as well. They have already said it publicly that android is scheduled for later this year. Then we also work with Netflix at the moment. We have an unannounced game project proving multiplatform game, obviously, based on a license, but we haven't announced what it is. So that will come later. And in total, the current order value in our B2B service business is roughly EUR 21.5 million. Historically, we work with so many other companies out there, and that's the way we do these things. We've been doing what we do for more than 15 years now. So we've cooperated with some of the biggest companies in this business. And that's what we seek out to do more and more moving forward as well, focusing on delivering quality, delivering bigger and better projects all the time and focusing more and more on multiplatform and cross-platform because that is where this market is going, and that is where our customer is. And then on the financial side, these are our numbers from the end of last year and of course comparison figures for the previous year as well. And I think you can easily see our development here. If you look at the pillars, the orange ones are revenues, of course, and the black ones are described EBITDA. And Q4, so the last quarter at the end of last year, that was when we finally turned this company profitable and delivered our first quarterly report that was on black. So first, I'm delivering profits. And that's, of course, now a big pivotal moment for us and something that we are now making sure that we build on moving forward. And even though we're happy with this thing that we have done, something that we're also very much aware of is that when it comes to being a games company, these numbers are still small. So we still have a long way to go and lots to prove and lots to do in our current strategy. But we feel like we have a very good momentum at the moment, and we have exactly the games and the process we need to pull that off. And then if we summarize things, what to expect from Nitro Games moving forward, what are we set out to do; action and shooter games, we focus on that very specific category and very specific needs. We love the fact that it happens to be the biggest category and also if you ask me the most fun, but we specialize in something, and we want to be the best in that something. And that's action and shooter games, mobile and cross-platform. And things that we're doing more and more moving forward is cross-platform and cross-play. Our players are enjoying games on multiple platforms. So we want to build experience they can access with whatever the device, mobile, PC, console, what have you. We want to work with the best brands out there because everything is developing in the direction where the power is in the brands. There's so much things happening with the marketing landscape in the world and especially in the games, there's so much consolidation happening in the gaming sector and so many other sectors as well that the biggest brands are what catches the attention. So you want to work with those. And we believe we are pretty good at that. And last but definitely not least, we want to expand the category. The whole gaming business has always been about expanding and evolving into new territories, while focusing on something you know really well. And for us, it is a small pieces of innovation here and there, how we expand the category and make sure that we stay on top of the pile and that we are the best. That's all from me today. Thank you so much.

Thank you, Jussi.

Thank you.

It's been far too long. It's like 5 years ago.

Yes, there was a pandemic and all other excuses...

Yes, yes. But now you're here.

Yes, finally.

So good to see this. Exciting -- about this, I think Q4, you had a press release in last quarter with the Netflix deal, then you had that at EUR 9 million. I guess that not all EUR 9 million came into your Q4 report 2023. How will those EUR 9 million with Netflix play out over the quarters? Can you expand some on that?

Yes, that's a good question. So whenever we do this, what we call B2B service business deals with this big publishers, we announced what we call the order value. And that is what we have in the agreement that we expect to get paid as -- through the duration of the project. And this order value is typically split into different milestones, so we get something when we start and we deliver something and then we get paid and so on. So that it's more or less stable from beginning to end. These process have a habit of expanding towards the end of the life cycle. So usually, we get a little bit less in the beginning and more towards the end of the project. And if you envision the Netflix thing, we've said that it's not something that we will complete in 1 year, but it takes some years to do. So we split that money for a few different years. That's how it goes. If you want a sort of more precise forecast, I recommend that you go and read, for example, Redeye analyst's predictions about Nitro because we don't do financial guidance in Nitro. We don't do that yet. But then again, they do. So that's a good reference to have a look at.

Yes. Then you have the cooperations around Autogun Heroes is that a driver that's even before the Netflix deal, you put that as your most important project?

Most important in the sense that, that's our IP. That's our game that we have developed and invested and that's something where we have the biggest upside as well. And that's basically the rationale behind that deal that we, of course, have different teams who work on different projects and specialize in different things. But Autogun Heroes is something that we have worked on with since 2022. We've taken our time and first opened up the game to selected markets, verify the performance from the players through data that hey, this works, then we invested more into it and expanded it a little bit further to many more markets. And at the same time, we further developed the game. So it's been very data-driven step-by-step process for a long time. And now finally, summer last year, we were able to start the launch phase in a global fashion and really expanded to millions of players out there. And now with this partnership with Supersonic, that's a big, big, big milestone for us because we feel that now we have a great product. We have data to show it both financially and also behind the scenes that we can share with the publisher, and we have a great partner now working with -- together with us on the game. So that's why we're super excited about it.

And how cross-platform -- is it already possible to play on a console, PC and on your mobile?

Autogun Heroes is currently on mobile exclusively. With our own games, we go mobile first, and then we potentially expand to other platforms after that moving forward. Those are still in the field of opportunities as we move forward.

If it's a hit -- a big hit in the mobile, then it would cross over to other platforms...

Yes. Yes. And like I demonstrated on this slide, what to expect from us moving forward, we are more and more looking into that direction at the moment. But we haven't announced anything yet on the...

And then EA Games will buy Nitro Games for zillions dollars and you won't be CEO anymore, no?

Well, that type of things are probably in the category happy problems to solve, should that happen.

Question from the audience.

I'm almost totally ignorant to the gaming market, but you seem to be very competent. Now some companies and products like Angry Birds make a pile of money, you don't. I don't want to be offensive, but what is the difference?

That's a very good question. The dynamics between games that do make money and don't make money and so on is in the scale of things. So the beautiful thing about is free-to-play gaming and especially in mobile, but the same applies these days more and more to PC and console as well, is that everything can be measured. I'm sure you're familiar that whenever you go browsing anything in Internet, you get exposed to advertising. And for some reason that advertising is very close to what you might be interested in real life or what you might have been looking at Google and stuff. And that's how we do things in games as well. We do very specifically targeted advertising, and then all our games are connected to our servers all the time. So there's tons and tons of data. And if you have a game where you can validate with the data that a dollar put into advertising comes back with profit over time on average, then you know that you have something in your hands that can potentially become that next Angry Birds for example. But then you still need the money that you actually invest into the marketing. Usually, in mobile and in free-to-play to buy one download, depending on the game and the category and how competitive times there are on the market, you can pay anything from roughly $1 to $10 or some of the most best games that are able to beat even higher than that so pay tens of dollars per download just because they have this data and they know what they're doing. And back to your question, why we are not there yet, we haven't been able to play with that type of budgets with our own game yet. We are not in that scale as a company, we don't have that amount of cash in our disposal. So that's why the approach that we took with Autogun Heroes was that we proved it with a little bit smaller scale in our launch phase that we started June last year. We spent some millions, but not tens of millions, not hundreds of millions of euros, but some millions of euros into the game launch, including the marketing. And we delivered the downloads and we delivered the revenues, and of course the data. Then we went to game publishers who are so much bigger than us, showed the data and the results and so on and discussed. And then we come out with Supersonic by Unity and did the partnership deal with them earlier this year. And last year, they were the second biggest publisher in terms of downloads in the whole gaming, in mobile. I hope that answers your question a little bit.

Just final question on Netflix deal, is it set that it is about EUR 9 million over 2 years? Or could that be EUR 3 million or EUR 30 million?

What we put into our announcement is, of course, what we have been writing on paper. So that part is clear. But that said, we have had the habit of delivering quality service to our customers. And if you check out what we have done earlier, you can see many times our customers come back with so-called return orders. So for example, Digital Extremes, I think we've renewed the agreement with increased order value with return orders for quite a few times now. And the same is true with so many other customers. And that's something where we focus on. We're not your cheapest provider, but we provide quality. And that means that we sell ourselves with pretty expensive price tag. But then quite often, we also get to enjoy happy customers returning and ordering more. Hope that answers the question.

Enough.

Good.

Thank you, Jussi. Thank you.