Nitro Games Oyj (NITRO) Earnings Call Transcript & Summary

Good morning. Hello, and welcome to our webcast.

Nice to see you all.

Yes, yes. It's October now. Third quarter is behind us.

Third quarter is behind us and winter is ahead.

Yes. Yes, indeed, but we're well prepared for that.

Yes.

So without further ado, I'm Jussi Tähtinen, CEO and Co-Founder here in Nitro Games. And with me, we have...

Antti Villanen, CSO and Co-Founder, together with Jussi.

Indeed, indeed. So let's go forward.

Yes.

And here in Nitro, we are your powerhouse for action and shooter games. And action and shooter brands.

Across all the platforms nowadays.

Yes. And this has been our vision and North Star for quite a few years now as we're focused on becoming better and better in this focus segment and exploring it with a variety of different angles and directions.

And it seems to be paying off, as I said, there are more and more opportunities and now even some new opportunities that we present today. I think the one key thing is cross-platform. So we've been widening our operations from not only mobile, but the cross-platform and there are interesting cases where we are operating not only mobile platforms, but other platforms also in the cross-platform.

Yes. And I think this is now when we start to look into the Q3, which is behind us, but also a little bit looking forward, this is also something that's behind our new stuff that we've now started to work on after the summer since the transitional period during the first half of the year. So still very much leaving this one.

Maybe one thing worth mentioning at this point on top of that, our vision has been in action and shooter brands and now in cross-platform and all platforms is our development model and our partnership model where we are operating with the various studios around the world and scaling up, scaling down when the time needs.

Yes. I think that's a good one because despite the things that we have seen here in Nitro recently and how we have navigated through all of this, one thing that still dictated the third quarter despite what we hope for is that the industry around us still seems to be going through this turmoil. And we have learned quite a lot of not so positive news from the big boys, especially on the U.S. side.

Especially in the U.S. that there are still some sort of uncertainty of how the future will shape up, and there are very big transactions going on and whatnot. But that comes down into our model, how we have built our developing capabilities is to have this flexible model when scaling up and scaling down.

And that is good because it reflects here in our numbers for the third quarter as well. It definitely hasn't been the easiest quarter in the history of Nitro Games. But in many ways, it's been a quarter of building many things new. And as part of that, we've been going through all sorts of changes, not just in our project and game portfolio like we described later on in this webcast, but also what comes to our staffing model and how we prioritize what we're doing and so on. But I think the bottom line pun intended is that we're, again, reporting positive bottom line, and that is thanks to very much to that flexible model that we have.

And on top of that kind of cash flow neutral quarter, which is also a lot to [ thanks to ] our model.

Yes, yes. While revenues declining from the previous year is nothing to celebrate, but we're still proud that we're able to continue navigating through this thing in the industry. And the low point of the second quarter, that's now behind us. Now we're back on track, as they say. And speaking of new during this third quarter, here's mentioned a couple of the events recently that we've done. So we're happy to first announce new partnerships that we started towards the beginning of the period. But then after the period and during the period, we've been able to like a little bit build up on those and already seen first follow-up orders come in, and that's obviously something very good for us considering moving a little bit forward.

And all of you who have been following us longer might remember that quite often, our new partnerships and projects and clientships are starting with something a little bit smaller and then we intend to build on top of those. And quite often, we've been able to do that.

Yes, yes. And that is definitely in our DNA and way of working that whenever we are building something new, whether it's our own games or whether it's project with partners, we do exactly that. We start small, then we take things step by step. And as we learn more about the opportunity and become more comfortable that this is what we want to do, then we take things bigger and long-term.

And those are minimizing the risks while going like a step-by-step model.

Yes. And I think that is now well reflected here in our game portfolio and in our updated view. Like I mentioned earlier, when building something new, you always need to let go something old. And in our case, that means that the three ones here at the bottom of the slide, so Autogun Heroes brand, but also some of the new opportunities we were exploring with NERF: Superblast brand, those we have now decided to put into the so-called maintenance mode. So what that means in practice for us that we are heavily reducing investments on those, also including the staffing and so on. It doesn't mean that the products would be like suddenly offline or things like this, but we just reduced the focus that we put on those. There might be some things falling off from these things moving forward if things match, but basically, you shouldn't expect too much on that front for the time being. But instead, we now have four active MVPs...

New stuff growing and many of those already gone in the initial steps in our product lifestyle -- life cycle process. And I think that's a good way of building the future, investing into the new products, new games. And every now and then, some of them become then a real product.

Indeed, indeed. And I think on the previous time, we discussed how we had -- after the summer, we had two free-to-play mobile things cooking and two premium PC console things. So the numbers are still the same. And what we have seen now during the third quarter is that on the free-to-play mobile side, we have evolved some of the first ideas. We had a little bit further, we have let go of some of the things and built up something new based on the data and the results. And now we're at a point where we're again exploring the data for the latest releases that we have done after the quarter. So it will be very exciting to see how those play out and what happens as a result with the next steps. And like I think we mentioned in the report with PC console stuff with both, we're now moving forward in the early steps towards some next phases. So we've been showing those a little bit around to our industry friends like publishers and so on and pretty encouraging.

It's encouraging feedback this far and reason to progress with those. We have something new also in our B2B service business.

Yes.

And we've been capable of signing something new and balancing a bit of a client risk in that sense that we are not relying only a few, but there are more clients to serve and more projects to operate. And there are some old and there are some new on that one.

Indeed, indeed. So we obviously have -- from the old ones, we had during the quarter, pretty much the collaboration with Digital Extremes on Warframe. And that's something where our focus has very much been on preparing Android.

Still in a soft launch in iOS and -- but there are also some of the preregistration numbers and what ones are quite encouraging. And when the time is right with the client, then Android will show what is the capability and performance of whole mobile with that brand.

Yes. So we're very much looking forward to getting our stuff for the 100% delivered and see then how it plays out over time. But the new stuff, so we have VOID Interactive, then we are working with Starbreeze. And then we have what we mentioned in the report, also like a third new one, which is still super early. We haven't dropped that name even yet, but that's proving. It's a little bit different than this action and shooter thing, so a little bit something else, but that's proving. And I think safe to say that during this year, we expect to learn a little bit how...

How it works.

Yes, how it works and if it continues moving forward and stuff.

But the VOID Interactive and Starbreeze, both projects are very spot on, on our vision and capabilities and expertise in the action and shooter category. And those are prime examples where all those cumulative expertise and experience that we've been collecting during the years are now materialized with the great companies and great products and great projects.

Yes, yes. And even if we are not in a position where we could drop details about what exactly we're doing. But I think, like you said, it's a good match for what we're doing, good emphasis on our platform expansion things that we have discussed in the past and how those are starting to pay off. And I think it's safe to say that many of us here in Nitro, like including us, we're big fans of the games that these companies have put out. So it's always cool if you get to work on something that you also love to play. So that's nice.

And we have Pistolo.

Yes, yes, yes. So this is our -- as we call it like a little bit proof of concept and exploration in the iGaming side or iGaming mid skill gaming, however you want to frame it. And this is something that we've said earlier that we're pretty excited about what we saw during the initial launch before the summer. So we continue to be that. This is something that we are keen on learning more as we go forward and really understanding better that could something like this, what role it could and should have in the future of Nitro.

Nitro understanding this product, but the whole that side of the industry. Could there be opportunities for us in a bigger scale or is it just one of growth.

Yes. So...

That is yet to be seen.

Yes, quite a lot of activities on this front during the third quarter. Even if you know team size-wise and so on, this is a fairly small initiative for us, but I think pretty interesting in many ways. We've definitely learned a lot. So I think moving forward towards the end of the year and so on, let's see how this one develops and what role it will play in a little bit longer run.

But I think overall, the portfolio looks more healthy than a long time. We've been able to minimize the client risk by having more of those clients. We have new things proving of our own. And then we are lowering the investments to those maintenance-based games. And I think it's in a healthy stage, the whole portfolio at the moment.

Yes. And I think it is something that -- I know not a lot of people expected this from Nitro, but I think something that you should have expected it to be following us from quite a long time because like in the long run, Nitro has always been super resilient. We have always been able to figure stuff out and all those things. And how we usually go about things in many ways is that there are times when we kind of like widen the funnel, if you will, and do a little bit more, then any of those things might be a little bit smaller in size. And then we try to find the ones that for the long term and then we go a little bit more focused. This is where we were very much end of last year. And then we went through the transition during the first half, but now we're again in this widening phase and exploring more avenues and then something else.

And it's bumping all the time.

Yes. So that's very much in our DNA, I guess. And also something that the sort of solid management of our game portfolio throughout the years is also the secret behind our 5 years of consecutive growth that we have behind us that games come and go, projects come and go, situations and quarters come and go, but in the grand scheme of things, this is where we come from. And despite the fact that as of now, we are a little bit lower in the revenues, and there was a sort of a low point behind us. But in the grand scheme of things, we have no intentions of slowing down either. So Currently, if we look at where we are is that it is now previous 12 months and a little bit more in terms of quarters and stuff. So I think Nitro at the moment, we are more sort of like stronger. We are more adaptive to different things. I think we are more multitasking in the positive sense of the word. So we are more adaptive to different type of potential future scenarios. And as a result, a little bit more profitable compared to the scale in revenues.

I think the resilient is very good of describing our way of working and how we've been navigating through several cycles of the industry now for close to 20 years and coming out as a survivor from those and quite often in a better position when industry has again settled into something new normal. And I think we have in the industry, it's again this kind of cycle going on that something new will come out after this turmoil in the industry. And I'm confident that due to us being resilient and our development model, we are coming out as stronger from this cycle than before.

Yes. Yes, that's definitely the case. And I think something that in the grand scheme of things that's different for us compared to any of the previous cycles. We've been always good at navigating through those. But now this time, we are navigating through those while being profitable. And that gives us so many more options to tap into the opportunities that we see along the way. So I would say that despite the lower revenue base, this leaner and more resilient base is super important for us when we are building the future towards the different potential outcomes that we see.

And I think one key thing also being there that we are cash flow neutral in the third quarter. So we are not -- even revenues are a little bit lower, we are not leaving.

Yes, definitely. Definitely. And this is how this all looks in our P&L. So not much to highlight from this one compared to anything and everything that we've already said earlier, but maybe worth noting that compared to where we were 1 year ago. So it's not just that the revenues are a little bit smaller than 1 year ago, but so are our costs. So the materials and services, which for us includes our outsourced service fees, part of our scalable team structure. This one also includes all sorts of recouping by our partners and so on, what might come to some sales of the games and stuff. Then our employee, personnel costs are a little bit lower than previous year this time. And our depreciation and amortization is also lower because we have been able to kind of like clean up the balance sheet in that sense step by step as well. And our operating expenses -- the other operating expenses, those are also a little bit lower than 1 year ago. So this is part of us adjusting to the world around us and the needs moving forward. But also safe to say that us becoming better in doing more with a little bit less because that's one of the key points behind focusing on something that you become better and better in doing so more and more effective. So I think in the long run, it should help us to explore new opportunities in a more effective fashion as well. And I think that concludes the update from our side, but let's see if we have any questions.

There was at least some in the e-mail, I noticed. So let's check from here. Question about the potential for the games segment and what could change to become more positive on that front. Okay. I think that's a good one. That's a good one. So I think relatively stable development, I guess, is like if you look back the previous quarters, then that's usually how things tend to look moving forward unless something surprising happens. So I think that's a good way of looking at things what comes to Nitro and the games segment performance. But then what could change to become more positive, that's the beautiful thing about working in games. We are operating heavily in free-to-play. We do have some premium PC console games, too. But the thing with free-to-play is like we have discussed so many times earlier that things tend to be a little bit binary. And then when things click and good things start to happen, then things happen quite fast. We've seen that with our previous games a few times when things start to materialize and grow quite fast, and that's something that...

Depends on whether how high you can scale in a profitable fashion.

And I think worth understanding also that when it comes to our free-to-play mobile MVPs, despite the fact that we're building something new, we are building on top of everything we have done before. So once something clicks and ticks, it's not like we're looking away too many years and too many millions in investment to get those to market. We are able to ramp up those things quite quickly, utilizing and taking advantage of what we've already built. So anything happening on that front, I think with anything with regards to the MVPs and potential collaborations, whether it's with publishers or whatever those might be, those are things that can change things somewhat quickly, I would say. When something like that happens, you never know. And that's part of the great thing here. I think that answers that question...

What is the capacity of service business? Can you continue to expand? I think that's a good question. And I think we are quite confident on that area, especially to the model that we are operating, our development model with those great partners that we have in our network. And I think the expanding is something that we are not that worried of.

Yes. I would say that those are really happy things to be working out, figuring out. It's like the beauty of our way of working and the model is that we scale both ways. Sometimes we've been telling you guys how we've scaled up and how we've grown in that sense, and that's something that we know how to do. And sometimes we need to go the other direction. But this part, what comes to Nitro, I wouldn't worry about because -- both because we have demonstrated so many times in the past that we can do it when the time comes. But also secondly, the flip side of the unfortunate situation in the games business overall at the moment is that there is talent out there available in many different places and whoever is building something new has a lot of options.

Yes. So nowadays, it could be even that we could scale up in a more cost-efficient way because the kind of what has happened in the industry has pushed below our cost structure start down in many areas. So I think scaling up with a reasonable cost structure is something that we could do. Not easily, but we can do it in a proper fashion and quite fast.

Essentially, the next question is how fast...

We will be building the teams in -- it's rather weeks than months, but several weeks rather than 1 or 2. But we are not talking about months. It's maybe 6 weeks, 8 weeks something like that, but it's still like counted in weeks rather than months.

Yes. Indeed, indeed. Then there's a question about the new third party and if we can give any further information on what could be the size of potential contracts compared to our current ones and stuff like that? Obviously, we don't talk about any news until they happen. So nothing to report in that sense. But further information, I think what we can say at the moment is that this is a player who is sort of outside of the more traditional game space, but utilizing.

Still in the games.

Yes, still in the games and utilizing stuff that we have done many times. So in that sense, a very good fit for us. So let's see if it continues to be something more interesting, and then I'm sure we will talk more about it.

But there was something about partnership with the Digital Extremes.

Yes. So what to expect from that and release of Warframe mobile for Android and -- so obviously, we don't know when it's going to be launched. So that is something that I'm sure they will communicate when the time is right. Of course, it's publicly out there that the game is in this type of preregistration, early access on Google Play. And then I think what to expect from the future, I think whenever you think about what to expect from Nitro in the future, you should always look back into what we have done earlier. So the way we work with our -- most of our partnerships is that we do agreements that are certain length. So that's normal course of business. This agreement that we are now going through the latest expansion, that is something we're expecting to complete this year, like we have said earlier. And in the grand scheme of things, sometimes we continue things when things go to certain steps and sometimes we don't. That's like the normal part of how this go with Nitro. So in other words, we're not answering those questions yet. But whenever you try to think how things go in Nitro moving forward, just look what we have done earlier. That's, I think, a pretty good way of tackling those. Then let me check if there's something more here? Nope. And then there's some here. Do you expect similar activity levels in Q4 compared to Q3 in the service business? We don't give forward-looking state sort of guidance when it comes to financials. But again, if you want to see what Nitro likely does next, look at what we've done in the past. I think that's a good way of answering that one, too. Then there's a question about can we explain our debt structure? When is the debt due and what interest is it running? That's a great question. So in our balance sheet, earlier this year and last year, we have cleared everything that is, let's call it, traditional. So the debts towards banks, the debts towards our previous owner, Nordisk Games, those we have paid and cleared. What we have in our balance sheet is from this entity called Business Finland.

Governmental offices supporting the technological development of the Finnish export companies.

Indeed. So they support tech companies that do export. And this support comes in the form of loan technically. And I think we've sometimes referred to that as a soft loan. And the reason for that is that the interest rates are very small. The payback terms are very beneficial for the company in terms of time and how those move de facto. So it is very much support rather than doing business with loans. That's not the idea with the government. And sometimes, those projects where those loans are associated with, they succeed, in which case, the companies have no problems paying back the loans. And sometimes the projects to which the loans are associated with fail for whatever the reason, usually commercially. And in those cases, Business Finland might decide that they are not going to demand the payback of the loan either completely or in part. And in our case, what we have in our balance sheet, it's basically two of these projects. The first one we have completed already some years ago. This was to build like a mobile eSports ecosystem. This is an area where if you follow Nitro, you see that we haven't done much in the recent years. So it's not definitely part of our business anymore in any shape or form. And then we have another one, which is more newer one, which is something that we are busy wrapping up and completing soon, and this is related to the research and development surrounding all sorts of use cases for artificial intelligence and how we could use those to boost the business. So this is something which obviously can't be concluded yet in any way because we're just about wrapping it up and doing the final reporting and so on. So long story short, what we have in our balance sheet, we don't have any traditional loans in that sense. And we have two loans specifically from an entity called Business Finland governmental support organization, and those are related to two different projects with two different time. I think that's also -- yes, good questions this time as always.

Thank you so much. Decent talk. We'll see you next time...

In February.

February.

Yes. I think before the skiing holidays in Sweden, if I remember correctly. Yes. But between now and then, we still have a lot to do this year, a lot to achieve. So we'll stay busy and look forward to deliver in Q4 then. Thank you. Have a good one. Bye-bye.

Bye now.