Nitro Games Oyj (NITRO) Earnings Call Transcript & Summary

Hello, hello, hello. Good morning. [Foreign Language]

Greetings from Finland. Holiday season is behind us.

Yes, yes, yes.

Back in action. We're already working like a few weeks here and are starting the season.

Indeed, although like we always said Nitro never sleeps, but we like to enjoy the traditional 1-month-ish summer season here in Finland, which is usually the month of July. Of course, there's always a little bit of overlap when different guys are on holidays. But this year, it was a pretty good summer.

It was a good summer and both in -- weather was nice, but the operation went well during the summer also.

Indeed, indeed. So let's get into it. Welcome to the webcast for the second quarter/first half of the year.

By the way, we didn't introduce ourselves. This is Jussi, he is my Co-Founder and CEO of Nitro Games since 19 years.

Yes, yes, yes. And here's Antti Villanen, Chief Strategy Officer and Co-Founder here in Nitro Games and also a Board member.

Since 19 years.

Yes. Yes. Yes. So Nitro, we've been running the show for almost 20 years now. So we're one of the oldest game companies in Finland. And here comes the overview of the report that we just released this morning. And overall, what I would say is that this is pretty well in line with what we're about to do this year and what we've already been doing this year. So like we've discussed before, this year is all about new growth, yes. So we're investing in a lot of new things. We are favoring and building a sound business. So we're very much focused on the bottom line, making sure that we keep our eyes on profitability. We make sure that we keep our eyes on cash flow, on the equity and do these investments in a manner that basically everything is controlled very much.

And all of those are in very core in our new strategy that we started from the beginning of this year. And I think we are going to talk a little bit more about that. But all of the focusing on the sound business and profitability and securing cash and doing the controlled investments when we need -- when we see the good balance of risk and reward. All of those are very core in our new strategy.

Yes. And now during in the second quarter, we're happy to share that some of these new investments that we've been working on have been starting to surface already one by one. So there were some new things surfacing from the game portfolio. We went live with Project Frag for first public testing. We announced that we made a deal with Games Workshop for Warhammer 40,000: Boltgun Boom coming to mobile this year. And then there's also some stuff that we're expecting to surface now during the third quarter and then moving forward as well. So definitely not done with the year yet. And a big part of the first half in addition to obviously, the operations and what happens with the games is, of course, making sure that we make sure that the groundwork for our new strategy on other fronts is well laid. So we've been also continuing our work on the balance sheet where step-by-step, we've been getting rid of the debt we had there. So earlier, we paid off our loans to our banks and Nordisk Games and so on. And now during the...

For Business Finland.

Yes. Yes. So they are a governmental entity that supports companies who do tech and exports and stuff like that. And we've had many projects with them along the years, and we had 2 projects where the support was in the form of a soft loan, so to speak. And now the older one of these 2 was kind of like bait during the second quarter. And that means that essentially what was loan in the balance sheet got kind of like converted into a grant. So that obviously helps us in many ways.

And that is quite a normal process within the Business Finland projects. And as we have some of those still left, it would be predictable that we can have a negotiation with them about the existing stuff also.

Indeed.

There was something new from the Business Finland also.

Yes. So we also started a new project. This one is a little bit smaller by nature, but this is directly supporting some of the things that we're building this year, especially in the field of mobile gaming and iGaming. So a lot of business development help. And unlike the 2 previous projects, this one is directly grant. So the funds that we raised from them for this one is direct grant, so not loans. What else? We haven't forgotten our partner business either. So there was quite a lot of activity on that front during the second quarter. We'll talk more about those as well. But we signed a new agreement with a European games developer and publisher.

Annuity for the existing and showing that we have a lot of very, very strong relationships with the partners that we're working on, and they are trusting us time after time.

Yes, indeed, indeed. Very good. Let's go forward then with the report. So here's all the financials, summarize the income statement as well as the balance sheet. But I think what's worth mentioning, well, obviously, firstly, continued profitability.

Doing the sound business, it's very core in our new strategy.

Yes. So we were able to time some of the new investments to the same period when we also got the waiver for the Business Finland loan, which allowed us to continue doing profitable report in connection with all the dollar cost control and everything that we're doing. The revenues, those came in mostly still from the partner business like before, but also an increasing amount comes from the games business as we go forward. And that's part of the big plan with this strategy period that we want to increase the role of so-called games revenue as we go forward. And that's why we're investing in also new projects where we take a bigger risk in many ways.

And still keeping the strong cash position. So investments are controlled, and we are always quite strictly evaluating the risk and reward profile on all and every investment that we do.

Yes. And I think we're saying about moving forward, right now, we're obviously investing into things that are happening inside Nitro. So our own IP, we are investing and looking forward to investing maybe a little bit more even into some partner projects like co-investing together with the partner. But we're also laying our eyes on some of the external opportunities as well so that we can make sure that we make the most with the cash that we have and how it circulates as we go forward. But overall, key things we continue to be profitable. We definitely improved on our balance sheet, so reduced a lot of debt there and maintained our strong cash position. So all in all, well in line with our plans.

As we started our new strategy period from the beginning of this year, we laid down the -- or refined the vision that we have. And now it's all about -- we want to be recognized from the category-leading games. And category-leading games for us, meaning any subcategory, any subgenre, we want to work with the games that are on those categories and on those subcategories and genres, recognized by players, recognized by industries and rewarding in terms of the risk taking.

Indeed. And I think what's very much different this year and with this new strategy period that we have been enjoying a lot is that we're in so much better position compared to what we've been ever before. So now we're at a point where historically working with partners has obviously always been in our DNA. We've gotten to work with some of the greatest games out there and we're super proud about that. But now we're in a position where we can also put some more skin in the game into those projects and hopefully also see more of the upside materializing for Nitro over the long term. And that's what we mean with sound business that we want to take careful bets and sort of build the future revenue streams step by step.

And maybe worth of mentioning that even our history is from strategy and action and shooter games. Now with the new strategy, we are also widening a bit of our reach. So any platform, cross-platform games, different genres, different audiences, we are looking for those opportunities, maybe a little bit wider than before.

Yes, indeed, definitely. And especially because everything is getting kind of like there's so much overlap from one platform to another, from one distribution model to another -- so it makes perfect sense over time. And then overall, the road map that we have. Like I said in the beginning, we're one of the oldest game companies in Finland. We typically operate in this roughly 5-year strategy period. It's not always exactly 5, but in that ballpark. And now like Antti explained, we just started with this new one, but our eyes are on roughly 2030, where we've set the endpoint for this strategy period. So everything we do today, everything we do this year, we have that horizon until 2030, and that's where we're building the things long term. Obviously, we will start collecting the fruits of the strategy already one by one and in many ways we are already doing that, but that's where the end...

And all the -- even now in the first half, all the controlled investments that we have done are towards the vision and driving us into the -- being recognized for category-leading games.

Indeed, indeed. And none of this would be possible if it was just us, too. So we've been fortunate enough to build what I consider the greatest team out there. So we have a pretty unique way of working.

It's not only our people that are working inside Nitro, but we've been building for more than 15 years the kind of network ecosystem platform of studios around the world, people around the world that are working in our projects. And that's been very, very, very solid and sound model for us, whether it's scaling up, whether it's scaling down, whether it's looking for the best talent for this kind of project or that kind of project. And now that we've been running it for 15 years, it feels like being a part of the DNA of it.

Yes, like if working with partners is part of our DNA, it also applies to development partners and partner freelancers and everything that you might have. And I think this is clearly visible also in our P&L, where we are, in many ways, doing more, but with less and with way better quality. And that's largely due to us just becoming better and better in managing all of these things and figuring out what's the optimal and ideal way of doing things. . So like I said, great team, great people. That's what's behind all of these things. And that's how we believe that moving forward as well, we still have a lot of room to introduce new opportunities now this year. And speaking of the opportunities and games and stuff, if we have a quick look into our games portfolio. So we have Nitro Originals, games based on our IPs and games that we quite often mostly self-finance. And then we have Nitro partners, where we work with partner IP with some of the biggest brands in this space or in the field of gaming. And in the Nitro originals portfolio, we were able to announce something new during the second quarter. So there's obviously a lot more going on. We're building quite a lot of different -- but Project Frag, also known as Wolf Commando, we started the first public testing in June. We've been really happy with the reception we've seen on that front. It's clear that what we're building and players instantly get it.

It resonates very well for the target sales.

Yes. And now we continue on that front. So I think this week, today, we start as part of the Ukrainian Games Fest, a considerable part of the development team is based in Ukraine. So we're happy to be part of that, supporting that event. And then parallel to that, we keep developing the game towards the launch that sometime next year, maybe, let's see. Then we have Ethereal Gaming. We announced a partnership that we're developing some games together with them. And basically, Nitro develops, they distribute and they...

A little bit of new category for us. Yes, even though we have already Pistolo in iGaming world, but a bit of a new category, but it seems to that our model is working on that category also. And we have a few horses running on that side.