Nitro Games Oyj (NITRO) Earnings Call Transcript

Good morning [Foreign Language]

Good morning. [Foreign Language]

Greetings from Nitro Games. I'm Jussi Tahtinen, the CEO and Co-Founder. And with me today, I have...

I'm Antti Villanen, another Co-Founder and CSO.

Indeed, indeed. And we are here to deliver you an update about what's cooking in the world of Nitro after a fantastic summer and our first half year report that we just put up. So without further ado, let's get on with it. Just as a quick recap, if you are new to Nitro Games, we are a Finnish mobile games company. We do free-to-play mobile games, and we are focused in the category of shooter and action games on mobile.

We have a global team with the capability for multi-project model and multiple revenue streams and that have been heavily utilized during this first half and especially on summer.

Exactly. Yes, exactly. And earlier this year, what we have seen is our record order intake. We've been pretty active in the field of business development and quite a few deals.

Yes, that was especially during the summer and the late first half. We were successful of signing several new orders and that will lead into the wonderful projects and the team is excited. And there are also many of those projects, I think, that might have something new future after the first projects.

Yes. Indeed, indeed. All of this is super well in line with our strategy where we focus on offering our services to partners, which obviously gives us shorter-term revenues, great partnerships, but certain type of long-term opportunities as well. And then we also work on our own games, which is obviously the hit-driven part of our business where we see further scalable revenues. And overall where we stand now? We're in a pretty happy place. We have 7 projects in total, which is quite a lot for Nitro. And this means that, thanks to our scalable foundation that we built last year, but especially put into use this year, we are now able to expand our resource and establish...

And I think that's a good sign of that we are capable of running the multi-project model and create multiple revenue streams for ourselves.

Yes, yes. It helps to control the downside, while still without not giving up the upside. Okay. let's check about our team. Then, we've been talking a lot about that. So Nitro is a Finnish company. We have 2 studios in Finland. Obviously, as a result of COVID, we like everybody else is more or less in a remote working mode where we don't really need to pay that much attention to where people are actually physically because everything happens digitally and online. And in our Finnish studios, we have 40 professionals in-house, and that covers everything from management to business development to game development and publishing. And where we see scalabilities are external...

Yes. Alongside with our internal team, we have our external development network that we've been building for years. And with that partnership network, we are able to create those scalable external opportunities with a cost-efficient way. We can run the multiple projects. We can create ourselves multiple revenue streams and use the special guys in the special occasions when we need some certain kind of talent. We have those talent pools available and partners in place.

Yes, yes. And it works in so many fantastic ways, like we've been using outsourced services for -- since we started basically because we were a small studio located in Finland, and we need a lot of talent that wasn't available in Finland back then. So we found the ways of working pretty well, and now we are able to flexibly work on multiple time zones and all that. And the beautiful part of this process is that it also means that we're doing constant due diligence to new studios we partner with. And also that means that sometimes you find more strategic partnerships where you cooperate with somebody for a really long term from 1 project to another...

Yes. Of course, in a couple of cases, we are closer into the partnership and the outsourcing. Even we are paying for those services, but still it's more like a partnership kind of.

Indeed. Good times on that front. And if we look at the key people in Nitro in-house, the way that we work is that we are seeking to keep fixed costs and fixed in-house head count more or less stable, which means that we do recruitment basically all the time, but we focus on recruiting key people into the staff that then again are able to run the show and run different projects or more customer management and things like this. And that's why we've split our organization into basically 3 pieces. So we have our internal operations where we do the stuff that we do in-house, in our 2 studios in Finland. And then we have management and shared services where we have a lot of different processes and technologies that we share throughout Nitro so that the external side...

And building the scalable base for all the operations on there. And on our external operations side, we are, on the one hand, looking for those business opportunities; and on the other hand, keeping those partners, also service those companies and guys happy and outsource the -- partially the projects or sometimes even the whole projects to our partners.

Yes. Indeed. Yes. And I think it's a good foundation to have because it means that we are, by no means, not done yet when it comes to the amount of project that we can handle in a scalable fashion. And if we look at the foundation still, the owners and strategy of Nitro, Nordisk Games has been on board with Nitro now for quite a while since spring 2020 as our leading investor. And we've earlier been discussing about how great of a support we've received not just in the form of the funding, but overall being part of this Nordisk Games family, of course.

I would say that, that starting to be even more valuable nowadays than just a pure investment side of things. But being a part of the family, sharing the resources, sharing the know-how, having some collaboration projects and -- it's increasingly important for us also to be part of the family.

Yes. And it also helps when we are expanding our business, whether it's through seeking for partners in the development side or new partners, studios and stuff, or whether it's about seeking new business opportunities being part of a larger group of companies and therefore, having more muscle and firepower there as well, of course, it helps.

And also sharing the best practices and know-how and information and even sometimes like, [ be the ] deals and that kind of things.

Indeed. Indeed. And thanks to the good ownership, we have been able to pursue and think about the execution of our strategy long time now. We understand that things that we have done earlier this year have not yet really materialized in our P&L, so they're not visible in our financials per se. But in terms of what we've achieved on the operations side, we are starting to see how the strategy actually comes together. So we've been able to build more and more opportunities into our game portfolio, more and more new upcoming launches. Well at the same time, we've been able to expand our business that we do with partners.

Yes. On the Service business side, we have gotten some very good new clients. And also, we've been serving our existing clients and finding new opportunities from those sides. And with the partners on our client side, of course, we are looking for stability in the form of the revenues and multiple revenue streams, but also the kind of back-end deals are something that we are always looking for and scalable revenues on that area also.

Yes. Yes. Basically, the dynamics are pretty similar despite the big difference in deal term. But if you look at our own games and the process we do with partners, free-to-play mobile gaming is a hit-driven business. So not every game is going to fly, not every project is going to succeed. So that's why you have this approach of multiple opportunities on both sides of the strategy. And let's then look at how this translates into our project portfolio at the moment. We've been using this term multi-project approach a lot recently, and this slide basically visualizes all that. So we have 7 opportunities ongoing, 7 projects going on, ranging from different games with upcoming events to different projects that have -- some of which have just started, as we speak more or less, as well as all sorts of things brewing in the background all the time. So from time to time, in addition to the ones that we have announced, we have smaller service projects in the background under Nitro Labs brand that we built, where we do things here and there, smaller and shorter projects typically, as well as we have the constant game concepting flow as part of our MVP process where we come up with new things and do market testing with those. And every now and then, we find something that's strong enough to be added into our portfolio.

Yes. And every now and then, some of our clients are interested about those same process of finding the scalable free-to-play game through the same process that we are using for our own games, and we've been able to sell that services also for some of the clients.

Yes. A good example is the project that we have with the U.K.-based PC and console games developer where what we're doing right now is basically offering exactly that game, prototyping and concepting and marketability testing. And that's what's basically covered under the existing order and obviously, should things go well and there's an opportunity to maybe continue together forward with one of those concepts or and we must just conclude that [indiscernible] and we do something else.

Also what we have gained, kind of new areas for us, for example, to Snap as a channel, like instant or chat game or how you want to define that, but that is a little bit new area of gaming for us, but still it seems that there is a continuous project possibilities on that area also. And it seems that some of the companies in the industry have found a way of delivering continuously games into the channel. And this -- all of this, instant gaming or chat gaming platforms are quite interesting.

Yes. Indeed. Indeed. I've been personally really proud about how the collaboration with Snap has started with the first game that we have now. I think our guys and the team has been super clever about how to bring our expertise on action and shooting to the new instant gaming platform. And I think we've already gone through enough of milestones, and we are at a point with the project where I think we've succeeded in impressing Snap as well, pretty good so far. So really looking forward to see how these things unfold one by one as we move forward. But overall, we call it expanded project portfolio, and this is the mindset that we are thinking moving forward within the long run as well. So we are looking to keep adding quality projects into our portfolio, whether they are in the opportunity of new games where we have new opportunities in terms of upcoming launches, all new projects with partners where we have different type of dynamics, typically increase in revenues and some longer-term opportunities on the strategic side.

And I think one key thing here is that even though we are only roughly 40 guys internally, still we are capable of running the multi-project model because of our extensive partner network, and we can get the scalability on that way.

Indeed. Indeed. And if we look at the financials for the first half of the year. As we mentioned earlier, a lot of things that we've done this year doesn't yet materialize in our financials other than new projects that we have started. Some of those materialize costs, obviously. But if we look at the way that we work, you can see the sort of same mindset here in the financials as well. So these external development partners, these are not fixed cost for us, but they are temporary costs, which you can see materializing on the materials and services, which is a number that leaves by the amount of projects we have. Whereas, the staffing expenses and everything, those are obviously part of our fixed costs for the in-house projects. But like said, we signed the biggest process that we have just before the end of the first half of the year and some of the stuff we have signed after that period. So like said, most of the new things are not yet visible in our P&L for the first half of the year. If we look at the development from revenue and EBITDA point of view with a little bit of longer horizon, recent few quarters, we've been able to increase our revenues. But obviously, we are still talking about levels that we are, by no means, happy with. But a bigger horizon and the direction where we're seeing in the go is obviously increasing our revenues step by step moving forward and improving our EBITDA to get this company towards profitability. And if we look at the bigger picture in terms of our road map, this stuff looks more or less the same, that it has looked pretty much this whole year. And that's a good thing because we haven't had really the need to change anything in our road map because we've been pretty dam happy with how we've been clocking actions this year step by step. We understand that it takes a little while until all of those actions actually materialize in our P&L. But then again, we are very well funded, supported by good owners, we have a strategy that's started really well now. So the road map overall looks pretty healthy for us.