Next Games

Next Games Corp. Half-year Review 2019 – Revenue grew 83%, profitability improved significantly 

Next Games Corp. Half-year Review 2019
Revenue grew 83%, profitability improved significantly 

April-June 2019 in short

  • Revenue was EUR 9.4 million, an increase of 65% compared to Q2 2018 (EUR 5.7 million)
  • Gross profit % increased by 3 percentage points and was EUR 5.7 million, 60% of revenue (EUR 3.3 million, 58% of revenue)
  • Adjusted operating profit improved 75% and was EUR -0.5 million (EUR -2.0 million)
  • EBITDA improved  96% and was EUR -0.1 million (EUR -2.4 million)
  • EBIT improved 55% and was EUR -1.1 million ( EUR -2.4 million)
  • Product development costs were EUR 2.0 million euros (EUR 1.8 million).
  • Number of employees was 108 at the end of the quarter (132)
  • At the end of the review period, the company’s cash balance was EUR 4.7 million. The company’s longer term goal to consistently remain cash flow neutral has proceeded according to plan as the cash balance was EUR 4.8. million at the end of Q1
  • The company successfully renewed its credit limit guarantee during the review period. As a part of the full assessment of additional financing, the company is negotiating with credit providers about new terms for the credit limit.
  • The company announced a collaboration agreement with Netflix to develop a mobile game based on Stranger Things series for 2020

January-June 2019 in short

  • Revenue was EUR 19.2 million, an increase of 83% compared to H1 2018 (EUR 10.5 million)
  • Gross profit % increased by 1 percentage point and was EUR 11.2 million, 59% of revenue (EUR 6.0 million, 58% of revenue)
  • Adjusted operating profit improved 56%  and was EUR -1.8 million (EUR -4.1 million)
  • EBITDA improved 69%  and was EUR -1.5 million (EUR -4.8 million)
  • EBIT improved 29% and was EUR -3.5 million (EUR -5.0 million)
  • Product development costs were EUR 4.7 million (EUR 3.6M).

(Numbers in brackets refer to the corresponding year-on-year period unless otherwise mentioned)

Key Figures 

    2019 2018     2019 2018     2018
EUR thousand   04-06/2019 04-06/2018 Change   01-06/2019 01-06/2018 Change   Full year
Revenue   9,395 5,689 65%   19,224 10,477 83%   35,245
Gross Profit   5,670 3,273 73%   11,250 6,034 86%   21,294
Gross profit margin %   60% 58% 3ppt   59% 58% 1ppt   60%
Operating Result (EBIT)   -1,100 -2,448 n/a   -3,495 -4,954 n/a   -16,915
Operating result margin % -12% -43% 31ppt   -18% -47% 29ppt   -48%
Adjusted Operating Result* -497 -2,007 n/a   -1,809 -4,072 n/a   -13,777
Adjusted operating result margin % -5% -35% 30ppt   -9% -39% 29ppt   -39%
                     
Depreciations and Amortizations total 993 70     1,985 140     2,165
  IFRS 16 256     512     512
  Amortizations of R&D & Licenses 579 30     1,157 60     1,248
  Other 159 40     316 80     405
                     
Earnings per share, EUR   -0.08 -0.12     -0.22 -0.30     -0.99
Earnings per share, dilluted EUR -0.08 -0.12     -0.22 -0.30     -0.99
                     
Current Ratio   1.15 3.92     1.15 3.92     1.53
                     
Employees (end of period) 108 132     108 132     143

*Adjusted operating result is an non-GAAP measure and differs from EBITDA as it excludes IFRS 16 depreciations and include IFRS 2 adjustments for share based payments. Management uses this Non-GAAP measure as an alternative to EBITDA to analyze the profitability of the business. Please see reconciliation of Non-GAAP measurements

Current ratio is an alternative measure which is calculated by dividing current assets such as cash and short-term receivables to current liabilities. Current ratio measures the liquidity of the company. 

Reconciliation of Non-GAAP Measurements

Adjusted Operating Result and EBITDA

    2019 2018     2019 2018     2018
EUR thousand   04-06/2019 04-06/2018     01-06/2019 01-06/2018     Full year
Operating Result (EBIT)   -1,100 -2,448     -3,495 -4,954     -16,915
Depreciations total   993 70     1,985 140     2,165
EBITDA   -107 -2,378     -1,510 -4,814     -14,749
                     
IFRS 16   -256     -512     -512
IFRS 2 share based payments -134 371     213 742     1,483
Adjusted Operating Result -497 -2,007     -1,809 -4,072     -13,777

Current Ratio

EUR thousand   30.6.2019 30.6.2018
Current assets   10,598 23,300
Current liabilities   9,247 5,937
Current Ratio   1.15 3.92

Chief Executive Officer Teemu Huuhtanen

Next Games continued to strongly focus on renewing its operations during the first half. We successfully completed the first step of the three-step turnaround project; balancing and stabilizing the company’s cost structure to a new level. 

The company previously communicated that it aims to achieve a monthly fixed cost level of approximately 1.1 – 1.2 million euros. The cost savings program was successfully implemented and we achieved a 1.2 million euro fixed cost level during the second quarter. The company’s profitability continued to improve during the second quarter. Adjusted EBITDA was -0.5 million euros during Q2 2019, whereas it was still -1.3. million euros in Q1 2019. The company’s long term goal towards remaining consistently cash flow neutral has therefore proceeded as planned. 

Next Games revenue grew 83% compared to January-June 2018 and 65% compared to  April-June 2018 period. Our World achieved another record-breaking in-app purchase ARPDAU of 0.34 Euros in June. The game still experienced challenges with retention however, and thus the marketing investment level was on a higher level than the company’s objectives. The team now focuses on improving the game’s retention and further developing the product.

In order to achieve revenue growth, the company has actively developed it advertisement revenue model. The company implemented video ads, similar to No Man’s Land, to Our World mid-June 2019. Additionally, the company has piloted an innovative location-based ad solution for Our World with a significant global partner with promising preliminary results during the first half of 2019. 

The second step of the turnaround plan, rebuilding the company’s product development pipeline according to its new focus, has started off well. Our new operating model focuses on reusing existing technology and code, which has the potential to significantly reduce product development times. The collaboration with Netflix on a mobile game based on the Stranger Things series, that received significant international media attention after its announcement in July, has been built utilizing the new practices. The company has continued active discussions over potential collaboration with other significant international license holders. 

Thanks to the renewed game development process, the company has initiated multiple new projects in the prototyping and concepting phase. It’s important to have a robust early development pipeline, as it’s typical for the mobile games industry that only a portion of the games in development are published to the market. At the moment, 46% of the company’s personnel works on live games and 42% on new projects.

Third, and the final step of our turnaround project, is to secure additional funding for future investments such as new product development and marketing. Thanks to the stabilized business operations, the company is in a good place to continue assessing alternatives to strengthen its financial position.

I would like to warmly thank our staff and our board of directors for the extraordinary contribution to achieve the turnaround this far. I am especially pleased about the enthusiasm surrounding the building of our new product portfolio.

Business Outlook 2019

The company seeks moderate revenue growth during 2019 compared to 2018 and, as a result from the changes in its cost structure as a first step, strives towards remaining cash flow neutral in the longer term. As part of cost restructuring, the company estimates it will achieve monthly savings of approximately € 550 thousand in salaries, administrative costs and product development costs, totalling approximately € 6.5M on a yearly basis as compared to the second half of 2018.

Basis for Outlook 2019

The company’s estimates are based on the assumption that The Walking Dead: No Man’s Land and The Walking Dead: Our World maintain their current revenue levels. In addition, the outlook is based on game development staying on schedule and on target of launching one game per year.

January-June 2019 Audiocast

Next Games holds an English audiocast and phone conference on July 26 2019 at 10.30 EEST. You can join the audiocast by using the following link: https://nxtg.ms/2XVv9LU. More information about the audiocast and phone conference: https://nxtg.ms/2JFGXZU

Next Games in Short

Next Games is the first publicly listed mobile game developer and publisher in Finland, specializing in games based on entertainment franchises, such as movies, TV series or books. The developers of the critically acclaimed The Walking Dead games redefines the way franchise entertainment transforms into highly engaging service-based mobile games. In summer 2018, Next Games launched The Walking Dead: Our World, which utilizes cutting edge AR technology and is powered by Google Maps. Currently Next Games is working on multiple new games based on popular entertainment franchises including, Blade Runner Nexus, for the popular Blade Runner franchise and a mobile game based on Netflix’s Stranger Things.

Additional information:
Saara Bergström
CMO
investors@nextgames.com
+358 (0)50 483 3896

Certified Adviser: Danske Bank A/S, Finland branch, tel. +358 10 546 7938

 

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