CEO’s Review – Financial Statements Bulletin 2019 (Feb 28, 2020)

At Next Games, 2019 was a year of transformation and renewal. The year kicked off with the start of our three-phase turnaround plan aimed at reaching a new and lower operating cost level, renewal of our operating and product development processes, and finally securing additional funding.

I am very pleased with the swift and efficient execution of stabilizing our baseline operating cost level and the successful conclusion of the turnaround plan. This is an important achievement that enables our strategy execution and future investments. Another highlight of the year was the trust Netflix – one of the most significant companies in the entertainment business – showed us as we commenced our collaboration on the Stranger Things mobile game.

Next Games’ operating profit (EBIT) improved by EUR 9.5 million from 2018, although revenues declined by 1.6%. Revenues amounted to EUR 34.7 million in 2019 and we have succeeded in consistently achieving over EUR 30 million revenue levels for four consecutive years. During 2019 we did not publish new games as the testing and development of Blade Runner Nexus continued to 2020.

Our publishing operations, i.e. revenues from published games adjusted by all expenses related to the further development of the games, marketing and customer service, turned profitable during 2019. The EBITDA of the publishing operations was EUR 3.8 million. In accordance with our strategy Next Games continued to invest in developing its technology and new, unpublished products. Due to the level of research and development costs, the returns from the company’s published games did not cover all costs of product development and group-wide EBITDA was EUR -3.5 million.

In the fall, 2,015 of our existing shareholders participated in our successful rights offering and we raised EUR 8 million towards the company’s future investments. I am very pleased about the commitment of our current shareholders to developing the company and the full subscription undertakings from Jari Ovaskainen and AMC Networks. I would like to thank our new and existing shareholders for their confidence in the future of the company.

At the end of 2019, Business Finland awarded in total a grant of EUR 2 million to Next Games for a project to develop its machine learning and AI capabilities. The project directly contributes to the company’s strategic priorities of improving efficiency with the help of AI, among other things.

We also continued to develop both of our published The Walking Dead titles, Our World and No Man’s Land. We will continue to optimize investments and resources to match the returns from these games. The combined number of daily active users for both games decreased 23.5% from 2018, whereas the average revenue per daily active user grew by 24%.

Additionally, during 2019 we further developed Blade Runner Nexus, a game based on the Blade Runner movie franchise. In the summer of 2019, we announced our collaboration with Netflix to develop a mobile game based on the hit series Stranger Things. According to our plans, we estimate the launch of the game to take place in 2020. We have continued to put effort into building a renewed product portfolio, and have succeeded in kickstarting new game projects thanks to the new product development process.

In order to decentralize the company’s risk profile, we will investigate diversifying our agreement framework. Within our existing licensing agreements, the company carries a relatively high risk over a game’s commercial success, which also yields the highest possible return to the company provided the product is successful. It makes sense for us to investigate adding projects with a lower risk profile or more guaranteed returns, such as so called co-development arrangements, and building our business operations on the basis of a combination of different agreement structures.

In the future, we will focus developing our business on the foundations of our work in the past few years. Strengthening our strategic partnerships, expanding and actively managing our portfolio will play an important role. We will continue to enhance our operational efficiency through shared infrastructure. Player experience, especially tailored purchase experiences, will play a significant role in our strategy so that our solutions meet and exceed customer expectations.

I would like to extend a warm thank you to our partners, shareholders and employees for the last year. I am excited about 2020 as we are in a good position to continue executing our strategy through our improved product development model.

Teemu Huuhtanen