Next Games Corporation Half-Year Review January-June 2020 - Publishing Profitability Doubled, Turning Company EBITDA Positive

Next Games Corporation Company Release 28 August 2020 at 09:00 EEST

This release is a summary of the January-June 2020 Half-year Review. The full report is attached to this release and available at www.nextgames.com/reports

January-June 2020 in Short
The company has transitioned to reporting financial figures in millions of euros.

• Revenue was EUR 14.4 (19.2) million
• Gross profit was EUR 7.5 million, 52% of revenue (EUR 11.3 million; 59%)
• EBITDA was EUR 0.3 (-1.5) million
• EBIT was EUR -1.6 (-3.5) million
• Adjusted Operating Profit was EUR 0.1 (-1.8) million
• Publishing Operations EBITDA was EUR 3.4 (2.3) million, 24% of revenue (12%)
• Product development costs were EUR 2.6 (3.3) million, 18% (21%) of revenue
• At the end of the reporting period, the company had 108 (108) employees
• Cash flow from operating activities turned positive and was EUR 1.3 (-0.7) million, and cash and cash equivalents at the end of the period were EUR 6.5 (4.7) million

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

Chief Executive Officer Teemu Huuhtanen: Significant Profitability Improvements Puts Us in a Good Position to Release New Games

The first half of 2020 was strong for Next Games. Our strategy to develop licensed games is working. Our business turned profitable due to the operational profitability of The Walking Dead games, and a cost level that remained at our target level.

We were able to significantly improve the company’s profitability and our Publishing Operations achieved a significant milestone by reaching an EBITDA level of 24 per cent (12%) amounting to EUR 3.4 (2.3) million. This achievement is already a strong indication of the relative profitability the company is capable of, and we believe that there are still additional opportunities to improve profitability in the longer term.

Continuing our significant investments into product development is still reflected in the company’s profitability profile: product development costs amounted to EUR 2.6. million (18% of revenue) during the reporting period, as many as 52 per cent of employees worked on new products. Thus, we can be extremely proud of the company’s EBITDA of EUR 0.3 million. This increased profitability was also reflected in cash flow from operating activities, which turned positive and was EUR 1.3 (-0.7) million. We believe that our investment in product development is worthwhile in the long run.  Although our operating result (EBIT) was still negative due to the effect of depreciations relating to previous investments made into technology and our common infrastructure, it also improved significantly by EUR 1.9 million to EUR -1.6 (-3.5) million.

Revenue during the first half of the year, EUR 14.4 million, was in line with our expectations. We aim to increase revenues through our new products and the company is now in an excellent position to stack revenue whilst continuing to invest heavily in new product development. Development of the Strange Things mobile game has proceeded as planned during the first half of 2020. The game’s concept has been tested, and with the addition of the latest features preliminary results are promising. We are planning to start bringing the game to the market and scaling in stages starting Q4 2020.

A key reason for the turnaround in profitability is our licensed games strategy: the appeal of well-known brands brings a strong organic uplift of players to our games. This free portion of players lowers our total user acquisition costs. Our advanced analytics enables us to continuously evaluate the organic user flow and to optimize the total cost of game-specific user acquisition. This is reflected in the improved profitability of our live games. Continued focus on development has resulted in the ARPDAU (Average per Daily Active User) of our “The Walking Dead” games to rise steadily from last year's first quarter average €0.24 to €0.33.

I’m extremely proud of our achievements during the first half of this year. I want to thank all the Next Games employees for their incredible work during the first months of 2020, despite the challenges presented by the COVID-19-pandemic. Even during exceptional circumstances, we were able to continue to operate our business almost normally and the development of our games proceeded as planned.

The achievements of the first half, combined with a well-functioning licensed game strategy and a strong product development pipeline, give us a good position to further develop our business during the second half of this year, and achieve our outlook for the full year.

Key Figures

EUR million	Jan-Jun 2020	Jan-Jun 2019	Change	Jan-Dec 2019
Company
Revenue	14.4	19.2	-25%	34.7
Gross Profit	7.5	11.3	-33%	19.7
EBITDA	0.3	-1.5	123%	-3.5
Operating Result (EBIT)	-1.6	-3.5	54%	-7.4
Adjusted Operating Result	0.1	-1.8	104%	-4.0
Gross profit %	52%	59%	7ppt	57%
EBITDA %	2%	-8%	10ppt	-10%
Operating Result (EBIT) %	-11%	-18%	7ppt	-21%
Adjusted Operating Result %	1%	-9%	10ppt	-11%
Publishing Operations Profitability
EBITDA	3.4	2.3	49%	3.8
EBITDA %	24%	12%	12ppt	11%
Research and Development Key Figures
Investments	1.7	1.4	21%	2.4
Expenditure	3.3	4.0	-17%	7.6

Key Figures Per Quarter

EUR million	Jan-Mar 2020	Jan-Mar 2019	Change	Apr-Jun 2020	Apr-Jun 2019	Change
Revenue	7.3	9.8	-25%	7.1	9.4	-25%
Gross Profit	3.8	5.6	-33%	3.8	5.7	-34%
EBITDA	-0.2	-1.4	88%	0.5	-0.1	603%
Operating Result (EBIT)	-1.2	-2.4	52%	-0.5	-1.1	57%
Adjusted Operating Profit	-0.3	-1.3	78%	0.4	-0.5	172%
Gross profit %	52%	57%	5ppt	53 %	60 %	7ppt
EBITDA %	-2%	-14%	12ppt	7 %	-1 %	8ppt
Operating Result (EBIT) %	-16%	-24%	8ppt	-7 %	-12 %	5ppt
Adjusted Operating Result %	-4%	-13%	9ppt	5 %	-5 %	10ppt

New Outlook for 2020

The Company expects revenues from already published games (The Walking Dead titles) to continue on a flat or declining trend. With recent profitability improvements, the company believes its publishing operations EBITDA from already published games (The Walking Dead titles) to improve clearly in 2020 compared to 2019 when it was EUR 3.8 million. We also expect to start scaling 1-2 games during 2020.

Previous Outlook (given on 28 February)

In 2020, Next Games expects to achieve moderate revenue growth. The potential growth will be weighed towards the end of 2020. The company believes its publishing operations EBITDA will continue to be profitable. The company expects the revenues from already published games to continue on a flat or declining trend.

Basis for Change in Outlook 2020

The games industry continues to change, leading to relevant industry adaptation. The company believes that under current market conditions, games are no longer launched in a binary manner, they are scaled and grown over time. The speed of scaling games is dependent on multiple factors. As a result, the Company has decided to remove its full year 2020 revenue guidance. The company intends to evaluate its guidance during the latter part of the year, when a reasonably reliable estimate of full-year revenue can be given.

Audiocast and Phone Conference

We will hold an audiocast and a phone conference in English. Next Games’ H1 2020 review will be presented by CEO Teemu Huuhtanen and CFO Annina Salvén.

The English audiocast starts on 28 August 2020 at 11.00 a.m. EEST. You can join by using the following link: https://nextgames.videosync.fi/2020-h1 or by phone.
Phone conference details:

Dial in by calling your location’s phone number a couple of minutes before the start. Confirmation code: 53717613#

Finland: +358 981 710 310
Sweden: +46 856 642 651
United Kingdom: +44 333 300 0804
United States: +1 855 85 70686

Additional information:

Annina Salvén
CFO
+358 (0) 40 588 3167
investors@nextgames.com

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

Next Games in short

Next Games (Helsinki Nasdaq First North: NXTGMS) 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. Currently, Next Games is working on multiple new games based on popular entertainment franchises including, Blade Runner Rogue, for the popular Blade Runner franchise and a mobile game based on Netflix’s Stranger Things. For more information head to www.nextgames.com

Attachments

• Next Games H1 2020 Highlights
• Next Games H1 2020 Review

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