Next Games Corp. Business Review Q3 2018: The Walking Dead: Our World Launched in July - Technical Challenges Affected The Game's Success

NEXT GAMES CORPORATION COMPANY RELEASE 2 NOVEMBER, 2018 AT 08:00 EET

This release is a summary of the January-September 2018 Business Review. The complete report is attached to this release and available at www.nextgames.com/ng/reports

Next Games Corp. Business Review Q3 2018: The Walking Dead: Our World Launched in July - Technical Challenges Affected The Game's Success

July-September 2018 in short:

• Revenue was 13.4 million euros (6.4 million euros), an increase of 110% on the comparison period 
• Gross margin was -11% (33%) of revenue
• EBIT was -10.7 million euros (-2.1 million euros)
• The Walking Dead: Our World game was launched globally on 12 July
• New license agreement with a leading license partner in the entertainment industry
  
  

January-September 2018 in short:

• Revenue was 23.9 million euros (25.8 million euros), a decrease of 7% on the comparison period
• Gross margin was 5% (36%) of revenue
• EBIT was -18.7 million euros (-2.1 million euros)
• The organization grew to 143 (104) employees. During Q3/2018 the total number of staff increased by 11
• At the end of the review period 30 September 2018, the company's cash balance was 8.8 million euros. In addition, the company has an unused credit limit of 5 million euros. Cash balance at the end of the previous reporting period, 30 June 2018 was 16.9 million euros

Comparisons in brackets refer to the corresponding period in 2017 unless specified otherwise 

Key Financial Figures

Gross Bookings does not include deferrals related to sales. Adjusted EBITDA is defined as operating profit, adjusted for depreciations, deferrals related to sales, licenses and commissions, as well as adjusted for listing expenses.

Key Operational Metrics
Operational Metrics include combined metrics from the company's live games. Definitions related to key operational metrics can be found at the end of this document

Chief Executive Officer Teemu Huuhtanen: 

During 2018 Next Games has focused on launching new games and further development of The Walking Dead: No Man's Land according to its strategy. Revenue for the first nine months amounted to 23.9 million euros, whereas it was 25.8 million euros during the corresponding period in 2017. The gross margin for the review period was 5%, whereas it was 36% during the corresponding period in 2017. Revenue decreased  as a result of lower sales generated by The Walking Dead: No Man's Land. Gross margin decreased due to launch-marketing investments for The Walking Dead: Our World global launch. ARPDAU (average revenue per daily active user) was 0.21 euros during the reporting period, and 0.20 euros during the corresponding period in 2017.

Next Games' third quarter 2018 started with the global launch of The Walking Dead: Our World, based on AMC's TV series on 12 July. The company made significant marketing investments on a global scale, and specifically in the game's key markets, the US and the largest markets in Europe, in pursuit of significant revenue growth. 


Based on the game's monetization potential, the company sought to achieve one million daily active users (DAU) level during the weeks following the launch, and based its marketing plans on this goal. During the first weeks, the company succeeded in acquiring a significant amount of daily players, at the same time as reaching the company's expectations for the game's key operational metrics, retention and monetization. The game achieved top 50 grossing list ranking (list measuring game revenue) in multiple key markets, thus Next Games is pleased with the game's initial performance during the first weeks.

As the number of players in the game increased during the first weeks, some technical challenges were encountered, which adversely impacted the game's functionality and had a negative impact on revenue development for the game. As a consequence, the company elected to scale back the game's marketing investment to a considerably lower than planned  level. Prior to the technical challenges, The Walking Dead: Our World reached a level of 625 thousand daily active users.

As issues have been addressed, the number of technical errors has decreased, the drop in key performance indicators has levelled out and has improved towards the end of September. The technical challenges have, however, slowed down the game's revenue development considerably. At the time of the release of this report, both of the company's live game's, No Man's Land and Our World are being operated profitably. 

The technical challenges have had a negative impact on the launch-marketing investment payback time, which is longer than previously estimated. At the time of publishing this report, the company has recouped  two thirds of the investment. The Investment payback period is estimated to have at least doubled from the originally estimated 120-day timeframe. In addition, as a result of the technical challenges, the server costs for the third quarter have been at a higher level than that which the company aims to achieve over the long term.

The Walking Dead: Our World's slower-than-expected revenue development, longer marketing investment payback times, as well as higher-than-expected server costs have affected the company's cash position. As a consequence, the company considers options to strengthen its financial status as a part of its risk-management plan. Even though at present both live games are operated profitably, the combined revenue from the products will not cover the costs related to products in the development phase, before Our World revenue grows. Strengthening Next Games' cash position is important in order to secure the working capital needed to carry out future scaling of the business, and to develop and publish the products in the company's development pipeline, according to plan.

The third quarter of 2018 has been a challenging time for the company especially with regards to the expectations of Our World's global launch. As things stand, I'm very pleased with the effort the whole Next Games team has put into Our World, as well as the swift but controlled issue-resolution plan which has improved the situation as regards a better future position. Building the future for the company continues on a steady path - Next Games has signed a new license agreement during the third quarter with a leading entertainment IP holder for an extremely sought-after license. 

January-September 2018 Audiocast

Today, Next Games will hold an audiocast and a phone conference both in Finnish and in English.

The Finnish audiocast starts at 09:30 EET. You can join the audiocast using the following link: https://qsb.webcast.fi/n/nextgames/nextgames_2018_1102_q3_fi/

The English audiocast starts at 10:30 EET. You can join the audiocast using the following link: https://qsb.webcast.fi/n/nextgames/nextgames_2018_1102_q3/

More info about the audiocast and phone conference

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

About Next Games
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: No Man's Land redefines the way franchise entertainment transforms into highly engaging service-based mobile games. Next Games launched The Walking Dead: Our World on 12 July, which utilizes cutting edge AR technology and is powered by Google Maps. Currently Next Games is working on four new games based on popular entertainment franchises including a mobile game for the popular Blade Runner franchise. Next Games employs over 140 people and is based in Helsinki, Finland. For more information head to www.nextgames.com