Good afternoon, ladies and gentlemen. Welcome to the tinyBuild full year results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time using the Q&A tab situated on the right-hand corner of your screen. Just please simply type in your questions at any time and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and will publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll, and if you'll give that your kind attention, I'm sure the company will be most grateful. I'd now like to hand over to the team from tinyBuild. Good afternoon.
Yeah. Thank you so much, and welcome everyone. I guess I will use this opportunity while people are still joining for terrible AI-written jokes to warm up the crowd. No, anyone?
Yep.
No, I literally asked ChatGPT for terrible opening jokes for a presentation. Why did the game developer quit his job? He didn't get arrays. Anyway, that concludes the joke part. We have had quite an interesting year. 2022, everyone read the disclaimer. It's been a year of change and transformation for the company, and when we listed two years ago, we kind of listed in easy mode because all of the markets were up, everything was doing great. Right now, we played last year on extreme difficulty, and if anyone plays Dark Souls, yeah, when you play that on extreme difficulty, that's what it felt like. That said, we did go out on top, and today we want to talk about the results and share some insights of what's coming.
Today I'm joined by Tony Assenza, our CFO, by John Carnage, our Head of Cross Media, who's going to share some exciting news on Cartoon, and many of you know Jaz, our Head of M&A and Investor Relations. Extremely difficult year followed by record-setting results. I think the highlight of the year is that we were finally able to get to a structure, a very decentralized structure, when we had confidence or we proved that we are able to launch bigger budget games. Historically, tinyBuild has been in the sub-$1 million range. I'd say about $500,000 was the sweet spot of the budget, including all costs to support the game, localized market, et cetera. Last year, in Q4, we launched three over million-dollar games in a row, which gave us a blended return on those by end of year of 1.9x.
Now, internally, we target 2x as the return over the life cycle of the game. Here we had three big budget games that have a really high return, very fast. We also had a record number of what we call monetizable events. So a monetizable event is, many people focus on just new game launches, right? We focus on new game launches and also secondary game launches. Also, things like launching new DLC or bringing games to new platforms. Those can be extremely meaningful, and that is why we have such a high rate of back catalog sales, right? Things that we launched in the previous calendar year.
Then, we will talk about our decentralized cross-platform publishing pipeline, which enabled us to deliver a lot of games to many platforms and how we can, with a high degree of confidence, forecast if it is worth to bring games to consoles, which can sometimes be or cost more than the actual games developed. We have numerous examples of that. We will also talk about our strategic initiatives in events and cross media. The highlights of the year, I am sure you have seen that, and now I am just looking at the camera, and this angle makes me look more fat than I actually am. So I am going to try to button this. Let us see. Everyone who has a little bit of a belly knows exactly the pain that I am going through right now. But we have had 21% revenue growth. Our portfolio grew to over 80 titles.
It is still mostly owned IP with 77%. The three over million-dollar games that we launched, and we still have a lot of cash on hand, plus a revolving credit facility. The reason we talk a lot about IP is obvious, and I will still reiterate to people who may have not heard about the strategy. So we started out as a third-party publisher, which means that it is more of a transactional relationship where we sign a game with an external developer, they own the intellectual property. We work on it together, we launch it, and the transaction is that we launch the game, right? The game makes a lot of money. We are both happy. We go our separate ways. The problem here is that usually it is a new intellectual property that you work on, right?
When the new IP becomes successful, it is actually much easier to take something successful and make it more successful. However, in that third-party relationship, the incentives are misaligned. So the developer has no incentive to continue growing this IP with a publisher. They would rather do something else themselves. That is totally fine. But what I am really interested in is longevity and long-term returns from our investments. So this is why we started investing into IP, which comes with higher profile returns, higher margins, right? So in the example of second party, where we own the IP and other developments to you, we have about 50% margin compared to 30% or even less on third party. When we bring studios in-house, when we buy them, it is first party and the margins are 80%- 90%. We did not do this overnight. It started off five years ago.
If you see in the middle of the slide, we have fiscal year 2017. It was equal third party and our own IP. Then if you look on the left side of the slide, when we launched games like Hello Neighbor, which were runaway hits, we have had a lot of revenue concentration on that hit, and that revenue concentration is going away. In fact, today, we don't have a single title that contributes over 15% of the revenues. This is just to preface the obvious questions about Hello Neighbor 2, because a lot of coverage on that game made it seem like it was going to be a very highly concentrated revenue stream for us. No, we knew exactly where it was, and I'll talk about how that launch did. Speaking of our back catalog, as you can see, we continue to be powered by it.
The formatting on the slide just got a little bit off when it was converted to PDF. Still 80% of our revenues come from our back catalog. Mind you, this is based on calendar year. Anything we had launched in December of last year will be considered back catalog. If we, for example, launch a new DLC or bring the game to a new platform, for example, to consoles or VR, et cetera, unless it's built from the ground up, it will be considered back catalog. When I get asked of how long the revenue or the life cycle of the game is, for us on average, I don't know. We're 11 years in the business and our very first published games are still making money. So I'll let you know when those stop making money. A little bit about M&A.
Last year, we have had four M&A transactions. Three of them were acquihires for studios we have worked with, between Demagic, Scythe Dev Team, and Konfa Games. These have been partners that we enjoyed working with, and we brought them in-house. It's a very easy integration for us. In fact, these three studios are now working on their game number two. This is, again, something that takes a lot of time to learn within the culture of your company, because a traditional publishing business, it's more about contracts, it's more about the product. Then when you bring studios in-house, it's about the people, it's about the creative synergies, and it's about how do you manage internal and external game pitches, how do you prioritize budgets.
It's a very different business that took us about six years to learn because our first M&A we did about six years ago. You can't just wake up and decide that you're going to start acquiring studios. It doesn't work. I'm very happy that our studios are now working on their next iterations because that just shows the confidence we have in them and their ability to deliver. Also, we bought the portfolio of Bossa Studios, a London-based game developer, where they could not extract a lot of value from the portfolio. However, with our dozens and dozens of titles, we're able to, because the portfolio, when you do portfolio sales, it scales, and you can extract a lot of value. Finally, we're gaining some industry recognition.
Not to pat ourselves on the back, but we did recently win the award for Best Indie Publisher, even though not all of our games would be considered indie at this point, it is still great. If you look at the picture over there, it is like a Thor hammer, and they were like, when I am coming on stage, "Do not take it by the handle." I took it by the handle, and it broke up. We super glued it together, it is great. A lot of our other titles are being nominated, between SpiderHeck, Not For Broadcast, and Potion Craft. I would say most notably, Not For Broadcast is nominated for the BAFTA Awards tonight. So after this, we are going straight to the BAFTA Awards and fingers crossed.
Also it was nominated for the Independent Games Festival main prize, which is considered as the prime award for game developers worldwide. Also, this is just, I guess, a heads up that we will be holding some information back through the questions, because what I noticed is that when you are fully open about how you do things, other companies will attempt to copy your homework. As flattering as it is, it may send the wrong message. So we will be skipping questions on the part of how we decide which games to invest into. That is what we will call secret sauce, and next time, we will just make these super spicy sauce bottles with that label. But we use a lot of data to decide what we invest into. The trick was to verify that this approach works.
It now clearly works with the three larger investments we have done through the end of last year with the bigger game launches. This is also why we are confident in investing a lot more capital into scaling our portfolio. With that, I will hand it over to Tony, for the financial review.
Thank you, Alex, and hi, everybody. For the financial review, we will go through our financial KPIs before diving into our financial statements, and then a breakout regarding the investments we have made. To start, we will take a look at our net game revenues. We have seen that continues to grow at a healthy pace. This is not only due to launching more titles, as well as with our close partnership relations. It is also based off of marketing new market opportunities, such as VR and Roblox. One of the main factors also have been being able to launch on multiple platforms. Just not just one platform, but multiple, and especially on launch. Lastly, this growth is attributed to the acquisitions we have done. We have seen acquisitions contribute roughly around 20% of the inorganic revenue, similar to H1, with the lion's share being Versus Evil, the third-party publisher that we acquired.
The reason why we are highlighting Versus Evil is because even though we see a healthy growth regarding our EBITDA, we did see a decrease in margins. This is based on the third-party margins that Versus Evil have and currently have. That being said, we have been transitioning Versus Evil to owned IP as well as working in terms of the synergies between both companies. We are expecting that the margins for this to improve in 2023, but the full transition from Versus Evil having a similar margin profile as tinyBuild, we are expecting that to come through at the end of 2024. Regarding our adjusted cash from operations, our adjusted cash operations conversion was around 80%. This is as we expected when we spoke about H1 based off of the time and differences when it came to the games being launched near the end of the year.
For reference, any revenue that is earned in Q4 is paid out in Q1 and Q2. This is due to the payment terms when it comes to our vendors. Our vendors are blue-chip companies such as Microsoft, Apple. We have not received any risk in terms of receiving this revenue. For our next slide, we will go through our P&L. The main thing to highlight in our P&L is really that revenue growth that we just spoke about, as well as the adjusted EBITDA margins being decreased based off of the acquisitions from last year from 2022. Just to reiterate and to highlight, the expectation is in 2023, these margins should improve based off of the transition from Versus Evil to owned IP, but the full effect is going to happen or the weak effect is going to happen is going to be at the end of 2024.
When it comes to the balance sheet, this is one of the main slides I highlight is first is the trade receivables. These trade receivables of $23.4 million is based off of revenue earned in Q4, specifically near the end of Q4 due to the launches of our games. This revenue has been received based off the terms when it comes to our partners. Another thing to highlight is the intellectual property. This shows the acquisitions that we have been doing and the increase of that asset. More specifically, software development, we have seen an increase significantly in terms of at the end of the year.
What this is the investments that we are doing as part of our commitment to going public regarding investing public funds not just in acquisitions and in overall growth, but also increasing our portfolio as well as the value and the production value of this portfolio. To reiterate what we had spoken about, I believe in the RNS was when it comes to game development, it takes roughly two years from concept to market for it to be released, and sometimes it could span between three, four or five years. What this means is, at the end of the year of 2022, we started seeing the first games that used public funds come into market. Part of that includes the ROI that Alex had mentioned in 1.9x. We will dive deeper into it later on in the presentation in terms of those games.
However, our expectation in terms of our investments is 2x ROI based off the life cycle of the game. Historically, we have been able to get 2x ROI at an accelerated pace. Lastly, when it comes to our financial statements, we are looking at our cash flow. Where we want to focus our cash flow is really crossing that bridge between the P&L and the balance sheet. We can see the software development expenditure is significant, and this is due to the investments that we have been doing. It is important to note when it comes to the cash generated from operations, it continues to be healthy. However, we continuously grab this cash from operations and reinvest it into the business. As part of our commitment to going IPO, this is something that we have been doing and we have been successful in. Regarding the purchase of intellectual property, we did see a decrease.
This is largely due to the large acquisition in 2021 with respect to Versus Evil and Red Cerberus, but we continue to invest our funds into not only our product but also in acquisitions. To break out our cash spend, this is to visualize where we have been spending our cash regarding the investments into development costs and shown that it is the majority in terms of our investment as we look to continue to expand our portfolio and diversify our portfolio, not just from what we have previously done, but going forward. That is what you see when we look at the breakdown in terms of that game dev investments.
In terms of our game dev investments, we could see that continuously diversify our portfolio since we do see our business as a portfolio business, and this is one of the ways that we would look to de-risk the company is by continuously diversifying the revenues. With that, I will give it to Alex to do the strategic review.
Yep. All right, thanks a lot, Tony. I think the really important aspect here is our five-year plan. Investors who have been following us for the past two years, because we have been listed for two years, may notice something, and that is we never deviated from our story. We know exactly what we are doing. We are using data to make decisions, and the next five years look like all about intellectual property and franchises. This year, we are going heavy on games as a service and not the traditional, like Fortnite battle pass style. It means that we are servicing our players for most titles that come out where it makes sense. We release something, and we continue servicing the players. Therefore, yes, it is going to be about the animated series and the bigger titles that we will start releasing.
You will start seeing this year some titles that we have invested in shortly after we went public. Then, throughout the years, it will be about scaling, essentially the best marketing you can do for your games, which is canonical commercials, which John will talk about in more detail. We do what a lot of companies did in the 1990s, which like if you look at Transformers or Teenage Mutant Ninja Turtles, they have used cartoons to sell toys. They had a strategic business for making animated series and used those to go ahead and sell higher margin products. We are going to be doing the same. The idea is that within five years, we will be able to originate IP, not just from games, but also from other medias.
Because in the example of our cartoon that we are working on, the timeline is actually much shorter for production than for video games. You can make a cartoon once you have a pipeline in less than a year. That is important when you build a franchise because you need to have consistent flow of products. You cannot just have game number one and then three years later, game number two. You need to splice a lot of content in between to get that value up. Then, let me see. Jaz, what did you do? The other aspect that we have here is the decentralization. What we did is, well, I started noticing this when we crossed about 60 people in the company. Right now we are about 500.
Is that when you scale from a startup where you are like a dozen people, everyone knows each other, everyone knows what everyone is doing. As you scale, you inevitably have your marketing person becomes the marketing lead. Your producer becomes the production lead, and you start making these departments, right? The problem is that when you are in a business that can change overnight, you can slow down on innovation. This kind of structure works when you have something established and very predictable, but when you are in a lead or department director style structure, the best people who do the actual work may have phenomenal ideas and may not be encouraged to go through essentially a web of bureaucracy to get those ideas implemented. We decided to decentralize.
We got rid of the traditional structure and instead, we now have product groups where, let us say, between three and seven people will be working on a range of products either defined by genre, geographical location of developers, and whatever makes sense. We empower those product groups to make decisions really fast. This is how we kept on being successful. This structure, it does not work for everyone. It requires a lot of process in hiring. It requires very extensive personality tests to predict how people deal with ownership and decentralization. But when it works, it feels like magic. It is unlike anything. Even though you are hundreds of people, it feels like a startup where anyone can make an impact. That is how we ended up shipping games on all platforms. We have increased accountability through the group.
We can verify our marketing viability way before launch and predict with a high degree of certainty exactly how our games are going to do. This is the example of the games we talked about. So three games launched in Q4, each over $1 million. Average return 1.9x until end of year. If we do this analysis today, these numbers are going to be significantly higher. And we are now investing into much larger games. Since this is a public presentation, without giving too much away, we are just going to show a couple of pictures on the projects in development. We are not going to do any names, but, for example, this is a project that revolves around investing into serious technology that allows you to render thousands of non-player characters on screen.
Unlike similar games that came before, where you have 1,000 chickens versus 1,000 ninjas and you plop them together, this is a real simulation. The player actually, in this example, runs around with a machine gun, mowing down thousands and thousands of enemies in the field. This is the tech we invested into. Then, this is a screencap from this in-game from our studio in Lviv, Ukraine. They have been working hard on this project that blends the concept of building your own pirate ship in a way, but it is not a pirate ship. It is a giant walking robot in a Dune-like world. There is a couple of more screencaps. This is me play testing. This is a screencap from a cinematic. Then, this one, it was supposed to play as a GIF. I apologize. When we convert to PDF, obviously GIFs do not play.
This is an example of Project Ferocious. Look it up. This is a game that has been announced, and it is one of those games that we decided to scale into that over $1 million mark because the original developer did a phenomenal job at making a small-scale prototype, which we all loved. We approached him and said, "What will it take to make this into a proper A A level experience?" He said he needs a team. So we hired a team. Right now, there are close to a dozen people working on this project, and there will be announcements on the release plans of this coming quite soon. More GIFs. Just a couple of words about our strategic events business and Larica, the person who runs it. She was supposed to be here, but BAFTA prints physical tickets, and someone had to go get them.
A couple of words about the business. We have actually invested into events, into a conference business, which gave us a unique position to see a lot of content before it is out there widely known, and also to position ourselves as a thought leader, sharing our knowledge and experience in a very open fashion. We have actually signed over 30 titles that we discovered at this event and hired over 50 people into our company. As you can see by the picture over there, that is us in Vilnius, Lithuania, where 750 people attended the event. With that, I will do a very smooth transition because at DevGAMM, I met John, who was at the time working at Twitch, and now runs our very exciting project on Hello Neighbor called the animated series. I am going to give the microphone to John.
Cool. Absolutely. Thank you. Thank you guys for having me. Thank you for joining us today. A little bit of background about myself as I jump into all the cross media awesome things that we're working on. My name is John Carnage. My real name is Jonathan Joyce, but I go by John Carnage because that's my stage name. I started out as a streamer in 2008- 2009 on a small platform called Justin.tv.
In the course of my streaming career, I created a channel that became quite popular, and while my channel became super popular, the creators of Justin.tv asked me to join them and said, "Hey, can you do that you've done on your original channel on our platform?" I said, "Yes, of course." I was hire number 40 at Twitch, so I'm one of the founding Twitch team members over there, and it's been an incredible journey to grow Twitch. In that process I went to Cartoon Network, joined their sister site called Adult Swim, worked on a bunch of cool stuff over there, and now I'm here at tinyBuild working on our How are we going to do this?
I guess you need to-
Here we go. Finally, Welcome to Raven Brooks. This is Hello Neighbor. Welcome to Raven Brooks. Raven Brooks is the neighborhood where Peterson and all of the action actually goes down. So this is our first foray into a full animated series. There's 18 episodes. Each episode ranges in about 10-12 to 14 minutes. They vary because we are making this from the ground up in-house. We are working with an outstanding stellar team. You may have heard of some of the stuff that they've worked on in the past. They are the creators of Big Hero 6, Ben 10, and, the most recent one is Sonic on Netflix. So we're working with an outstanding team, and the best part about that team is some of the writers that, and I have the privilege of working with, are hardcore gaming fans.
This was an easy partnership for us to work with them because they got it right away. Now as we dive into Raven Brooks, we will find out more about the mystery. It is not just a story about a creepy guy across the street that is stalking kids or kids stalking a creepy old guy across the street. This is a full story that gives a lot of answers to a lot of questions. When you have a lot of questions that are answered, you get more questions. Let us go to the next slide. Oh.
Yeah. I think the video is.
We released it. We released this in an early preview, and this is some of the early reception that we got. We have been releasing these on YouTube. That has been the platform of choice for now. When we released these in December, some of the feedback that we got was overwhelmingly positive. As you can see, 24,000 thumbs up. The second one also with tens of thousands thumbs up. The comments are also overwhelmingly positive as well, and they are in the tens of thousands. The comments often say, "Hey, where is episode three? Where can we get more of this? I love tinyBuild games. I want to go and check out their website." All of it. All of it. All the positive stuff that is there is really, really warming. We have been creating content in a unique way.
Much like other people would create a commercial, advertisement spent on a 30-second ad somewhere, we have decided to create cartoons and create an infinite loop that would be considered content at the same time it is maybe considered a commercial. In this infinite loop back from Hello Neighbor cartoon to Hello Neighbor video game to tinyBuild as a platform for new games back to the cartoon, this will be effervescent. This is going to be something that people will watch over and over and over again. The reception has been outstanding. Let us go to the next slide. The timeline for the show will be this year. We are going to be releasing this in three drops. We are going to stretch out our drops in six episodes per drop. This keeps us going and keeps us in the minds of our fans.
This cartoon is going to end on episode six with a great cliffhanger, same with 12 and our final with 18. We are going to stay relevant for a very long time because this is content that is effervescent and will stay with people, and our hardcore fans are going to get a bunch of content that they've been looking for for a long time, as well as new fans that have never heard of this series. It's super important to create content that people will embrace because it's their first time seeing it. We didn't want to exclude anyone. Alex was talking about in a road map, my five-year timeline, this is our timeline for this year with this single cartoon.
What he mentioned before is that it's easier to make an animated series because once we have these assets created, they can be reused over and over. A good example of that is how quickly The Simpsons can come out with episodes, how quickly South Park can come out with episodes. It's just much faster, and it's a little bit more predictable. Although development for this was pretty intense in the beginning because we had to get it right. This is Hello Neighbor. This is one of the most talked about franchises in tinyBuild's history. It's also the most beloved. So we have to get it right. We have to tell a great story, and we are making that happen right now. This is an interesting thing. Maybe I can get this point across digitally.
I've been working in pop culture for a really long time. I started out selling comic books as a kid. What I've noticed, as a kid, being an avid fan of comic books, as now an adult working in the games industry. What you see right here is both of these are arguably the first or the most important of that thing. The most important comic book would be Action Comics #1 , first appearance of Superman. That is a graded issue selling for quite a bit of money. Now, you look over at the other side, and you see Super Mario, our first appearance of Mario in a sense, right? Graded, now worth $2 million. So what's going on with this?
In my mind, and what I think I'm seeing is video games are becoming this generation's comic book, where it took Superman 70 years to become a film or maybe 40 years to become a film, a blockbuster film. Mario Brothers has now taken 35 years. You can forget about the one in the 1990s and 1980s. Let's talk about the new one that's coming out right now. Video games are this generation's comic books. The next mega IPs of tomorrow are going to come from video games, much like the mega IPs of today came from comic books. There you go. Alex, you want to take it away?
Yeah. Thanks a lot, John. I think just to reiterate, the story for tinyBuild has not changed. We are doing what we set out to do, and we are more confident than ever that we are going to be able to achieve. I will just reiterate that tinyBuild is a global video games publisher and developer. We focus on owning intellectual property and scaling it to franchises that will exist on multiple media formats that will hopefully outlive us as a generation. Because my goal is to build something today that will scale to mega blockbusters. As John said, we believe that the timeline of unlocking IP value is accelerated today. The things we will make today in a decade to three from now will still be remembered and will be bigger than ever.
With that, I do see that we have quite a lot of questions, so I will just put this slide up, which I am legally obligated to do.
Perfect. Alex, let me just jump in just to give you a quick break, and thank everybody firstly for all their engagement this afternoon. You are quite right, you have received a number of questions. Just while the company, just take a few moments to review your questions that you have submitted today. I would just like to remind you the recording of this presentation, along with a copy of the slides and the published Q&A, will be accessed via your Investor Meet Company dashboard. Alex, as you can see, those pre-submitted questions that you have in front of you, thank you to the investors that sent those ahead of today's call. If I can just hand back to you to maybe read out those questions and give a response where it is appropriate to do so, and then I will pick up from you at the end.
That sounds great. I think, one of the questions that we should address head-on is, someone asked, "Alex, can you please talk to us about the launch of Hello Neighbor 2? It seems you rushed the launch, overpromised, upset and alienated gamers, quality glitches, et cetera." This is a really interesting question because to the person asking this and who people under the impression that we might be disappointed with the launch, I would highly advise you to look for articles from 2017 and videos from 2017 about the original game's launch. Because the original launch to similar criticism from mainstream media, especially from review magazines and press. The thing is, WIRED Magazine called it the worst game of 2017. When I talked to the, a year after that, I talked to the author that wrote that review, right?
No disrespect or aggression from my end, I was like, "How did you like the ending of Hello Neighbor?" He said, "Oh, yeah, this is what happened. I was not happy." I was like, "You didn't beat the game." He's like, "What?" I'm like, "You did not beat the game." So, what I would advise people to do is watch story explain videos for Hello Neighbor 1, Hello Neighbor 2, Hello Neighbor: Hide and Seek, the prequel, and Secret Neighbor. Because, unfortunately, there is limited data points, and when you look at a game like Hello Neighbor or Totally Reliable Delivery Service in our portfolio, you might be using Steam data as your reference point. For the four games that are out in the Hello Neighbor franchise, Steam has been the smallest platform by far. The game is a console game first.
It's also got a huge following on mobile. In fact, over 100 million downloads on mobile. What I'm getting to is that the target audience for Hello Neighbor does not need to be told if it's good or not by someone else. They decided that for themselves. Everyone who don't necessarily understand the franchise or why it's so entertaining to be part of this community, it's easy to be cynical because that drives a lot of clicks. You make a video about why Hello Neighbor 2 is bad, it becomes the most popular video on your YouTube channel. Seriously, look it up. Just search for Hello Neighbor bad or something like that on YouTube, sort by views, and then go to the channels and check what is the most popular video on that channel.
Not to be cynical or anything, just the reality of this, because the enjoyment of Hello Neighbor comes from being part of the community and knowing how the game is made. That's part of the game. I will not spoil the true ending of the original Hello Neighbor. Please look it up. Just search for true ending of Hello Neighbor, and you will understand why a lot of people are so excited. That said, it landed exactly within our financial expectations, and we built a platform that we are able to deliver a lot of quick updates to. So it's been 14 weeks since Hello Neighbor 2 is out in the market, we've delivered six updates. We came out on day one on PC, XBOX, PlayStation, current and last gen, and Nintendo Switch.
The original came out on PC and XBOX and then took two years to get to PlayStation and Nintendo Switch, and took a year before we could update it. That said, we're very happy with the release of Hello Neighbor 2. Please do not use Steam as the only data source for that, and please look at things like Google Trends, that show you exactly how popular a franchise is. Right now, our internal data suggests that players have enjoyed the game and are spending a lot of time in this world. That said, which question should we jump into first? Jaz, this on you.
Got a list of questions here.
Oh, go ahead, please. Thank you.
Continuing with you, Alex. You mentioned the bigger budget games. What is the typical budget for a new game these days, and do you see a correlation between budget size and return?
Right. We used to be right around $500,000, up to $1 million. Right now we have quite a few titles that are over $1 million, and the reason we are confident in that is because we have had three games in a row prove that we are able to deliver and have a significant ROI on those. The reason we are doing that is because we can, but also this allows us to deliver games to more platforms, which costs a lot of money, and to create scope for this project that facilitates over 100 hours of gameplay. We see a direct correlation between how much time people spend on our games, and how much money and long-lasting revenues they create.
Next question is specifically on disclosure of consensus, analyst consensus in the trending updates, and possibly adding a small broker that could publish their research for free. I am going to take that one. We technically can not disclose analyst consensus without being seen as using that as a guidance. It is a choice. Some companies do that, but they officialize that as a guidance that we do not have. That is not something we can do. In terms of adding more coverage, we are, for our size, one of the most thoroughly covered companies by equity research analysts. We keep working on that. We do expect more brokers to come on board, but it is somehow out of our hands. Next question is for Tony. Amortization period moved to three years. Can you confirm whether this is straight line or front-loaded?
Yeah. The amortization is going to only be for owned IP. Third party is still dollar for dollar. The amortization is heavy on year one and two, and reduction in year three.
Okay. Thank you, Tony. Another one for you. Can you give us a size for the capitalized dev cost that went into the Hello Neighbor animation? The follow-up for John, how do you intend to monetize that?
Regarding the size, in terms of the overall investment, it is still a non-material impact regarding the rest of the investments we have done. The exact size is confidential given it being a—
Sensitivities.
Sensitivities, yeah. With that, I will pass it to John.
Well, in terms of monetization, Alex, how do you want to explain this?
Well- The worst-case scenario is that we publish it on YouTube, where most of our users are anyway, right? We are exploring a lot of opportunities right now. In the worst-case business model, it makes its money back, right? It is not our core business. It is great that it makes its money back, but its sole purpose is to elevate the brand and to drive game sales. Right? We use this as a marketing tool first and foremost, or as a canonical commercial, right? The example was TV shows or cartoons and toys, same logic applies. You do not make a Transformers cartoon to make money out of it. You make money out of the toys. We make money out of games.
Great. I am going to take the next one. It is about dilution from deferred consideration of M&A, whether we have any mechanism in place to reduce that dilution as the price fluctuates. Yes, we do have in every M&A agreement, we do have an anti-dilution clause. So when the price goes below a certain threshold, we have options, and the freedom not to issue shares, even if that is part of the compensation, and to use other means for paying the total consideration. Next question is for Tony. Revenues from own IP decreased in 2022. Can you explain why and what you expect for 2023?
Yeah. In 2022, we had some extended life monetization events, such as for Graveyard Keeper, which is a very strong third-party game that we have in our portfolio, as well as the launch of Asterigos, which is one of the higher budget games we've released that have had positive ROI, which is also a third-party game that we have in our portfolio. Regarding going forward, we don't give guidance on future numbers. That being said, we'll continue to do monetization events when it makes sense, even if it's a third-party IP.
That's great. Thanks, Tony. Alex, you've been very close to the situation in Ukraine and helped the first time to relocate staff both in Ukraine and Russia. What is the outlook in terms of further charges for the conflict in Ukraine?
Great. Well, no one can predict what is going to happen. What we did last year was make sure that development continues, and we have given you a glimpse of some games that we'll be announcing this year coming from the studios in Ukraine. Moving forward, it was all about setting up a prep plan for any scenario that happens to make sure that people are safe. So we can't give a definitive answer because that is outside of our control.
The next question is, in my view, somehow related. Can you tell us about employee churn at tinyBuild? Is it that stable, improving, and what do you think in the future?
Yeah. Our churn is still low single digits, and what we are seeing is when you look at under the context of at least year development cycles, you need to be 100% confident in all of your people involved with publishing. Because the decision you make today, you will feel as a business two, three, four years from now. You cannot have a high churn in the publishing business because people will make this decision today, and then others will have to live with it, right? Everyone loves making decisions. It is about the longevity of following through with those decisions. Oh my God, it was going. We still have a lot of questions. Oh, you wrote a lot of those down, I see.
Yes. The next question I am going to take is on buyback, if we have considered buying back shares on the market given the low levels of the stock. Yes, we have considered it. We have a lot of opportunities for investments in the business. We are very close to shareholders. As you know, Alex has a 37% stake in tinyBuild. We went for a middle ground solution, which is setting up an employee benefit trust, which is currently buying shares on the market. We have spent so far just short of $500,000 on that side, but we have to balance the different opportunities of investing for growth versus buying back shares on the market. Next question for you, Alex, on MrBeast. Can you tell us the thinking behind it and the impact we had on the franchise?
Right. For context, MrBeast, it is the biggest YouTuber in the world, and we partnered up with him so that they could build the neighbor's house and drop a meter on it to see what happens. It is one of the bigger viewed videos on his channel, and the logic here was to support the launch of Hello Neighbor 2, and also that unlike traditional advertising where there is a start of your campaign and an end, this video will live on for years. We have seen an immediate impact and the residual impact from that video specifically, and we are looking forward to a lot of interesting collaborations like this in the future.
Thank you. Next one for Tony. The development spend in 2022 was high at $36 million. What do you expect in 2023?
Yeah. One thing to reiterate when it comes to the development cycle of games being between two years to four or five, is essentially anything that we invest at IPO started coming through the company in terms of to market late last year. It's difficult for us to commit to development spend in terms of the end of the year, since that could limit our growth. That being said, the expectation is by the end of 2024, the part of the business regarding what's on the balance sheet as well as cash spent for investments as percentage of the revenue, the percentage of our profits, will essentially mature and be much more sticky in terms of what's on the balance sheet as well as the cash percentage outflow.
Thank you. The next one I'll take, it's been a question we had often on the IR email, which is about a persistent large seller on the shares, and the absence of an RNS. Any holder in the U.K. that goes through a certain threshold at 3%, 4%, 5% and so on, has an obligation as a shareholder to issue a notification to the market. The obligation is not on the company, it's on the shareholder. Nevertheless, we have checked whether all of the obligations have been respected, and we can confirm that that is the case. On our website, on the shareholder page, you find our largest shareholders, including Alex and institutional investors. There has been no change on that. For sure, none of the management team has sold any shares. Next question is on dividends. Please explain why tinyBuild is paying dividends to DevGAMM.
That is not the case.
Tony, for you.
Regarding the dividends that were paid to DevGAMM, it was associated with the prior year. This has to do with just the interest between the company and us owning a majority while still having its own people.
Next question is for Alex. Can you tell us about the balance between growing the core business of video games publishing and studios versus studio for hire as Red Cerberus?
Right. Red Cerberus is an exception to the strategy, which is a strategic position to have testing capacity when we do need it. The core strategy is still the same. It is about publishing our own intellectual property and some of the auxiliary businesses are strategic. I would say that right now it is Red Cerberus, DevGAMM, and our cross media business that are the strategic aspects that help us grow the core business.
Okay. Thank you. In terms of cash utilization and cash allocation, Tony, can you guarantee us that it is the right balance in terms of safety for the financial position and growth, that we are not growing too quickly, burn through cash, in other words?
Yeah. Regarding the cash burn, we have financial controls in place in terms of monitoring the cash that's required for operating businesses versus the investments. We monitor that pretty regularly and closely. The whole commitment we made to the market was to invest wisely regarding not just the public funds, but continuously reinvest the company profits back into the business, and that is what we are doing.
That's great. Now a question for you, Tony. There has been a write-down of goodwill for Versus Evil and Red Cerberus acquisitions of November 2021. Can you tell us the rationale and the impact on P&L and cash flow?
Yeah. Regarding the write-down of Versus Evil, specifically, the revenues were healthy. They were what we expected. However, in terms of the margins, that's where they had underperformed. When it came to the consideration or the total earn-out that they were looking at for that acquisition, it was to help motivate them to correct the margins in the first year, given how development cycle of video games take anywhere between two to four to five years. That earn-out of the net hit was missed. In terms of the write-down, it was also balanced out by the release of that liability or that consideration, which had a de minimis impact in terms of the P&L.
Okay, the next question has already been answered, but just in case, we have an anti-dilution system in place for any M&A, so the volatility on the stock price is not going to cause excessive dilution in terms of earn-outs. Next question is in terms of revenue diversification. While this does seem prudent a strategy overall, it's naturally important not to spread, since I understand. Can you tell us about the departure of your COO, the process of decentralization, and how you look at potential replacement or not?
Right. So what happened in the beginning of the year is our COO and co-founder, Luke Burtis, had a kid and went on paternity leave. The guy hasn't been on holiday for 10 years, so he really deserved it. What we did is we used that as an opportunity to start testing the decentralized model. We knew it was going to be where we go as a company in terms of direction, and this gave us the opportunity to really stress test it. Going through it, Luke's position essentially became distributed between several other people. This has actually worked out quite well because the company is very global, and I counted nine time zones that we operate in. For a single person to be a bottleneck for so many time zones, well, we attempted to do it in the early days, right?
I was on a flight pretty much every week. It's not sustainable long-term. Going for the decentralized model made a lot of sense, and Luke has decided that he wants to spend more time with his family. We came to this decision in over a year of iteration because Luke was ready to jump in when we were decentralizing. That said, the reason there is no longer a need for a centralized function of a COO is because the job is distributed, and people are able to make a lot of decisions. We do have general managers for a lot of our studios, and those perform the role of mini COO or, well, the GM, as in the name. Right now we do not see that as a potential challenge.
We actually have been pleasantly surprised by the level of ownership that people get and how they maintain that ownership and accountability.
Brilliant. We're left with only two questions. Looking to close bang on time with the time allocated. One for Tony. In terms of employee compensation targets, how do you see using EBITDA and revenues versus EPS in order to avoid excessive dilution?
Yeah, we don't necessarily disclose as to what we use to measure employee compensation. What we can say is that we look at the more meaningful impacts regarding, in terms of what earns that compensation and compensate quarterly based off of quality of their skill.
Thank you. And the last question for Alex. I don't see any new question. Alex, you are a shareholder. You've been feeling the pain like many of the people online. Would you like to buy shares now?
Yes, I absolutely would and expect measures to be taken that would allow me to do so at a general vote, because right now I hold over 30% of the company, therefore buying any share would trigger a Takeover Code. Just to put it on the record, I am really excited about the opportunity of buying more shares. There was another question today, not as part of this, but I think it's relevant, is, well, the price is low, why are employees not buying it? Well, because we don't have that many people in the U.K. where it's actually super easy to buy our shares, and we're in the process of helping our employees process this so that they would be able to do so.
Because just yesterday, a lot of people came to me and excited about where we are as a company, and they were like, "How can we buy shares?" Okay, you're in this country, this regulation applies, so we're in the process of figuring that out. That was the whole reason we decided to go public, is to enable all of our people to be able to share the success of the company.
Operator, over to you.
That's great. Thank you very much indeed, and thank you for taking the time with the Q&A. If any more questions do make themselves available, we will definitely send those to you post today's call. Alex, I know investor feedback will be particularly relevant and important to the company, and I'll shortly redirect those on the call to give you their thoughts and expectations. If I may, before doing so, if I could just ask you for a couple of words and a few closing comments.
I think I am extremely excited where we are now. Just on the concerns part of some people with the share price, I want to reiterate that there was a week last year at the end of Q3, beginning of Q4, where everyone profit warned and a lot of people expected us to profit warn. We did not do that. In fact, we have landed broadly in line with expectations in a very tough market while playing this game on extreme difficulty. Just imagine what it is going to be like for us when we're back to playing on normal or easy mode when things change. It's usually darkest before dawn, so I'm really excited about when the sun does go up.
That's great, Alex, and to the team from tinyBuild, thank you very much indeed for your time this afternoon. Ladies and gentlemen, please do not close this session as we're now going to automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This may take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of tinyBuild, I'd like to thank you for attending today's presentation. May I wish you all a very good afternoon.