Earnings Call: H1 2024

Sep 30, 2024

Summary

H1 revenue fell 20% YoY, mainly due to weaker platform deals, while direct game sales declined only 4%. Adjusted EBITDA guidance remains around breakeven for 2024; focus shifts to replayable own-IP games and a substantial pipeline.

Good afternoon, and welcome to the tinyBuild Inc. investor presentation. Throughout this recorded meeting, investors will be in listen only mode. Questions are encouraged, can be submitted at any time by the Q&A tab situated in the right-hand corner of your screen. Just click Q&A, type your question, and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Alex Nichiporchik, CEO. Good afternoon, sir. Good afternoon, and thank you everyone for joining the H1 2024 presentation for tinyBuild. If you hear barking in the background on my microphone, I do apologize. My dog just recovered from back surgery, so he's able to walk again finally, and he's just really excited about scaring off the neighbors and just really excited in general. That said, let's go ahead and turn over to the disclaimer that I'm sure everyone has read. Presenting today, it will be myself. I'm the CEO and co-founder of tinyBuild, and joined by Giasone "Jaz" Salati, who will run us through the financial part of this presentation. Today, we'll do an operational review, then the financial review, and I will give a brief strategic update, and I'm also excited about answering questions today, because this has really been a transformative year for tinyBuild. We will go through the presentation and then dive straight into the Q&A. So the operational review, as many of you know, in the beginning of this year in January, we have done a capital raise supported by myself and Atari. This is in light of continued revenue compression in H1 2024, led mostly by platform deals. So think licensing out content to subscription platforms and also by the launches of non-core titles. What I mean by non-core is the ones that do not fit into our 1,000-hour game strategy. By 1,000-hour games, I mean literally that. If you look at the reviews of our titles like Species of Frog or SpeedRunners or Secret Neighbor, you go to their Steam pages, you scroll all the way down, and then you check the time played on some of those reviews, it will be thousands of hours. This means that we are really excited about investing into titles that are highly replayable, that are systems-driven, where we create content that can be consumed multiple times instead of focusing on things like cut scenes that the player sees once, cost us a lot of money, and then never sees again. This is really heavily underpinned by our portfolio, where the best-performing titles over the years are the ones where players indeed can spend thousands of hours. Now, if we go to the overview slide, I think the most interesting parts here, which we will discuss more in detail, is the share of revenue coming from our own intellectual property, which does come with higher margins, with a higher degree of control. So it means that those contracts don't expire like a typical publishing agreement where the publisher does not own the intellectual property. And also, what is really important to note here is 89% of sales coming from our back catalog. This is what I mean by 1,000-hour games. Within our back catalog, we have a few titles that are evergreen that, when launched, had a good launch year, and then going forward in year 2, 3, 4, 5, 6, 7 even, generate very meaningful revenues. This really underpins our business as a whole and creates a solid base for us to continue growing. Now, if we look at the IP portfolio, last year, we had a higher share of revenues from third-party IP, and that was mostly strategic with sequels to legacy titles that we had. And we are now back to 78% of revenues coming from our own intellectual property. And this will be more evidently important later on. If you look at the chart on the left side of the slide, we continue to diversify our revenues. So we are not dependent on a single title or anything like that. This is a testament to the work that we do on our portfolio, and we continue to invest into it, creating a safety cushion for the business. If we look at the back catalog, I just want to highlight a few games here that you should check out. They are on the slide here. It is Species of Frog, it is Secret Neighbor, it is Despot's Game, it is Deadside, et cetera. So, in general, our back catalog is very healthy and continues to generate meaningful revenues for the business. And with that, I will hand it over to the financial review before taking it over on the strategy side. Jaz? Hello. First half of 2024, so net game revenues, excluding events, for 20% as we still suffer from lower platform deals, which peaked in 2022. In terms of adjusted EBITDA, we reported a $1.9 million loss in the first half of 2024, with a positive underlying trend month-on-month from the beginning of the year. That leaves us confident in achieving consensus around breakeven for adjusted EBITDA for the full year. And to close, in terms of net cash from operations on the right-hand side, a drop to $2 million in the first half of the year, as we went through some one-off charges, which are not necessarily disclosed separately, including restructuring charges and still exceptional cost for the war in Ukraine. Diving a little deeper in the profit and loss, breaking down revenues. Revenues from direct sales of games were down only 4%, showing how resilient the business is in underlying terms. Development services, which include platform deals, was actually down 31%, and that is really what is moving the needle in the first half of the year. You can see on cost of sales and G&A, the stronger impact of our cost-saving plan put in action at the end of last year and beginning of this year, a drop of 16% and 28% respectively. These are now cut back in line with our expectations, and we are ready for a more balanced second half. I also want to call out a $3 million impairment of development costs, which relates to Broken Roads, one of the last games released by Versus Evil, which delivered below expectations. In this chart, we look a little bit more in-depth at platform deals. A very large peak in 2022, a very sharp drop in 2023, and a further drop in H1 2024. Year on year, there is still a decline, which means that the second half of the year is going to have slightly easier comps, at least in terms of platform deals. Moving to cash flow. Net cash from operations, as I said, 1.92 million positive. That has some changes in its working capital, which are mostly related to seasonality and timing. We have typically a strong Q4 in terms of P&L, with cash received in that part of the year. What I really want to call out in this slide is the software development charge, which moved from $16 million, $17 million to $8.7 million in the first half of 2024, witnessing our strong commitment to cost-cutting and to align investments with the revenues. This chart shows more clearly the effort we took in terms of development software. Software development costs peaked in the second half of 2022 and came down sharply from $21.5 million to only $8.7 million in the first half of the year. On the right-hand side, we combine software development and M&A, and you can see small disposals happen in the first part of the year in 2024. Two small IPs that are not consistent with our strategy of 1,000-hour game and allowed us to strengthen our financial position. In terms of balance sheet, what I really want to call out is the cash at the end of June, $9.2 million cash at the end of June. In this slide, you see positive cash generation, the positive impact of the share issuance in January, the net working capital and software development cost, M&A positive, as I said, disposals to add up to $9.2 million at the end of the half. We're going to continue to use cash in the second half of the year as we near the release of some high potential games and larger budget games we have been investing. Over to you, Alex. Thank you so much, Jaz. Now, if we look at the games launched so far in 2024, we've actually had quite a busy first half and, more recently, a very busy summer. I will want to point out that the first four are legacy titles and are not necessarily part of our core strategy. That said, we did have a pleasant surprise with Lil' Guardsman, which is a very wonderful game that had a lot of positive reception and will have a strong long tail going into the end of this year and into next year. The games that I do want to mention fall into our 1,000-hour game strategy. Many acute investors have noticed the launch of Level Zero: Extraction earlier in August, which is a tactical extraction horror game where we have aliens and mercenaries fighting it out. Now, the game had a really great launch and then has seen some of its player numbers go down, and we are working on fixing that, because we have very clear feedback from players, and we understand exactly what to do. This game is in early access, and this is to be expected. Some of our most popular games have had similar launch situations where at launch, we get a lot of players, and then we do a lot of modifications, rebalancing, adding features, and then they go back up. That said, I will want to focus this slide on the two bottom ones, DUCKSIDE and Drill Core. Drill Core launched a few weeks ago. It is from our own internal studio that previously launched a game called Black Skylands to a lot of fan reception. Drill Core is the next game by that studio that focuses on very systems-driven gameplay, infinite replayability, et cetera. We are seeing that in the player numbers. If you look at the CCU or concurrent users chart of the game, you will see that within the first week of its launch, it gained more peak players than the day before. This is exactly what we want to see with these 1,000-hour games, because the more time players spend in the game, the more users the game will actually attract, because we know the users are enjoying the game. They will recommend it to other players, and that makes our marketing efforts so much easier. Please take a look at the SteamDB stats for Drill Core to understand what I mean. More recently, we have had a very first in the company's history with the launch of DUCKSIDE last Wednesday. For acute investors, you will know that we bought a company called Bad Pixel, responsible for a game called Deadside, which is a survival PVP shooter. What we did is for our studio in Riga, Latvia, tinyBuild Riga, we took the technology of Deadside and allowed the studio in Riga to reiterate on it, because the technology is very unique. It allows over 50 players to be on the same map, build a lot of constructions, build their own bases, and be able to compete with each other for resources. This is extremely difficult to do, and within 10 months of starting development on DUCKSIDE, we were able to launch it last Wednesday, and between Wednesday and yesterday, Sunday, we were gaining more and more concurrent players at their peak. This is a testament to technology being shared between our studios and really an example of when a studio that we have internally ships a game, which is very important to be able to ship a game. They have shipped Hello Engineer, which was a Hello Neighbor spin-off game for the Google Stadia. In record time, we were able to ship another game with that studio that is now getting a lot of fanfare. I am happy to answer questions about that one. But this shows how using a lot of data-driven decisions, data-driven marketing, we are able to, in record time, set the precedent for a game launching that is essentially a massive multiplayer game with DUCKSIDE that was announced on April 1st to take the market by storm. So I am really excited about that one, and please send us questions about that one. That said, going towards the pipeline. We have a very exciting pipeline that is announced. We have more games, obviously, in the works. I just want to highlight a couple of games here. The one that does have a launch date is Streets of Rogue 2, which is set to the end of October, which is the highly anticipated sequel to the original. Please consider going. Jess, do you mind muting yourself, please? Please consider going to the Streets of Rogue Steam page and scroll all the way down to the reviews there and see the amount of hours that players have spent in the original. So we have been working on the sequel for a few years, and that is coming at the end of October. Another obvious one that I am sure many people have submitted questions about is Kingmakers. Kingmakers is a unique example of when you have technology in the works for years under the hood that gave players something that they were not expecting, yet they know they want it. So the premise of Kingmakers is that you have a time-traveling van of all things, like Back to the Future, and you travel back in time to medieval battles in England with modern weapons, and you are able to mow down thousands upon thousands of enemies on screen. It sounds like something a 5-year-old me would come up with, and yes, it is true, yet no one was able to make a game like that. And the announcement, the reception has been absolutely phenomenal. There is a lot of expectations for this game, and we are going to be sharing the release plans for that relatively soon. Another title that is in the portfolio that is making a lot of traction is SAND, created by the studio behind one of our most played games, I would say, Secret Neighbor, which is a Hello Neighbor spin-off. SAND takes you to the planet of Sophie, where players compete for resources in giant walking mechs that are also their bases. So for context, in games like DUCKSIDE and Deadside, players build bases to store their loot, and those remain in a single location on the map. Here you have a walking base, so you have a lot of risk and also a lot of reward because you can steal other players' loot while competing on this phenomenal world that the team has designed. Now, just a reminder on our 5-year plan. We are still on track this year. We are launching more big titles, and we have actually recently gone into live-action media with a brief announcement from Story Kitchen on an upcoming Kingmakers film. That said, we are really excited by live-action media and also animation, because animation has been at the core of our business for the past few years with the Hello Neighbor franchise, and then we will talk about that in depth. But the idea is that while platform deals right now on the gaming side are a little bit deflated, what we are seeing is that Hollywood is actually very hungry for great intellectual property. If you watch the Fallout TV series, you do not need to be a fan of the games to really enjoy that series. This shows how in video games, you can create an IP from essentially scratch and then overnight become a worldwide phenomenon. This is where I believe the businesses will converge in the next couple of years, where we will have cross-media originating from video games and then transitioning to theaters, to streaming services, et cetera. This is a really exciting time, and I am going to talk a little bit more in depth about the Hello Neighbor animated series titled Welcome to Raven Brooks. We have launched season 1 just over a year ago, and so far it has generated over 275 million minutes watched. For some, million minutes watched is a weird term. This is what the Nielsen rating uses. To contextualize this, the most expensive show in the world, Rings of Power, based on Lord of the Rings by Amazon, has generated about 1 billion minutes watched in its first week. I understand that it is not apples to apples, but this is just context. We are releasing season 2 this Halloween, and season 3 is currently in production. What we have seen is a direct correlation between an uplift in sales and traction for the animated series. With really lore-rich franchises such as Hello Neighbor, we are seeing that putting that lore into a linear media format that is easily consumable actually expands the audience. Fans are calling this the best product within the franchise. That is outside of millions of books sold, millions of game downloads across all platforms, et cetera. So we are really excited about the future of doing this cross-media strategy and fueling our core business, which is video games. To close off, just to remind everyone about our core strategy, we are a global developer publisher. We invest into intellectual property, with the ultimate goal to bring that IP to multiple media formats, to expand it, and to unlock its full potential over the years. You may not know this, but typically, a video game intellectual property unlocks its full potential over the course of a decade or even more. We have seen this with major publishers like Capcom, with their Resident Evil series, and countless others. We are really excited to continue following this strategy because we strongly believe in it. The board does remain confident that we have adopted the right strategy and we are on track to deliver within expectations. With that, let us dive into Q&A. Fantastic. I see we have a lot of questions. Alex, thank you very much indeed. Alex, Jaz, thank you indeed for the presentation. Ladies and gentlemen, do please continue to submit your questions just using the Q&A tab situated in the right-hand corner of your screen. Just while the team take a few moments to review those questions submitted today, I would like to remind you the recording of the presentation, along with a copy of the slides and the published Q&A, can be accessed by your investor dashboard. As you can see, as you just said, Alex, we have received a number of questions throughout today's presentation, and thank you very much for investors for those. Jaz, if I may just hand back to you and just to click on that Q&A tab, and where appropriate to do so, read out the question, and I will pick up from you at the end. Certainly. I tried to regroup the questions already received in different sections. Starting with games, the first question is on Hello Neighbor 2. What changes have you made or can be made to improve Hello Neighbor 2? Would you consider improving existing game to align it to the 1,000-hour strategy? For example, adding multiplayer, make a map more open world, or what else? With Hello Neighbor 2, it has been quite an interesting challenge in terms of development because we have always anticipated the game to be more open world. That said, in the public domain, there have been some developments within the Hello Neighbor franchise that I cannot disclose the insights of. But if you search for RBO on Steam, you will get an idea of what we are cooking, and it does involve multiplayer, and I can neither confirm or deny if it is part of the Hello Neighbor franchise. Second question on Level Zero: Extraction. Actually, a few questions on LZE. Can you discuss the performance of LZE to date? Why has the momentum faded into launch compared to the beta and the demos? Yeah. The launch has actually been quite the momentum. There was a lot of traction behind it. The challenge with these kind of games is we really wanted to make an asymmetrical game. So you have two classes of players within any match. You have the aliens and the mercenaries. The aliens are fighting the mercenaries, and the mercenaries are also fighting each other. The challenge with that kind of game design is balance, of how do you make it infinitely playable? Because, if you look at the reviews, whenever we do a patch and we do a, it's called a buff, so essentially making one side stronger than the other, then the side that is not made stronger is really upset. We have a clear plan over the next few months of how to use data-driven decisions to turn that around. It is definitely a challenge, and it's also an exciting one. What is the strategy to get players back, again on LZE? The strategy is updates that revolve around major changes to spice up the gameplay. What about the impact of cheaters in the game? Oh, great. If you've done your homework, and I see the person that asked this question has done it, what we did on launch day is we had a press event, where, because of some technicalities, the anti-cheat system was not implemented for the first about 6 hours of the launch day. That is when we got a lot of comments about cheaters. That issue has been fixed. Let me just caveat that. You can never fully fix a cheater problem in an online player versus player game. But right now it is much smaller than it was on launch. Moving on to RAWMEN. How has RAWMEN actually done in terms of revenues, and do you regret going for free to play? I still believe that the strategy of going free to play on the Epic Games Store was the right one. The question is if we can turn the stats around and make sure that users continuously will continue playing. That is an ongoing project that we are still committed to, and I am excited about Epic's marketing capability, which has not been fully realized yet, for when we turn the stats around for that title. Moving on to DUCKSIDE. Is there any cannibalization with Deadside in terms of players? How did you determine the price for DUCKSIDE? Right. DUCKSIDE, as I mentioned, shares the game engine of Deadside. We are actually not seeing cannibalization at all because even though they are in the same genre, the Deadside target audience is much more hardcore, and they come from military-style shooters, while DUCKSIDE actually fixes a few issues that casual players have with hardcore survival shooters. There are two main issues with that. One is the amount of running, because in an open world, if you get taken out by other players and you do not have respawn points around, there is a lot of running and idle time. Some players do enjoy that, and that is a lot of the Deadside audience. While in DUCKSIDE, you fly. That was the thing that we wanted to fix. We wanted to make the character controller really fluid and mobile. The second issue that players have in these style of games is it is called roof camping. When you build a large base, you sit on your roof, you are untouchable, and you just take off players and, well, essentially laugh at them. Again, in DUCKSIDE, since you are able to fly, there is no such thing as roof camping. The crossover is, it is there, but it is also quite minimal in terms of the more hardcore versus the more casual. Players will hate me for calling them casual because the game is still very difficult, but it is more accessible, I would say. The price point for DUCKSIDE, we had a lot of discussions about because what we believe is that a lot of players do not know that they will love this kind of genre. A lot of players in DUCKSIDE have been playing what's called PVE survival games, player versus environment, where there is no player versus player interaction. There is no risk of dying to another player. We determined that a $15 price point would be a really accessible way for players to experience that, which we're seeing with the concurrent player numbers. Also we launched with a launch discount that puts it just below $10, which gives the game a lot more visibility, which I do believe is paying off right now. One to close on Deadside. Is the game engine possibly usable for other games like SAND or else? SAND does use a different game engine because of its mechanics, where you have giant walking bases. But one would be smart to assume that reusing existing technology might be fruitful. Moving on to Streets of Rogue. Does tinyBuild own the IP? Did we ever disclose that? Well, it is an internal studio, so yes. Moving on to Kingmakers. It has become one of the most anticipated titles since reveal. Can you give more color on the upside of the game? The game is one of those rare lightning in a bottle situations where everything went right with the reveal and with the upcoming marketing beats. We are knee-deep, well, probably neck-deep at this point, in the game design to make sure that we deliver something that players, on one hand expect, and on the other hand will be really pleased by. There is a lot of pressure on us with Kingmakers, and I'm personally committed to making sure that the game launches in its best shape and form. Is this an internal studio for Kingmakers or external? Do we own the IP? I will revert the second question to you because I am not sure if we have ever revealed that. That said, it is an external studio that we have a great relationship with that had previously launched a hit game called Road Redemption. Yeah. We haven't disclosed the IP ownership. Moving on to more questions on games, more general questions. How do you ensure you attract the casual, less committed players to a 1,000-hour games? That is a phenomenal question. I think what makes a more casual game great is when it becomes a habit. What I mean by that is when every night you sit down in front of your PC or maybe your portable device, and that is your go-to game to relax. I think the best example we have so far is one of the most recent ones is Drill Core. We see players coming back every night and spending 2, 3, 4, 5 hours of just like one more match. While the game visually appears maybe a little bit more hardcore, through the Steam recommendations engine, we were able to attract an audience that just continues playing it and never actually knew that they would enjoy it so much. For anyone who hasn't tried Drill Core, if you are remotely a gamer, if you like games like the classic Minesweeper or one of my all-time favorites, Kingdom Rush or any tower defense game, please try it. You will love it. Okay, next question. Beyond your announced pipeline of games, are there any other major titles under development? We are always developing titles and doing a lot of them in stealth mode, before revealing them. We have a lot of games in development. Shifting your strategy from building game franchises to building 1,000-hour games seems risky because the success is less predictable. Why have you chosen this focus for new games? It's not a shift in strategy. It's the same strategy. We are building franchises out of games that players spend a lot of time in. Therefore, if a player enjoys the game and continues playing it increases our chances of building a franchise. On the other hand, just for context, building a franchise out of a really expensive game that might win all of the game of the year awards that players play, let's say, for 10 or 20 hours, is much more difficult because the expectations set by that original that players do love, they will finish it, between getting another title that players really enjoy within that franchise is just too much of a risk. This is the less risky move to focus on systems-driven gameplay that players spend a lot of time in. Moving on to multimedia. Can you disclose what tinyBuild is spending on the Kingmakers movie? We cannot disclose that. What I will say is that, we are not interested in funding expensive ventures ourselves. Can you discuss the economics of Welcome to Raven Brooks season two, and possibly also of Kingmakers? I cannot discuss Kingmakers. What I can say is that, the anime series for Hello Neighbor, Welcome to Raven Brooks, has had a very positive effect on our core game sales. So that one is a very strategic investment that we have done that we are seeing is contributing to the franchise as a whole in a very positive way. How significant is the contribution to adjusted EBITDA generated from multimedia? That would be a question to you, Jaz. I don't think we've ever disclosed it. Yes. The multimedia bit is complicated for what Alex just said in terms of cross-pollination to games. Every time we start a multimedia project, we make sure that the multimedia project pays for itself, which means limiting the budget on one side and making sure that we have that positive impact on game sales. We are expanding our channels. For Welcome to Raven Brooks, we added, for example, Amazon, giving us more visibility, and we're looking forward to the launch of season two of Welcome to Raven Brooks. The trailers for season two have been very well-received. We now have a good install base of followers. We're looking forward to that, to see a more direct contribution to adjusted EBITDA. Yeah, just for context on that, if you go to our YouTube, youtube.com/tinybuildgames, and go to the Community tab, you will see the amount of engagement that we get whenever we post any screenshot or GIF, or a trailer for the season two of the animated series. Moving on to more financial questions, starting with a couple of questions on compensation. Why there is not an executive share-based compensation scheme? Maybe I can take that one. We are always working on improving compensation schemes for executive and not. There have been complications, very plainly, in particular, due to the conflict in Ukraine. We think we are close to finding a solution, and there might be an announcement soon. What we have been trying to do internally is to make sure that everybody has regular conversation with their reporting manager, and making sure that compensation is adequate and revised frequently. Another question on compensation is, why not change executive performance based payout to be linked to per-share data? We have considered that, and that is still under consideration. There are drawbacks in moving to per-share data, like there are drawbacks in focusing only on revenues or only on profitability or only on cash. The best performance plan, the best targets are the ones that are fully embraced by everybody, management and the whole company. For that, again, with the messaging internally and the teamwork internally needs to be the focus, more than the actual measure per se. Moving on to financials. What is the outlook for depreciation and amortization in the coming years, given the level of capitalized software development in recent years? Is 2024 a peak year for D&A, or that could increase in 2025? We have spoken very openly about the launch of new high-potential games. High-potential games also means higher budgets, slightly higher budget or higher budgets altogether. There will be an increase in amortization of dev costs in 2025 as new higher potential games launch. When can we expect a return to positive free cash flow generation? Another question. Consensus for this year is looking at around breakeven at the adjusted EBITDA level. It is going to take a little longer to get to positive free cash flow generation. We will have to go through the launch of these games. Bear in mind that towards the last phase of development of a game, you incur a higher cost, that being a localization or QA or the same marketing. Just before launching a bigger game, you are going to have a bigger cash need, which will then be offset by the coming revenues. Next question. How much in software development cost has, on average, been spent on each of the major titles to be released in 2024 and 2025, and how confident are you in achieving good returns on investment?" We have not given out an average number. We have broken out software development costs in past slides, and we might do that in future if there is interest, showing that we were investing in over 30 titles. That is a good metric to bear in mind. Next question. "Where should we expect the gross and operating margins to trend in 2025, given the level of own IP games being released?" We are focusing on IP. We are focusing on improving gross margins, and as a result, operating margins. The primary driver of margins at this point is going to be revenue growth. We need to work on the high potential titles we have very carefully and make sure that the launch is successful. Another question. "Following the sale of several IPs recently, can you discuss the opportunities to unlock value from other assets in the company?" For context, we have sold two IPs in the first half of the year, Surgeon Simulator and TRDS, Totally Reliable Delivery Service. We are always looking at our portfolio. There is nothing I can say, of course, about discussions in the future. If an IP or else does not belong, does not get the right valuation inside the portfolio, a disposal is possible. At this point, I cannot make any further comments. Next question. "How much has the increased discounting of game prices pulled forward sales from future years across the back catalog?" Maybe this one is for you, Alex. Increased discounting of game prices, and if that pulls forward sales from future years. Yeah, that is a very interesting one, because whenever there is a deep discount on a game, what happens is two things. There are existing players who have wishlisted the game and might finally pull the trigger on actually getting it. Then we usually do featured sales for specific titles, so they will show up on a promotion on the Steam front page or on the console front pages, and more people will actually wishlist them for a later date. The discounting is, I understand that the sentiment might be that when you do a deep discount, you kind of pull forward sales. We are not seeing that. We are seeing that games, after a discount, when they perform well and players actually like them, we see their sales at full price actually slightly go higher. This is normal amongst the other publishers that I talk to when you do a deep discount. Another question on back catalog. "How quickly could revenue from existing back catalog sales deteriorate in 2025 and 2026? That's a wild hypothetical. We are seeing that games that players continuously play, that they spend a lot of time in, that they do not have a very significant rate of deterioration in terms of sales. I will caveat that you see that with more linear titles. So games that you can beat in a few hours, enjoy yourself, and that's about it. The thing about those style of games is that when you can watch a full walkthrough of a game on YouTube, for example, or watch a stream, many players feel like they've experienced it by proxy by watching it. Whereas with systems-driven games where you make your own decisions and your gameplay session is actually your own, it feels very unique to you. It doesn't matter that people have watched a walkthrough or a stream, people will still want to experience those emotions for themselves. I guess that's the core difference between linear games and highly replayable titles. What proportion of revenues does merchandising make up? I am not sure if we ever disclosed that, Jaz. Do you want to disclose it? It is minor. It is a very small percentage. "Will you consider putting our annual multi-year guidance for key financial statements line items?" We would consider that if there was a clear advantage. The dilemma we are facing internally is setting any target, that being revenues, adjusted EBITDA, cash, or else, could actually force the strategy into the right direction or the wrong direction for the long term. For that, what we are focusing is value creation for the long term. The fact that Alex Nichiporchik is majority shareholder is the ultimate guarantee that that is the ultimate focus of the company. Another question, are there any games that have significantly outsold on Nintendo's platform versus other distribution platforms? Yes. That is about as much as I can say. Can you comment on which one are they? No. That would be commercially sensitive, and there are games that sell very well on Switch compared to other platforms. What cash position would you like to return the business to and remain above over the next few years? That's a great question. What we're trying to achieve in terms of cash position is a balance of revenues and investments. We have, as we sit now, a bunch of new investment opportunities, very interesting, that we have not pulled the trigger on yet, because we want to maintain a very strong financial position. There is no exact number. It will depend on the time to ship the game for every single project, on the current trend of revenues, on the current trend of the industry. Right now, we feel like we have reestablished a strong financial position. As I mentioned, we will still use cash in the second half of the year, so we go a little lower. The consensus is at low single digit for a full year, for cash at the end of December 2024. But we want to maintain a few millions buffer, and more over the long term. Next question, in terms of the amount of development CapEx invested, what does your game pipeline look like for 2025 in comparison to the game release planned for 2024? I can take this one. Yeah, please. Yeah. In terms of development CapEx, we continue to invest to create a smooth flow of games. We are also investing now in games which have not been announced and in games that we will release far in the future, possibly even after 2025. We haven't disclosed exactly how much. There is a balance, and as I said, games that are near launch consume more cash, because there are more things to do, including porting, localization, QA, and marketing. How many projects do we currently have in development, and what's the average budget per project? Similar question. We have launched so far in the year 10 games. So you will look at us looking for a similar number of projects to add to the portfolio to maintain a nice flow of games in the future. There will be different budgets, low or high. For clarity, when we say higher potential games or higher budget games, we refer to games with a budget over $1 million. We will continue to have lower budget games because they represent a very interesting option, and they typically have an interesting vibe that resonates with a lot of our audience. Another question, do you see budget for future new IP titles coming down in relation to your recent and upcoming releases? Not necessarily. I don't think Alex, we can see a direction up or down in terms of the average budget. We will again choose game by game, situation by situation. Yeah, I would say that the industry had a very sobering slap on its face, in terms of over-investment during the past few years, especially during the pandemic. There's no rule of thumb on the budgets. I'm moving to questions which have just come out during the call, so apologies if we will be jumping left and right. Could you please explain how the 946 bad debt occurred in H1? The technicalities of that is revenues which we were expecting, which we realized we will not be able to collect anymore. Which item in the cash flow statement contains the $2 million payment for the legal settlement with Steve Escalante? I'll take that offline. Your chairman said in the last annual report, in the next 12 to 36 months, there will be more space for tinyBuild games. Was this in reference to the start of 2024 or publication date of the report? Are you in a good position to profit for the next two or three years when you have the investments in new games compared to H1 2023? Okay, I will take a part of that question. I think the major thing that has changed for us in terms of company structure is that we are not going in the blind, in terms of spending a lot of time in developing game and then revealing it. If you go to tinybuild.com, there is a blog section where I talk about our tinyBuild Direct, how we announced a whole bunch of games during it in May, and how we, I won't say dominate, but we are really, really visible during the Steam Summer Next Fest. It will give you an idea how we approach investments and how we test things as early as possible. For those things that work, we will continue to invest and maybe invest more, and for things that don't work, we change direction. Another question from Jack. Could you please elaborate on the one-off charges in the cash flow operations not separately listed in the earnings release? At the end of last year or the beginning of this year, we had some one-off charges relating, for example, to a reorganization, the cost action plan. We have decided that the materiality of them and the situation did not grant that status of exceptional charges. We have listed them as simply recurring charges. Another question coming from Shaheen. Considering the success you had with Drill Core and DUCKSIDE, while less than 6 months passed between announcement and release, are you planning to take a similar approach with new games? Alex? We are taking a similar approach with some of the new titles. Keep in mind that these two games are exceptional because their development cycle was also very short. DUCKSIDE, because of reusing existing technology from Deadside, has taken about 10 months from inception to launch, and a slightly longer timeline, still very short, was Drill Core. So here, these were just unique situations that we have been building towards facilitating with our internal studios. When we see a great idea, we see a great prototype, and we can immediately jump on rapid development of it, knowing all of the variables, and then double verifying or double checking that they click with the audience during early play tests. What I will tell you is that we do love play testing as early as possible, and we do it a lot publicly, and we also do it a lot privately. That is where a lot of our decision-making comes from. Question from Shaheen. As someone who does not play survival games, can you explain what makes Deadside different from games like Rust? Right. Games like Rust are very chaotic, and I love them, because you meet a lot of other players and you have a lot of interaction with them, not all so positive. That is what makes it fun. In games like Deadside, it is for a slightly older audience that like their simulation, their military style genre. This is what we have been working on a lot with the community, is to figure out what upcoming features we focus on. If you read through the Steam posts on Deadside or join the Discord, you will get what I mean. We have a lot of discourse and a lot of communication with that community, which is very particular. If you do not play survival games that are player versus player, if you download any game like Deadside or Rust or Ark: Survival Evolved, et cetera, I highly recommend you join what is called PVE servers, where other players cannot kill you. That is a great way to learn the game. Because otherwise, if you are trying to understand the genre and you go to a traditional player versus player server, you may not have a good time, but players really love it, especially those that grew up playing games like this. What are the plans for Pigeon Simulator? We, right now, do not disclose the plans for that specific IP. Would you still sign new games where you don't control the IP? For strategic reasons, that is quite possible, and we are doing that. Strategic reasons means that we may want to get into a new genre, or we may want to continue working with a developer or something along those lines where we know that the long-term risk of not owning the IP is justified for a really good game launch. Can you please advise your commitment to remaining a listed entity, or do you think we're finally seeing the light at the end of the tunnel? I have invested $10 million of my own funds to remain listed earlier this year, so I'm pretty committed. What is the strategy to get the stock price on track? To launch really good games, to communicate with investors really transparently, and to regain the trust in the markets as the industry rebounds. What is the reasoning behind releasing Welcome to Raven Brooks Season 2 so late around Halloween, and why not release it as soon as possible? Releasing it as soon as possible would be an option. However, the thematic of releasing it around Halloween, or starting to release episodes around Halloween, makes more sense in the spirit of the season. Also, the later we go into the year, in most places, the weather gets worse. So fans are much more likely to tune into our show. What is your medium-term, one or two-year target for sales revenue levels and EBITDA margins or other applicable metrics? We look at 2024 as the year of reset, where we have, if you want to see the trough in platform deals. We have, as I said, seen the underlying revenues from actual game sales pretty much flat in the first half. So this is for us, a starting point. We have the best pipeline we've ever had. If you look at the number of followers or Alex post on the 3 million wish lists we added in June, it gives you a very strong idea of how strong, how big is the potential of the current pipeline. So with that should come revenue increase, and with that should come margin expansion. EBITDA breakeven for this year and an improvement for next year is what we're targeting. What is behind your focus on PC first when you launch games? Oh, right. A lot of our games that we launched this year, especially the strategic ones, are in early access, which means that we can rapidly develop it and get patches out. The reason to launch on PC first is because there is a little bit less overhead in terms of, it's called certification for consoles. First, you need to optimize the technology behind the game to make sure that it runs on consoles, and second, you need to have that technology meet certain certification requirements for the consoles. So doing PC first is more rapid iteration, and going forward, the idea is that we want our games to be available on every platform possible. And we're just being very strategic with allocating resources to where it makes sense. Okay. And final question, on a lighter tone. What game from tinyBuild have you most enjoyed playing in the last few months? Full disclosure, I'm sitting in a brace right here. My leg is covered in, had some knee surgery that was long overdue. Not an emergency, but what I've been playing the crap out of, pardon my French, is Drill Core. If you have a Steam Deck or if any of your kids have a Steam Deck, try it. Have someone explain. Well, the tutorial is actually pretty good, so you will get the hang of it. I've been playing Drill Core like crazy, and when I can sit in front of my PC, I've been playing Deadside. Both of those titles, I don't remember the last time I've spent hundreds of hours in our own games, probably as of Deadside. So please check those out if you're gamers and you're listening to us. Once you get it, once you understand what I mean by the 1,000-hour game and you're tomorrow night or on the weekend, you're going like, "Oh, I'm going to play one more round of Drill Core," and then you've had seven rounds and it's 1:00 A.M., you will know exactly what I mean. This is a really exciting time for the company because we finally figured out what the recipe is. What is the idea of creating long-term sustainable franchises with thousands of hours spent by players in them? It is real, it is here, and I'm really excited about and also fully committed. That was the last question. Paul? Okay. Well, we can also say some anecdotes while we wait in silence here. That said, I think the core of this year has been a real reset for us. I'm just going to do a closing statement while we wait up for Paul. It's been extremely difficult with the whole industry being in turmoil. I do believe that we've actually gone past it. I do believe that the bottom of the games industry has been around April, May, when we've seen a lot of game delays, we've seen a lot of over-investment into the industry not pay off. Fortunately for us, going through the extremely difficult period of the beginning of the year, we were able to get ahead of it and refocus on things that work and use very data-driven decisions for investments where we allocate those investments. I'm really excited about the industry, and I am committed to shipping some really, really good games. Fantastic. Jaz, Alex, thanks indeed for updating investors today. Ladies and gentlemen, please do continue to stay on just while we redirect you to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete and it is greatly appreciated by the company. On behalf of tinyBuild and Jaz and Alex, many thanks indeed for attending today's presentation. Thanks, everyone. Thank you.