Devolver Digital FY2023 H1 Investor Presentation
Download PDFSep, 2023 INVESTOR PRESENTATION 1H 2023 RESULTS
Devolver DigitalInvestor Presentation2Devolver DigitalInvestor Presentation2SUMMARY•Prioritising quality to unlock long-term value.•Financial performance reflects unusually quiet 1H release schedule, as expected.•Seven releases scheduled for 2H 2023 including major titles Wizard With A Gunand The Talos Principle 2, as well as Gunbrella, KarmaZooand Hellboy: Web of Wyrd.•On track for EBITDA break-even in 2023 and return to growth in 2024.•Healthy pipeline of more than 30 new titles due for release in the next three years.•Balance sheet strength: wellpositioned to invest in long-term growth.•A taster of things to come:roll
Devolver DigitalInvestor Presentation3Devolver DigitalInvestor Presentation3REVENUE$43.9m-17% vs 1H 2022Terra Nil critically acclaimed82Meta CriticEBITDA2($3.5m)1H 2022: $6.8mGROSS PROFIT1$9.4m-51%vs 1H 2022TITLES RELEASED4Average Metacritic Score: 76CASH BALANCE$64.8mAfter c.$7M EBT Share PurchaseNote: 1) Normalised Gross Profit; 2) Normalised Adjusted EBITDA1H 2023 HIGHLIGHTSx3 Honourable MentionsG4C Most Innovative Game Award
Devolver DigitalInvestor Presentation4Devolver DigitalInvestor Presentation42023 TITLE RELEASESNote: Title scores calculated as simple average of applicable platform scores; half year scores calculated as simple average of titlesMetacritic ScoreJanFebMarAprMayJunJulAugSepOctNovDecN/A75871H 2023 Metacritic Average Score: 768271Further Q4 ‘23 releases to be announced802023 Year-to-date Metacritic Average Score: 79
Devolver DigitalInvestor Presentation5Devolver DigitalInvestor Presentation5FOCUS ON OPERATIONS –STRATEGIC DECISIONS•Strong commercial rationale to move 5 titles out of 2023.•The titles moved are: Plucky Squire, Anger Foot, Stick it to the Stickman, Pepper Grinder and Skate Story.•Adding more time can be the difference between a ‘one-time’ release event, and a potential franchise IP with significant longevity.•Cult of the Lamb is an excellent example of the success of this strategy.Game Release Dates•Forecasting methodology change – We will no longer forecast subscription deals. Why? •Overall platform deals across the market appear to have peaked in 2022. •Digestion period for content buying likely to continue for at least the next few years. •For Devolver, likely only c.10% of 2023 revenues, down from c.22% in 2022. These lower levels are expected for the next few years. •Subscription deals – This year we have passed on certain platform deals that we felt undervalued the titles.Subscription Deals
Devolver DigitalInvestor Presentation6Devolver DigitalInvestor Presentation6Good Shepherd – Publisher Subsidiary•New General Manager has right-sized the business.•Te a m s i z e r e d u c e d , m a n a g e m e n t t e a m n o w o n West Coast USA.•On track for 4Q positive EBITDA, ahead of schedule.•Pending new releases: Hellboy: Web of Wyrd and DiceFolk.Re-set•Licensed IP on an Indie budget.•Continue to target Hollywood licensed IP.•In addition, announced first ever partnership for Rebellion, owner of ”2000 AD” franchise, to develop games based on their IP catalogue. •Rebellion titles include Judge Dredd, Rogue Trooper, and many others.New focus
Devolver DigitalInvestor Presentation7Devolver DigitalInvestor Presentation7Back Catalogue – 1H 2023: Life-Cycle ActivityPorting/Content Updates -12 Games Launched on New Platforms in 1H 2023: Tre k t o Yo m iSwitchShadow Warrior 3 Definitive EditionPS5 & Xbox S/XTentacularPSVR2McPixel3PS4, PS5 & MobileGornPSVR2InscryptionXbox One & Xbox S/XLoop HeroXbox One & Xbox S/XCarrionPS5Weird West Definitive EditionPS5 & Xbox S/XMinitFun RacerSwitchBleak Sword DXPC & SwitchTransport Fever 2 PS4, PS5, Xbox One & Xbox S/X
Devolver DigitalInvestor Presentation8Devolver DigitalInvestor Presentation8Back Catalogue – Case Studies: Lengthening the Life-CycleOngoing Content Updates and Sales activities:Cult of the Lamb – Relics Of the Old Faith•Strategy: Repeated DLCs layered on top of current momentum•2022 original release, lifetime revenue >$50m•2023 April: DLC released for c$0.3m cost•Result: +$1m increased sales in release month, 90% up on run-rateBroforce – Forever•Strategy: Optimise older titles (flex high margins, no amortization, minimal marketing) •2015 original release, lifetime revenue >$15m•2023 August: DLC released for c$0.1m cost •Result: >100% up on sales run-rate since the July announcement Pikuniku•Strategy: Expand sales in new markets•2019 original release, lifetime revenue >$4m•Growing sales team in China, title picked up by key streamers alongside successful discounting strategy•Result: >105% increase in 1H YoY salesJan-23Fe b-2 3Mar-23Ap r- 23May-23Jun-23Jul-23Au g- 23Cult of the Lamb SalesJan-23Fe b-2 3Mar-23Ap r- 23May-23Jun-23Jul-23Au g- 23BroforceSalesDLCReleaseDLCRelease1H FY221H FY23PikunikuSales105% YoY
Devolver DigitalInvestor Presentation9Devolver DigitalInvestor Presentation960%62%61%64%45%64%87%40%38%39%36%55%36%13%$0 m$2 0m$4 0m$6 0m$8 0m$1 00 m$1 20 m$1 40 m$1 60 m20 1820 1920 2020 2120 22H1 2 022H1 2 023BACK CATALOGUE STRENGTHNote: Excludes Fall Guys | 2018-2020 calculated on a cash accounting basis, 2021-2023 on an accruals basis | # releases excludes subsidiary titles released prior to acquisition•Back catalogue growth of 10% in 1H 2023 –primarily driven by FY22 release Cult of the Lamb and Inscryption.•87% of total revenues in 1H 2023 came from back catalogue, due to less new releases relative to previous periods.•Back Catalogue levers:―Porting to new platforms, including mobile―Localisation in other languages―Capitalising on sequel and franchise release momentum―Platform bundle agreements―Publisher sales and discountingBack CatalogueNew Titles (front catalogue)Back CatalogueGame Sales revenue mix#Title Releases (cumulative)6579978910910411310% YoY
Devolver DigitalInvestor Presentation10Devolver DigitalInvestor Presentation1081%74%78%69%72%77%78%19%26%22%31%28%23%22%$0 m$1 0m$2 0m$3 0m$4 0m$5 0m$6 0m$7 0m20 1820 1920 2020 2120 22H1 20 22H1 20 2310% YoY16% CAGREVERGREEN BACK CATALOGUE TITLESBack Catalogue revenue mixTier 2 Back Catalogue (Revenue <$1m)Tier 1 Back Catalogue (Revenue $1m+)Tier 1 Back Catalogue Titles#•Consistent and strong increase in total dollar quantumof back catalogue sales, year over year.•Tier 1 titles (>US$1 million per year in sales) account for over 75% of sales. In FY23 1H there were 19 Tier 1 titles (annualized 1H performance).•Tier 2 titles (
Devolver DigitalInvestor Presentation15Devolver DigitalInvestor Presentation15FINANCIALS
Devolver DigitalInvestor Presentation16Devolver DigitalInvestor Presentation16PROFIT & LOSS –STATUTORY REPORTINGUS$’mFY20FY21FY221H 22 1H 23Net revenue212.7 98.2 134.6 53.0 43.9 Cost of sales(121.0) (58.9) (89.4) (34.7) (33.6) Impairment of capitalised development cost–(22.8) -(0.9)Gross profit91.7 39.2 22.5 18.3 9.4Gross margin43.1%40.0%16.7%34.5%21.4%Operating expenses (13.9) (105.3) (50.4) (27.9) (18.4) Impairment of goodwill & IP–(70.0) –Other income / (loss)-116.1 (0.5) -(0.6)Operating profit / (loss)77.2 50.0 (98.5) (9.6) (9.6) Pre-tax profit/(loss)177.2 50.0 (98.8) (11.6) (8.6) Ta x a t i o n(13.1) (19.4) 7.3 (5.0) (1.4) Profit/ (Loss) for the period64.130.6 (91.5) (16.6) (10.1) Normalised Adjusted EBITDA15.8 25.7 13.9 6.8 (3.5) Adjusted EBITDA margin22.2%26.2%10.3%12.9%(7.9%)Basic earnings/(loss) per share ($)0.1830.081 (0.206) (0.037) (0.023) Diluted earnings/(loss) per share ($)0.1740.075 (0.206) (0.037) (0.023)••Quiet half with only 4 releases (only one of size) resulted in a 17% revenue fall yoy.•Royalty outpayments within COS were flat –reflecting higher relative royalties in 1H 2023 on back catalogue titles like COTL and Inscryption. •Gross margin decline a reflection of lower revenues coupled with higher royalty outpayments.•34% fall in overall operating expenses on back of reduced Share Based Payments. •Cash operating expenses controlled despite headcount rises and inflationary pressures. •EBITDA loss a flow through from the lower Gross Profit number in 1H 2023.COMMENTARYNote: 1) operating profit / (loss) less FX and interest
Devolver DigitalInvestor Presentation17Devolver DigitalInvestor Presentation17US$’mFY20FY21FY221H 221H 23Operating activities Cash inflow/ (outflow) from operations78.0 56.2 (100.8)(14.8)(7.4)Amortisation & depreciation7.0 9.3 112.4 10.9 7.9 Share based payments2.7 55.2 19.6 11.5 3.9 Interest Payable—-0.2Net taxation payable(15.4)(21.8)(2.0)-(0.4)Gain on sale of Publishing Rights & IP-(115.6)—Net cashflow from operating activities 72.3 (16.7)29.2 7.6 4.3 Investing activities Investment in software development intangibles (22.2)(31.7)(32.6)(15.6)(12.6)(Purchase)/Sale of Goodwill, Publishing Rights & IP-127.5 —Acquisitions (net of cash acquired)(3.3)(34.1)–(0.6)Other 0.1 -(0.1)(0.0)-Net cashflow from investing activities (25.4)61.7 (32.7)(15.6)(13.2)Financing activities Net change in borrowings/others 0.2 (0.1)-(0.5)-Share capital issuance(6.0)49.4 0.8 0.40.0 Net cash settlement of stock options–(2.5)(1.9)(7.2)Repayment of Shareholder Loan-(20.8)—Dividend (10.0)(30.0)—Interest (Paid)/Received–0.4-0.9 Net cashflow from financing activities (15.8)(1.5)(1.4)(2.0)(6.2) Net cashflow31.1 43.4 (4.9)(10.1)(15.1) Foreign Exchange movements-(0.7)(1.8)(2.0)0.4Closing cash43.5 86.2 79.5 74.2 64.8 •Operating cashflow lower than prior-year period due to quiet half of title releases.•1H 2023 investment into software development of $13.2m down from 1H 2022, reflecting halt of spending on cancelled games from end 2022 onwards. •FY20 & FY21 investment activities included material investments into the purchase of intellectual property and acquisitions.•Net cash outflows from financing in 1H 2023 due to the c. $7m spent on market purchase of shares for the Employee Benefit Trust. •Cash at30 June 2023 amounted to $64.8 million.CASH FLOWCOMMENTARY
Devolver DigitalInvestor Presentation18Devolver DigitalInvestor Presentation18••The Group’s net asset position was $158.9 million at 30 June 2023.―Capitalised development costs lower than prior-year period due to impairment of underperforming and cancelled titles at end 2022.―IP and Goodwill balances also reduced year-over-year due to impairments.―Cash holdings of US$64.8 million after 1H development expense of US$13.6 million and c.$7 million in market purchase of shares for EBT.•Accounts payable and accounts receivable largely balanced throughout the year, dependent on cash collection timing.US$’mFY20FY21FY221H 221H 23Non-Current Assets Intellectual property 23.3 53.4 25.8 49.624.7Capitalised developments costs 28.3 44.4 40.1 53.047.6Goodwill0.2 66.8 19.2 66.819.4Deferred tax assets and others1.7 2.6 11.2 0.711.1To t a l N o n-Current Assets 53.4 167.3 96.3 170.2102.9Current Assets Cash in bank 43.5 86.2 79.5 74.264.8ARs, prepaid expenses & others16.2 19.4 16.8 19.512.6Prepaid Income tax-8.5 2.2 4.73.9To t a l C u r r e n t A s s e t s 59.7 114.1 98.5 98.381.2TOTAL ASSETS113.2 281.4 194.8 268.5184.2Current Liabilities Trade, other payables & accrued expenses18.3 17.8 19.1 14.017.7Deferred revenue 0.6 4.5 2.1 5.02.4Amounts due to shareholders20.8 —-Current Tax Payable & Other1.0 1.4 0.3-4.2To t a l C u r r e n t L i a b i l i t i e s 40.7 23.8 21.5 19.024.2Non-Current Liabilities 0.9 10.9 1.0 10.91.0TOTAL LIABILITIES41.7 34.6 22.5 29.925.3TOTAL EQUITY71.5 246.8 172.3 238.6158.9TOTAL EQUITY & LIABILITIES113.2 281.4 194.8 268.5184.2BALANCE SHEETCOMMENTARY
Devolver DigitalInvestor Presentation19Devolver DigitalInvestor Presentation19OPERATING EXPENSES – TRENDSUS$’mFY21FY221H 221H 23Forward TrendPayroll9.3 13.6 6.98.1Slow riseProfessional fees1.6 4.6 2.41.5Steady fallSubtotal payroll & prof. fees10.918.29.39.6Slow riseTrave l a n d e nte r ta i n m e nt0.3 0.8 0.30.6SteadyInsurance0.2 0.9 0.50.3Slow fallAdmin, office and others4.83.2 1.82.1SteadyTo t a l N o r m a l i s e d OpEx16.223.112.012.6SteadyStock compensation expense55.2 19.6 11.53.9 Steady fallAmortisation of IP and depreciation of PPE5.7 5.5 3.81.9 SteadyExceptional costs28.1 2.2 0.5-N/AImpairments –goodwill/IP-70.0–N/ATo t a l S t a t u t o r y OpEx105.3120.427.918.4Slow decline••5% increase in total normalised operating expenses despite considerable inflationary pressures and headcount rises. •Only 3% rise in combined payroll and professional fees despite a 10% increase in Group headcount year-on-year due to acquisitions and bringing expertise in-house (finance, legal and QA).•Recurrent professional fees relate to audit and tax costs, legal fees, non-executive director fees, NOMAD and Exchange fees etc.•SBP expenses continue to fall as 3-year vesting of pre-IPO options concludes in 1H 2024. Replaced by lower LTIP grant cost going forward.Note: Subtotals may not cast due to roundingCOMMENTARY
Devolver DigitalInvestor Presentation20Devolver DigitalInvestor Presentation20SUMMARYQuiet release schedule:4 titles, only 1 of size, versus 7 in 1H 2022.Commercial decisions: Moved titles into 2024 and turned-down sub-par platform deals.Maintained high Metacritic scores: 76 average in 1H 2023, 79 average year-to-date.Total operating expenses falling: 34% lower than 1H 2022, cash opexunder control.1H 2023 RECAPBalance sheet strength: well positioned to invest in long-term growth.Healthy pipeline: 30+ titles for 2024-2026.Building for stronger 2024 and 2025.OUTLOOK
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