Devolver Digital, Inc. — Earnings Release 2021

Apr 4, 2022

National Storage Mechanism | Additional information

RNS Number : 1077H

Devolver Digital, Inc.

04 April 2022

4th April 2022

Devolver Digital, Inc.

("Devolver Digital", "Devolver" or the "Company" and the Company together with all of its subsidiary undertakings is the "Group")

Preliminary unaudited results for the year ended 31 December 2021

Diversified revenues drive strong performance in 2021 

Devolver Digital, an award-winning digital publisher and developer of independent ("indie") video games, announces its preliminary unaudited results for the year ended 31st December, 2021. All figures relate to this period unless otherwise stated.

Financial highlights

·   Strong performance in maiden listed year.

o  Strong normalised revenue growth to US$98.2 million (2020: US$71.1 million), up 38% year-on-year

o  2021 growth driven by robust back catalogue sales and successful release of 8 new titles

o  Rapid growth in Normalised Adjusted EBITDA to US$25.7 million (2020: US$15.8 million), up 63% year-on-year

·   Steady improvement in margins

o  Gross margins rose to 40% (2020: 32%)

o  Normalised Adjusted EBITDA margins increased to 26% (2020: 22%)

o  Margin increases reflect high back-catalogue revenues and new title improvements

·   Strong balance sheet supports growth strategy

o  Net cash of US$86.2 million at year end, following a successful IPO in November 2021 and strong internal cash generation.

o  Sale of publishing rights to Fall Guys further bolstered balance sheet

Strategic highlights

·   Successful IPO supports investment in our unique culture and proven strategy

o  Focus on continued strong core organic growth

o  Partnering with developers

o  Progressing our pipeline of fun-filled games

o  Supporting our back catalogue of interesting and unusual games

·   Excellent momentum

o  Evergreen business model - back catalogue of over 90 titles

o  Bringing the fun - 8 new titles released in 2021 (2020: 10) across varied platforms and regions

o  Diversified revenues - back catalogue revenue of 70% (2020: 61%)

·   Industry recognition  

o  2021 Publisher of the Year award by GamesIndustry.biz

o  Numerous game awards and nominations - Death's Door, Loop Hero and Inscryption

o  Critical acclaim: 77 average Metacritic rating for our titles released in 2021 (2020: 75)

·   Senior industry experts added to our Board

o  Kate Marsh, Janet Astall, Jo Goodson and Jeffrey Ko appointed as Independent Non-executive Directors, adding significant experience and know-how to our Board

Current trading and outlook

·    Healthy pipeline

o Diversified pipeline in terms of titles, developers, platforms and geography

o On-track to release 10-15 new titles in 2022, including March 2022 releases of own-IP Shadow Warrior 3, Tentacular and Weird West

o Total development pipeline of more than 30 titles to 2023 and beyond

·    Confident of further progress in 2022

o Momentum, extensive back catalogue, a clear strategy and solid pipeline

Harry Miller, Executive Chairman of Devolver, said:

"2021 was a special year for Devolver Digital, culminating in our IPO in November. I'd like to thank our talented people and the unique culture they have built over the past 13 years. Our culture explains why many of the most creative developers trust us to publish their titles. It also explains our ability to recruit the most qualified and engaged people to our team. I am thrilled that this is recognised in the industry by Devolver's numerous awards and nominations, including Publisher of the Year 2021, and prestigious awards for titles such as Loop Hero, Inscryption and Death's Door."

Douglas Morin, Chief Executive Officer of Devolver Digital, said:

"Devolver Digital has had an outstanding year. Congratulations to the team, the developers and our partners. We have a healthy and diverse pipeline in terms of titles, developers, platforms and geography for 2022 and beyond. We have good momentum, a clear and proven strategy and an outstanding team with a unique culture.  Combined, these support our confidence in further progress in 2022." 

Enquiries:

Devolver Digital, Inc. Harry Miller, Executive Chairman Douglas Morin, Chief Executive Officer Daniel Widdicombe, Chief Financial Officer	[email protected]
Zeus (Nominated Adviser and Sole Broker) Richard Darlington, Daniel Harris (Investment Banking) Ben Robertson (Equity Capital Markets)	+44 (0)20 3829 5000
FTI Consulting (Financial PR) Jamie Ricketts / Dwight Burden / Valerija Cymbal / Usama Ali	[email protected] +44 (0)20 3727 1000

Devolver Digital overview

Devolver Digital is an award-winning video games publisher in the indie games space with a balanced portfolio of third-party and own-IP. The Company has an emphasis on premium games and has a back catalogue of more than 90 titles, with more than 30 titles in the pipeline. Through recent acquisitions, Devolver now has its own-IP franchises, in-house studios developing first-party IP and two publishing brands. The Company is registered in Wilmington, Delaware, USA.

Chair statement

A unique culture

2021 was a special year for Devolver Digital. None of our success - great performance, industry recognition in awards and nominations, exciting talent joining us, and our IPO at the end of the year - would have been possible without our talented people and the unique culture they have built in the past thirteen years. 

I know from personal experience that all of us at Devolver Digital are passionate about bringing the most interesting and unusual video games to the forefront. It is a hobby and a passion rather than a job. Devolver Digital is a 'flat' organisation that gives talented people the right environment to innovate, create and partner with developers and platforms.

This culture is deep within the DNA of Devolver Digital. It hasn't changed since 2009, when five business partners - including Rick Stults, Graeme Struthers, Nigel Lowrie, Mike Wilson, and me - met in Austin, Texas with a simple idea. We wanted to build a video games publisher that focussed on the developer foremost, and with a directive to work with the most creative, and innovative developers across the globe. To never forget why we came to this industry in the first place. To treat our partners with respect and compassion, along with our own good dose of hard work and our own creativity. We feel that this ethos is why we have enjoyed such long and strong relationships with the developers and other partners we work with.

Focus on organic growth

Organic growth is our primary driver. Our IPO in November 2021 was the right move for our strategy to drive organic growth, delivering a stronger platform for 2022 and in future. Devolver Digital will continue to invest in bringing even more wonderful games to the forefront, retaining our culture and keeping and hiring the best talent. We will also stay true to our values and become a better partner for developers to work with for fun-filled games.

It is in this context that I am proud to present Devolver Digital's maiden full year preliminary unaudited results as a public company. Being a public company has given liquidity to the team at Devolver Digital, all of whom have equity exposure. We begin life as a public company in a position of financial strength, with an excellent balance sheet and a net cash position. As a quoted company we will continue to operate with the high level of transparency that we know our developers, platforms, gamers, partners and investors value.

Board changes and corporate governance

Our executive management team was strengthened in 2021 by the appointment of Douglas Morin as CEO in August 2021, having joined Devolver in 2020. Our CFO, Daniel Widdicombe, joined in May 2021 and both Douglas and Daniel joined the Board as Executive Directors in July 2021. Douglas has a wealth of experience with over 25 years of experience in leadership positions and in equity capital markets.  Dan has more than 30 years of finance experience, many of which were spent in senior roles in listed businesses.

I am very pleased to be joined by Kate Marsh, Janet Astall, Jo Goodson and Jeff Ko as Non-Executive Directors. Devolver Digital now has a board with significant breadth and depth in terms of knowledge, experience and geography.  Kate has more than 30 years of experience in digital and media businesses as a senior leader and non-executive director. Janet has more than 20 years of experience working in finance, mainly for consumer-facing technology businesses. Jo is an accomplished tech entrepreneur with more than 25 years of experience.  Jeff specialises in the video games sector and has held a number of leadership roles in Asian companies and federations.

The Board of Devolver Digital is committed to act in good faith to promote the success of the company for the benefit of shareholders and a wide range of stakeholders.

Summary

Devolver Digital begins 2022 with excellent momentum. We have a proven strategy that has delivered success over a long period. The Board believes that we are well positioned for future success and we look forward to reporting on our progress in the year ahead.

Harry Miller

Executive Chairman

4th April 2022

CEO report

The "developers' publisher"

Devolver Digital is an award-winning digital video games publisher and developer with one of the most recognisable labels in the industry.

Built by highly-experienced industry veterans with deep, wide-ranging relationships in the gaming sector, Devolver Digital has a back catalogue of approximately 90 games, including numerous indie cult classics.

We have a proven model to curate and publish high-quality games. We do this by leveraging our renowned brand to enhance the discoverability of partner studios and their games.  Devolver Digital boosts visibility of titles through our established global network of partners and platforms and by targeting gamers through original and focused marketing. Devolver Digital helps developers to scale through its know-how in critical areas, such as operations and cost management; game production; and development and digital distribution strategy. Devolver Digital is the highest-rated indie publisher of scale on Metacritic and continues to rank at the top level in Metacritic's annual surveys. In 2021, Devolver averaged a 77 Metacritic score, up from 75 in 2020. Many of our most successful titles continue to generate consistent revenues many years after launch.

IPO to support our proven strategy

Our IPO in November 2021 was the right choice for us to ensure our continued growth and to support even more wonderful games, while preserving our unique culture. The IPO will support investment in talent and our clear and proven organic growth strategy, focused on:

·    Partnering with developers, both with existing relationships and forging new partnerships.

·    Building out our pipeline of fun-filled games

·    Supporting our back catalogue of interesting and unusual games

In addition, the IPO gives us a platform to enhance our reputation as an ethical publisher, and provides us with the means to use shares as consideration for acquisitions where we see a cultural fit.

Momentum and industry recognition

Devolver Digital has an excellent financial track record, with a normalised revenue Compound Annual Growth Rate ("CAGR") of 33% between 2018 and 2021. Our recent IPO makes our performance even more visible to our staff, partners and investors. I am delighted to announce Devolver Digital performed strongly once again in 2021, with US$98.2 million of normalised revenue, and US$25.7 million of Normalised Adjusted EBITDA, growing at 38% and 63% respectively. Devolver Digital has also shown excellent growth in gross profit margins which have reached 40%.

We are committed to our promise to keep bringing the fun, with the release of 8 new titles in 2021 including Death's Door, Inscryption, Loop Hero and Olija across a variety of platforms and geographies. These titles have performed extremely well since release, most notably Inscryption which sold nearly 1 million units in the short period since its release in October 2021 up to the end of December 2021. 

Devolver Digital titles were recognised by multiple awards and award nominations in 2021, including the British Academy Games Awards (best debut game award - Carrion), gamesradar+ (Best Games of 2021 awards - Death's Door, Loop Hero and Boomerang X) and The Game Awards (Best Indie Game nominations - Death's Door, Inscryption and Loop Hero). In 2022, Devolver titles have been nominated for the upcoming Game Developers Choice Awards (Game of the Year nomination - Inscryption) and Independent Games Festival Awards (Inscryption, Loop Hero and Death's Door) reflecting high Metacritic and OpenCritic ratings with an average Metascore of 77 in 2021 for Devolver titles released during the year.

Devolver Digital itself was named as Publisher of the Year by Shack News, following recognition as Publisher of the Year 2021 in the Gamesindustry.biz Indie Publishing Awards.

Our model

Devolver Digital has an attractive business model. This is based on a range of factors including the longevity and strength of our distributor relationships, the diversified nature of our revenues and a track record of growth.

Devolver Digital's back catalogue of over 90 titles, including numerous indie cult classics, supports highly diversified revenues with minimal reliance on any one title release. Back catalogue revenue accounted for 70% of our revenues in 2021. 

Our back catalogue includes all titles released in or prior to the last financial year (2021 or earlier). As of 31st December 2021, the back catalogue consists of over 90 titles. From 2018 to 2021, Devolver Digital has achieved an average normalised back catalogue revenue contribution of 63%, providing a strong and stable contribution to overall sales. This contribution has increased from 42% in 2015 to 70% in 2021.

Devolver Digital has partnered with more than 60 developers to publish over 90 indie games since 2009, primarily through third-party publishing agreements. More recently, the Group has acquired standalone IP and long-term development partners, which has brought franchises in-house.

Third-party partnerships have been essential to Devolver Digital's success to-date, and still form the majority of Devolver Digital's published titles. However, Devolver Digital has also acquired five development studios in the past 18 months, increasing the Company's own-IP profile. Management considers that there are advantages to having a balanced business model, both allowing the Group to work with the newest and most innovative indie developers as their publisher, as well as owning and developing its in-house stable of games.

Titles are generally either fully or partially funded by Devolver Digital. In limited cases, funding is not provided for development if the studio does not require it. Funding is structured in varying amounts through developer advances pursuant to a milestone plan. Generally, once costs are recouped, future revenue is apportioned between Devolver Digital and the developer, based on mutually agreed and fair sharing agreements.

Devolver Digital's range of services includes project and lifecycle management; development and production assistance; publishing; and technical and creative support. Devolver Digital generates pre-release interest through tailored marketing programmes, PR, promotions, and leveraging digital distributor platform relationships. The Group's broad offering continues to attract both established and early-stage developers. Of the numerous development partners working on pipeline titles, roughly a third are repeat partners.

Currently the Group has approximately 200 team members spread across the globe in Europe, North America and Asia. The Group has subsidiaries in the United Kingdom, the Netherlands, Croatia, Poland and the United States.

Growth strategy

There are four key components to our growth strategy:

1. Execute and build pipeline

Devolver Digital will continue to publish critically-acclaimed and independent games under the Devolver Digital brand, targeting approximately ten to fifteen titles per year. Our pipeline for 2022 is healthy and diverse in terms of titles, developers, platforms and geography. This includes recent launches in March 2022 of our own-IP Shadow Warrior 3 and third-party title Weird West, and new titles including Cult of the Lamb, Terra Nil, and other titles launching in 2022 which we have not yet announced.

Our existing pipeline includes more than 30 titles, many of which are from repeat developer relationships. These games are scheduled for release over the next two years and beyond. As a result, the Group has full title visibility until the third quarter of 2023 with new titles being regularly added to future years.  The pipeline includes third-party titles, acquired IP titles, such as the Shadow Warrior franchise, and titles from recently-acquired subsidiary studios. Recent acquisitions have increased the number of own-IP titles in the pipeline. Devolver currently holds the rights to nine own-IP franchises, up from one in 2019.

We will also release further titles under the complimentary publishing brand Good Shepherd, bringing different game styles to a wider audience and adding licensed IP to the release schedule.  Devolver will build upon existing momentum, identifying and building new franchises. Managing the breakout success of Fall Guys has elevated Devolver's profile, proving that the Group can produce hit titles on a grand scale.

2. Drive revenue from the back catalogue

Devolver Digital's back catalogue has contributed impressively to revenues in recent years. Due to the quality of back catalogue titles and our reputation in the indie space, management believe that there are significant opportunities for sustainable revenue growth and margin expansion.

Devolver's rich portfolio of titles may mean that subscription services, such as Xbox Game Pass and PlayStation Plus, will come to Devolver prepared to pay one-off fees for titles for their platforms. New entrants into the streaming market are also looking to Devolver for content for their services. Further revenue can be generated by including titles in bundles, as well as promoting publisher specific sales on digital marketplaces.

Porting titles across platforms opens up games to new player bases and can be released in conjunction with targeted marketing campaigns and bundled deals. Localising titles in new languages expands the addressable market for a game and drives back catalogue sales. In franchises such as Hotline Miami, Devolver has managed to boost unit sales of the initial title when bringing out a sequel. With targeted promotion, Devolver can continue to capitalise on fresh interest in new franchise releases rather than cannibalising revenues from previous releases in the franchise.

3. Improve our craft

Devolver's recent performance has provided the capital for greater investment of resources and money into games and services. The Group is organically improving its service offering and abilities, which the Directors believe should ultimately drive an increased return on investment for titles. Greater investment in games allows for bigger budgets on certain titles, which when applied to our own-IP titles can drive significant margin upside. Increased investment includes better game selection, more gameplay testing, improved porting and localisation services, and bigger marketing campaigns. 'Improving our craft' allows the Group to better capitalise on the momentum of initial releases by simultaneously releasing titles on multiple platforms and in multiple geographies. The Group has selectively added individual talent as it has grown, bringing on industry experts with years of relevant experience. Taking on new industry veterans adds to the already growing breadth of services and deeper capabilities.

4. Selective studio & IP acquisition and integration

Devolver will continue to strategically acquire development studios, standalone IP or service providers, with the aim of broadening the Group's offering and improving its financial profile. Some of these are likely to be trusted partners, who have existing relationships with the Group. Historical collaboration lowers the integration risk of bringing these companies on board, with the prospect of mutual upside. The Group's acquisition strategy will remain considered and selective, and management will take a prudent approach to M&A. Alongside trusted partners, the Group will also consider acquiring non-partner businesses which provide complementary IP, products or services. The Directors believe that, in cases where Devolver has previously published titles with developers, bringing them in-house will improve margins and reinforce successful relationships. In cases where Devolver hasn't published a studio's titles, acquisitions will provide incremental revenue. Devolver can energise back catalogues and add value to new releases in development, production and marketing. The Group can help to accelerate porting and localisation plans, and include titles in publisher sales, buyout deals and more.

Acquisitions

Devolver has begun to selectively acquire studios and IP that enhance its pipeline and support its long-term international growth strategy. Since the beginning of 2020, Devolver has acquired five of its long-term partner development studios and a second publishing brand. As a digital-first brand, the majority of Devolver staff work remotely and have done so since founding.

The cash generated from the huge success of Fall Guys and the subsequent sale of its publishing rights has provided the Group with additional capital to accelerate its long-term growth strategy, investing in developer studios and other initiatives. Devolver has acquired and integrated long-term partners, formalising relationships that have existed for up to 20 years. 

For most of these studios, moving in-house to Devolver has been a natural evolution, as the length and success of these partnerships has built strong ties and mutual trust. In welcoming these businesses into the fold, Devolver will continue to evolve those partnerships. Devolver has also strategically acquired long-term associates who have not previously had a commercial relationship with the Group, but whose culture was similar and well understood.

Familiarity and shared understanding with these partner studios and long-term contacts lowers integration risk. The Directors believe that bringing these businesses into the Group will unlock additional sources of revenue and provide margin enhancement, while continuing to evaluate other opportunities that could bring accretive benefit.

Croteam

Acquired in October 2020, Croteam is a Croatia-based developer with 32 developers and 38 total team members as at year end 2021. Devolver Digital has published 12 games with Croteam, the most of any single developer.

Devolver Digital's Founders' relationship with Croteam stretches back to partnerships with G.O.D. Games and Gamecock Media. Titles in the Serious Sam franchise were the first games published by the Group, proving to be a ground-breaking series for Devolver. Croteam will continue to develop Serious Sam, Talos Principle and new IP games published under the Devolver brand. Bringing such a key long-term partner in-house will improve margins on some of the Group's biggest titles.

Good Shepherd

Acquired in January 2021, Good Shepherd is a Netherlands-based publisher that also majority owns a Polish development studio, Artificer. The combined business has 56 total team members as at year end 2021, of which 35 are developers working at Artificer. Established in 2011 with independent investment from some of the Devolver founders, Good Shepherd will continue publishing third party and licensed IP titles, as well as Artificer's own-IP titles. Good Shepherd brings a complementary publishing brand to the Group with a more selective and streamlined pipeline with niche titles, a focus on strategy and simulation games and partnerships with large IP owners such as Disney, Lionsgate and Metro Goldwyn Mayer.

Nerial

Acquired in May 2021, Nerial is a UK-based development studio with 16 developers and 17 total team members as at year end 2021, creating story-focused strategic games. Nerial has six titles published or in production with Devolver with a combined cumulative revenue of over US$10 million. Devolver published Nerial's first major title Reigns, released in 2016, and has proceeded to publish their titles since then. Devolver Digital will continue to publish Nerial's titles, benefiting from the margin enhancement of bringing IP in-house.

Firefly Studios

Acquired in June 2021, Firefly is a UK-based video games studio with 26 developers and 36 total team members as at year end 2021, who create historical real-time strategy (RTS) titles for PC, best known for the Stronghold franchise. Whilst Devolver has never published a Firefly title, earlier Stronghold instalments have been published by the founders at G.O.D Games and Gamecock Media. Firefly have since used a variety of publishers and also self-published their titles. The acquisition of Firefly will expand Devolver Digital's presence in the RTS space and free-to-play games. Firefly brings additional titles to the back catalogue, which will continue to generate revenue for the Group.

Dodge Roll

Acquired in July 2021, Dodge Roll is a US-based video games studio with four team members as at year end 2021, who are all developers. Dodge Roll's first major partnership with Devolver was Enter the Gungeon in 2016, which was a breakout hit, selling over four million units and making more than US$25 million of revenue. This was followed by Exit the Gungeon, which launched on Apple Arcade in 2019. Acquiring Dodge Roll has brought a key piece of IP in-house, which the Directors believe will improve margins. Dodge Roll will continue to develop games published by Devolver, building on existing franchises and generating new concepts.

Current trading and outlook

2021 ended well for Devolver Digital with excellent momentum for titles such as Death's Door, Loop Hero and Inscryption, all of which rated highly on Metacritic with ratings between 82 and 89. All three titles received multiple nominations for Best Game of the Year award.

Devolver Digital has a healthy and diverse pipeline in terms of titles, developers, platforms and geography. We remain on track to release 10-15 new titles in 2022, including the recently-launched Shadow Warrior 3 (an own-IP title) and Weird West, and upcoming releases such as Trek To Yomi and others. Our total pipeline for 2022 and beyond comprises an exciting line-up of 30 titles, with a balanced mix of third-party IP and own-IP. 

Devolver Digital's momentum, pipeline and strong contribution from its extensive back catalogue support confidence of further progress in 2022.

Douglas Morin

Chief Executive Officer

4th April 2022

Financial review

This is the first annual results announcement published by Devolver Digital following admission to trading on AIM on 4th November, 2021 (the "IPO").

IPO Outcome

Devolver Digital successfully raised US$49.6 million of net funds for the Company as part of a total gross fund raise at the IPO of US$261 million. This leaves us with a healthy cash position at the end of 2021 of US$86.2 million. The IPO introduced a roster of high-quality institutional investors as well as the introduction of Sony Interactive Entertainment as a strategic shareholder.

Preliminary unaudited full year 2021 results

The preliminary unaudited financial results included in this 2021 release cover the Group's combined activities for the twelve months ended 31st December 2021 (prepared in accordance with applicable International Financial Reporting Standards, "IFRS").

Our results reflect the revenues attributable in 2020 and 2021 to the publication of the Fall Guys title in August 2020. They also reflect the gain from the sale of the Fall Guys' publishing rights to Epic Games and the gain on sale of an IP owned by a subsidiary game development studio in 2021, both of which are reflected as Other Income.

Normalised Adjusted results

The following narrative refers to Normalised Adjusted results, as presented in the financial statements contained within this release. Normalised Adjusted results exclude revenue outside budget from the Fall Guys title released in August 2020, as well as one-time exceptional costs related to the November 2021 IPO.

Significant revenue growth with improved margins and strong cash generation

Devolver Digital delivered a full year 2021 performance slightly ahead of market expectations set at the time of our IPO in November 2021. This included strong normalised revenue growth of 38% to US$98.2 million and Normalised Adjusted EBITDA growth of 63% to US$25.7 million.  This growth was driven by strong performances from new titles released in 2021, robust back catalogue sales including within bundled special deals, and a solid contribution from newly acquired subsidiaries. 

In 2021, Devolver Digital delivered a rapid improvement in normalised gross profit with a 70% annual increase to US$39.2 million, up from US$23.1 million in 2020. Gross margins grew to 40% in 2021 from 32% in 2020, due to a combination of: 1) a higher percentage of own-IP game sales in part due to the acquisition during the year of game development studios whose games we publish; 2) an increase in bundled deals, including back catalogue titles, with the major distribution platforms, and; 3) an increased focus on same day-date releases across multiple platforms with inherent efficiencies in marketing and launch costs.

EBITDA margins

Normalised Adjusted EBITDA margins increased to 26% in 2021 compared to 22% the previous year, reflecting the flow-through from higher gross profit margins but offset by the higher relative administrative costs of the acquired subsidiaries with established offices.

Normalised Adjusted EBITDA

Normalised results are prepared to provide a more comparable indication of the Group's core business performance by removing the impact of certain items including exceptional items (material and non-recurring), and other, non-trading, items that are reported separately.

Normalised results are not intended to replace full year results. These have been presented to provide users with additional information and analysis of the Group's performance, consistent with how the Board monitors results.

Normalised results exclude the benefit from the substantial returns from the Fall Guys title, (the publishing rights were sold in April 2021), as well as one-time expenses related to the IPO.

Normalised Adjusted EBITDA makes the following adjustments: it excludes 1) US$142 million of Fall Guys revenue that exceeded budget in 2020; 2) the net gain from the sale of Fall Guys publishing rights; 3) stock compensation (share-based payment) expenses; 4) one-time expenses related to the November 2021 IPO, and; 5) amortisation of acquired IP (but does not exclude amortisation of capitalised software development costs).

Further details of adjustments are given in Note 13 to the financial statements contained in our annual report which will be published in April 2022.

Cash

Net cash at year end 2021 was US$86.2 million (2020: net cash of US$43.5 million) following the receipt of the net proceeds of the IPO. The Group's current cash reserves provide sufficient capital to fund our growth strategy.

Capital expenditure

The Group's ongoing capital expenditure requirements are primarily expected to be focused on game development advances and the costs associated with publishing new titles. In addition, there is ongoing internal investment into new HR and accounting systems to better integrate the subsidiaries across the group. We may use cash holdings as part of the total consideration for any future selective acquisitions that the Group may undertake.

Capital and Reserves

Total equity for the year increased by US$174.0 million to US$245.5 million (2020: US$71.5 million), reflecting cash generation from operations, the sale of the Fall Guys publishing rights to Epic Games in April 2021, and the issue of new shares at the IPO in November 2021.

Dividend policy

The Directors intend to re-invest a significant portion of the Company's cash reserves and earnings to facilitate plans for further growth. Accordingly, the Directors do not expect to declare any dividend in respect of the current financial year ending on 31 December 2021 or in the foreseeable future.

Over the longer term, should the Group generate a sustained level of distributable profits above assessed capital needs at the time, then the Board would consider introducing a progressive dividend policy. Declaration of dividends will always remain subject to all applicable legal and regulatory requirements and recommendations of final dividends and payments of interim dividends will be at the discretion of the Board. The Board will exercise such discretion where it is commercially prudent to do so, taking into account the policy set out above.

Whilst the Board considers dividends as the primary method of returning capital to Shareholders, it may, at its discretion, consider share purchases, when advantageous to Shareholders and where permissible. The Board may revise its dividend policy from time to time.

Principal risks and uncertainties

The Group is exposed to a variety of risks and actively manages them through risk management procedures. While risk cannot be eliminated altogether, actions are taken to mitigate risk wherever possible.

Details of the Group's financial risk management objectives and policies of the Group and exposure to risk will be laid out in detail in note 23 to the consolidated financial statements in our 2021 Annual Report due to be released in mid-April 2022.

Post Balance Sheet Events

In late February 2022, Russia invaded Ukraine, leading to substantial economic sanctions being levelled upon Russia by the international community. Revenues from the Russia/Ukraine/CIS region have accounted for less than 3% of total Group annual revenues in each of 2020 and 2021. Less than 1% of royalty and other expenses are payable into the affected countries in the conflict region. It has not been possible to pay some royalties to Russia-based developers since several Russian banks were barred from SWIFT, the international banking system. Any outstanding royalties payable have been recorded as accounts payable and will be paid when circumstances permit. The Company currently believes that the impact from the conflict will not materially affect its operations, revenue or expenses. The Company has no full-time employees in the affected geographies.

Daniel Widdicombe

Chief Financial Officer

4th April 2022

Consolidated Unaudited IFRS Full Year Results:

Unaudited Income Statement		Year ended				Year ended
				31 December 2020				31 December 2021
				US$'000				US$'000
REVENUES
Revenues				212,738				98,152
TOTAL REVENUES				212,738				98,152
COST OF SALES
Royalty expense				(103,034)				(46,573)
Development expense				(6,243)				(4,384)
Marketing				(5,466)				(4,275)
Amortisation of development costs				(6,302)				(3,688)
TOTAL COST OF SALES				(121,045)				(58,920)
GROSS PROFIT				91,694				39,232
ADMINISTRATIVE EXPENSES
Payroll				(6,346)				(14,468)
Stock compensation expense				(2,747)				(55,150)
Professional fees				(3,559)				(9,455)
Travel and entertainment				(233)				(271)
Office				(329)				(342)
Insurance				(95)				(202)
Administration and other costs				(601)				(17,895)
Amortisation of intellectual property				(623)				(5,651)
TOTAL ADMINISTRATIVE EXPENSES				(14,533)				(103,434)
Other income				-				116,081
OPERATING PROFIT				77,161				51,879
Interest receivable income				101				10
Interest payable and similar charges				(104)				-
PRE-TAX PROFIT				77,157				51,889
Income tax expense				(13,064)				(19,438)
Profit for the year				64,093				32,451
Equity holders of the parent				64,093				32,374
Non-Controlling Interests				-				77
PROFIT FOR THE FINANCIAL YEAR				64,093				32,451

Statement of Financial Position		Year ended		Year ended
		31 December 2020		31 December 2021
		US$'000		US$'000
NON-CURRENT ASSETS
Goodwill		159		65,570
Intellectual property		23,254		53,382
Capitalised development costs		28,319		44,441
Total intangibles		51,732		163,393
Tangibles		52		225
Investments		1,294		-
Deferred tax assets		362		2,413
TOTAL NON-CURRENT ASSETS		53,440		166,030
CURRENT ASSETS
Accounts receivable		15,846		17,811
Prepaid and other current assets		361		1,544
Cash at bank and in hand		43,529		86,239
Prepaid income tax		-		7,512
TOTAL CURRENT ASSETS		59,737		113,106
TOTAL ASSETS		113,177		279,136
CURRENT LIABILITIES
Trade, other payables & Accrued Expenses		18,952		17,835
Deferred revenue		599		4,481
Amounts due to shareholder		20,837		-
Total trade and other payables		40,388		22,316
Loans		240		-
Current and deferred tax payable		116		9,787
TOTAL CURRENT LIABILITIES		40,744		32,103
NON-CURRENT LIABILITIES
Contingent consideration		920		1,567
TOTAL NON-CURRENT LIABILITIES		920		1,567
TOTAL LIABILITIES		41,664		33,670
CAPITAL AND RESERVES
Common stock		1		44
Additional paid-in capital		-		120,033
Retained earnings		71,513		126,203
Translation reserve		-		(737)
CAPITAL AND RESERVES TO OWNERS		71,514		245,543
Non-controlling interest		-		(77)
TOTAL EQUITY		71,514		245,466
TOTAL EQUITY AND LIABILITIES		113,177		279,136

Condensed Unaudited Statement of Cash Flows

	Year ended	Year ended
	31 December 2020			31 December 2021
	US$'000			US$'000
Operating activities
Net income	64,093		32,374
Amortisation & Depreciation	6,978		9,338
Gain on sale of Publishing Rights & IP	-		-115,576
Share based payments	2,747		55,150
Working capital movement	-1,030	813
Other operating activity movement	-533	1,997
Net cashflow from operating activities	72,255	-15,904
Investing activities
Purchase of intangibles	-22,175	-34,345
Sale of Publishing Rights & Intellectual Property	-	127,500
Acquisitions	-3,278	-33,911
Other	65	1,218
Net cashflow from investing activities	-25,387	60,462
Financing activities
Net change in Borrowings	240	-
Share capital issuance including option exercise	-6,000	48,989
Repayment of Shareholder Loan	-	-20,837
Dividend	-10,000	-30,000
Net cashflow from financing activities	15,761	-1,848
Net cashflow	31,107	42,710
Closing cash	43,529	86,239

Basis of preparation and consolidation

The Directors are confident that the Group will remain cash positive and will have sufficient funds to continue to meet its liabilities as they fall due for a period of at least a period of 12 months from the date of the full year 2021 announcement and have therefore prepared this preliminary unaudited full year announcement on a going concern basis.

The financial presentation in this release should be read in conjunction with the Group's annual consolidated financial statements as at and for the year ended 31 December 2021, due to be released in mid-April 2022. These condensed financial statements have been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS).  

These preliminary unaudited financial statements were approved by the board of directors on April 3 2022.

Earnings Per Share

US$'000 unless stated	Year ended 31 December 2020	Year ended 31 December 2021
Total comprehensive income attributable to the equity holders of the parent	64,093	32,374
Weighted average number of shares (shares)	349,344,281	376,034,064
Basic earnings per share (US$)	0.183	0.086
Total comprehensive income attributable to the owners of the company	64,093	32,374
Weighted average number of shares (shares)	349,344,281	376,034,064
Dilutive effect of share options (shares)	18,368,860	32,367,003
Weighted average number of diluted shares (shares)	367,713,141	408,401,067
Diluted earnings per share (US$)	0.174	0.079

Operating profit

		Year ended		Year ended
US$'000		31 December 2020		31 December 2021
The operating profit is arrived at after charging / (crediting)
Royalty expense		103,034		46,573
Development expense		6,243		4,384
Amortisation of intangible assets		6,978		9,288
Depreciation of PPE *		43		51
Employee benefit expenses		6,346		14,468
Share-based payment charge		2,747		55,150
Fair value uplift to contingent consideration		-		13,610
Other		10,187		18,830
Total admin expenses and cost of sales		135,578		162,354
* PPE - Property, Plant and Equipment

Adjusted EBITDA

Unaudited Normalised Adjusted Results*

		Year ended		Year ended
US$'000		31 December 2020		31 December 2021
Revenue
Reported Revenue		212,738		98,152
Reported Revenue Growth		262%		(54%)
Normalised revenue adjustment		(141,634)		-
Normalised Revenue		71,104		98,152
Normalised revenue growth		21%		38%
Gross Profit
Reported gross profit		91,694		39,232
Reported gross profit margin		43.1%		40.0%
Normalised gross profit adjustment		(68,613)		-
Normalised gross profit		23,080		38,439
Normalised gross profit margin		32.5%		40.0%
Adjusted EBITDA
Reported Adjusted EBITDA		80,573		112,679
Reported Adjusted EBITDA margin		37.9%		114.8%
Normalised Adjusted EBITDA adjustment		(64,791)		(86,950)
Normalised Adjusted EBITDA		15,782		25,729
Normalised Adjusted EBITDA margin		22.2%		26.2%

* Normalised Adjusted EBITDA makes the following adjustments: it excludes 1) US$142 million of Fall Guys revenue that exceeded 2020 budget; 2) a net gain from the sale of Fall Guys publishing rights; 3) stock compensation (share-based payment) expenses and revaluation of contingent consideration; 4) one-time expenses related to the IPO; and 5) amortisation of IP (but does not exclude amortisation of capitalised software development costs).

Reconciliations to Adjusted EBITDA

US$'000	Year ended 31 December 2020	Year ended 31 December 2021
Operating profit	77,160	51,879
Share-based payment expenses	2,747	55,150
Amortisation of purchased intellectual property	623	5,599
Depreciation of property, plant and equipment	43	51
Adjusted EBITDA	80,573	112,679
US$'000	Year ended 31 December 2020	Year ended 31 December 2021
Adjusted EBITDA	80,573	112,679
Net Exceptional income from IP disposal & sale of publishing rights	-	(99,971)
Non-recurring, one-time expenses related to November 2021 IPO	623	7,857
Exceptional bonus payment relating to sale of publishing rights	-	5,164
Outperformance of Fall Guys	(64,864)	-
Normalised Adjusted EBITDA	15,782	25,729

Intangible Assets	Goodwill	Intellectual Property	Royalty Rights	Development Cost	Total
Cost
As at 31 December 2019	-	770	2	21,889	22,661
Additions - business combinations	159	23,414	-	-	23,573
Additions	-	-	-	22,175	22,175
As at 31 December 2020	159	24,184	2	44,064	68,409
Additions - business combinations	65,410	35,780	-	-	101,190
Additions	-	-	-	34,381	34,381
Disposals	-	-	-	(14,570)	(14,570)
As at 31 December 2021	65,569	59,964	2	63,875	189,410
Amortisation and impairment
As at 31 December 2019	-	308	-	9,391	9,699
Amortisation charge for the period	-	623	-	6,355	6,978
As at 31 December 2020	-	931	-	15,746	16,677
Amortisation charge for the period	-	5,651	2	3,688	9,341
As at 31 December 2021	0	6,582	2	19,434	26,018
Carrying amount
As at 31 December 2019	-	462	2	12,498	12,962
As at 31 December 2020	159	23,253	2	28,318	51,732
As at 31 December 2021	65,569	53,382	-	44,441	163,392

Consolidated Statement of Changes in Equity

US$ '000s	Share capital	Share premium	Translation reserve	Retained earnings	Total Devolver Equity	Non- Controlling interest	Total equity
Balance at 31 December 2019	1	2,927	-	17,714	20,642	-	20,642
Profit for the period	-	-	-	64,093	64,093	-	64,093
Currency translation differences	-	-	-	-	-	-	-
Transactions with owners in their capacity as owners
Dividends	-	-	-	-10,000	-10,000	-	-10,000
Issue of shares	-	20,867	-	-	20,867	-	20,867
Exercise of share options	-	-6,000	-	-	-6,000	-	-6,000
Shareholder share buy-back	-	-17,794	-	-3,042	-20,836	-	-20,836
Share-based payments	-	-	-	2,747	2,747	-	2,747
Total transactions with owners	-	-2,927	-	-10,295	-13,222	-	-13,222
Balance at 31 December 2020	1	-	-	71,512	71,513	-	71,513
Profit for the period	-	-	-	32,451	32,451	-77	32,374
Currency translation differences	-	-	-737	-	-737	-	-737
Other				-2,246	-2,246	-	-2,246
Transactions with owners in their capacity as owners
Dividends	-	-	-	-30,000	-30,000	-	-30,000
Issue of shares	43	120,033	-	-664	119,412	-	119,412
Share-based payments	-	-	-	55,150	55,150	-	55,150
Total transactions with owners	43	120,033	-	24,486	144,562	-	144,562
Balance at 31 December 2021	44	120,033	-737	126,203	245,543	-77	245,466

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