Tinybuild (LSE:TBLD) — Full Year 2022 Results

0:00 Good afternoon, ladies and gentlemen, and welcome to the TINYBUILD Full Year Results Investor Presentation. The call company may not be in a position to answer every question received during the meeting itself. However, the company review your questions submitted today, and we'll publish those responses where it's appropriate to do so. We begin, we'd like to submit the following poll. And if you give that your kind attention, I'm sure the company will be most grateful. I'd now like to hand over to the team from TINYBUILD. Good afternoon. Yep. Thank you so much, and welcome, everyone. I guess I will use this opportunity while people are still joining for terrible AI written jokes to warm up the crowd. No? Anyone?

0:47 Yep. Yep. No. I I literally asked Chad Chad GP for terrible opening jokes for a presentation. So why did the game developer quit his job? He didn't get errors. Anyway, that concludes the joke part. We have had a quite an interesting year. 2022, everyone read the disclaimer. It's been a year of change and transformation for the company. And if, when we listed two years ago, we kind of listed in easy mode because all of the markets were up. Everything was doing great. Right now, we played last year on extreme difficulty. And if anyone plays Dark Souls, yeah, when you play that in extreme difficulty, that's that's what it felt like. That said, we did, go out on top. And today, we want to talk about the results and share some insights of what's coming.

1:40 Today, I'm joined by Tony Asenza, our CFO, by John Carnage, our head of cross media, who's gonna share some exciting news on cartoon. And many of you know Jazz, our head of m and a and investor relations. Now extremely difficult year followed by record setting results. I think the highlight of the year is that we were finally able to get to a structure, a very decentralized structure when, we had confidence or we proved that we are able to launch bigger budget games. So, historically, TINYBUILD has been in the sub $1,000,000 range. I'd say about 500 k was the sweet spot of the budget, including all costs to support the game, localized market, etcetera.

2:29 Last year, in q four, we launched three over million dollar games in a row, which gave us a blended return on those by end of year of 1.9 x. Now internally, we target two x as the return over the life cycle of the game. And here, we have three big budget games that have a really high return very, very fast. We also have a record number of what we call monetizable events. So a monetizable event is, many people focus on just new game launches. Right? We focus on new game launches and also secondary game launches, also things like launching new DLC or bringing games to new platforms. And those can be extremely meaningful, and that is why we have such a high rate of back catalog sales. Right? Things that we launched in the previous calendar year. Then, we'll talk about our decentralized cross platform publishing pipeline, which enabled us to deliver a lot of games to many platforms and, how we can, with a high degree of confidence, forecast if it's worth to bring games to consoles, which can sometimes be or cost more than the actual games developed. We have numerous examples of that. And, we will also talk about our strategic initiatives in events and cross media.

3:49 Alright. The highlights of the year, I'm sure you've seen that. And now I'm just looking at the camera, and this angle makes me look more fat than I actually am. So I'm gonna try to button this. Let's see. Everyone who has, like, a little bit of a belly knows exactly the pain that I'm going through right now. But we have had 21% revenue growth. Our portfolio grew to over 80 titles. It's still mostly on IP with 77%. The 3 over million dollar games that we launched, and we still have a lot of cash on hand plus a revolving credit facility. Now, the reason we talk a lot about IP, is obvious, and I will still reiterate to people who may have not heard, about the strategy. So we started out as a third party publisher, which means that it's more of a transactional relationship where, we sign a game with an external developer, the only intellectual property.

4:38 We, work on them together. We launch it, and the transaction is that we launch the game. Right? The game makes a lot of money. We're both happy. We go our separate ways. Now the problem here is that, usually, it's a new intellectual property that you work on. Right? And when the new IP becomes successful, it's actually much easier to take something successful and make it more successful. However, in that third party relationship, the incentives are misaligned. So the developer has no incentive to continue growing this IP with a publisher. They would rather do something else themselves, and that's totally fine. But what I am really interested in is long longevity and long term returns from our investments. This is why we started investing into IP, which comes with, higher profile, returns, higher margins. Right? So in the example of second party, where we own the IP and other developments to you, we have about 50%, margin compared to 30 or even less on third party. And when we bring studios in house, when we buy them, it's first party, and the margins are 90%.

5:45 Now we did not do this overnight. It started off five years ago. If you see in the middle of the slide, we have fiscal year seventeen. It was equal, third party and our own IP. And then if you look on the left side of the slide, when we launched games like Hello Neighbor, which were runaway hits, we have had a lot of revenue concentration on that hit, and that revenue concentration is going away. In fact, today, we don't have a single title that contributes over 15% of the revenues. So this is just to preface the obvious questions about Hello Neighbor two because a lot of coverage of that game made it seem like it was going to be a very highly concentrated revenue stream for us. No. We knew exactly where it was, and I'll talk about how that launch did. Speaking of our back catalog, as you can see, we continue to be powered by it, and the the formatting in the slide just got a little bit off and was converted to PDF.

6:40 So still 80% of our, revenues come from our back catalog. And mind you, this is based on calendar year. Right? So anything we had launched in December of last year will be considered back catalog. And if we, for example, launch a new DLC or bring the game to a new platform, for example, to consoles or VR, etcetera, unless it's built from the ground up, it will be considered back catalog. And, when they get asked of how long the revenue or the life cycle of the game is, for us on average, I don't know. We're eleven years in the business, and our very first published games are still making money. So I'll let you know when those, stop making money. A little bit about m and a. Last year, we have had four, m and a transactions.

7:25 Three of them were acqui hires for studios we have worked with, between the Magic, Zeiss, dev team, and Convoy Games. These have been, partners that we'll enjoy working with, and we brought them in house. It's a very easy integration for us. And in fact, these three studios are now working on their game number two. And this is, again, something that takes a lot of time to learn within the culture of your company because a traditional publishing business, it, it's more about contracts. It's more about the product. And then when you bring studios in house, it's about the people. It's about the creative synergies, and it's about how do you manage internal and external game pitches. How do you prioritize budgets? It's a very different business that took us about six years to learn because our first m and a, we did about six years ago. And you can't just wake up and decide that you're going to start acquiring studios. It doesn't work. I'm very happy that our studios are now working under next iterations because that just shows the confidence we have in them and their ability to develop.

8:30 And, also, we bought the portfolio of Bossa Studios, a London based game developer, where, they, could not extract a lot of value from the portfolio. However, with our dozens and dozens of titles, we're able to because, the portfolio when you do portfolio sales, it scales, and you can extract a lot of value. Finally, we're getting some industry recognition. And, you know, not to pat ourselves on the back, but we did recently win the award for best indie publisher even though not all of our games will be considered indie at this point. It's still great. And if you look at the picture over there, it's like a Thor hammer. They're And like, when they're coming on stage, do not take it by the panel. I take it by the panel, and it broke up. We superglued together.

9:17 It's great. But, a lot of our other titles are being nominated between Spire Heck now for broadcast and Oceancraft. I'd say most notably, not for broadcast, is nominated for the BAFTA awards tonight. So after this, we're going straight to the BAFTA awards and fingers crossed. And, also, it was nominated for the Indie Games Festival main prize, which is considered as the prime award for, game developers worldwide. Also, this is just, I guess, a heads up that we will be holding some information back through the questions because what I noticed is that when you are fully open about how you do things, other companies will attempt to copy your homework. And as flattering as it is, it may send the wrong message. So we will be skipping questions on the part of how we decide which games to invest into.

10:12 That is, what what we'll call secret sauce, and next time, we'll just make these, like, super spicy, sauce bottles with that label. But, we use a lot of data to decide what we invest into, and, the trick was to verify that this approach works. And it now clearly works with the three larger investments we have done through last, through the end of last year with the bigger game launches. And this is also why we're confident in investing a lot more capital into scaling our portfolio. And with that, I will hand it over to Tony for the financial review. Yeah. Thank you, Alex. Hi, everybody. For the financial review, we'll go through our financial KPIs before diving into our financial statements and then a breakout regarding the investments we've made.

11:02 So to start, we'll take a look at our net game revenues. We've seen that continues to grow at a healthy pace. And this is this isn't only due to launching more titles as well as with our close, partnership relations. It's also based off of marketing new market opportunities such as VR and roadblocks. It's also one of the main factors also been being able to launch multiple platforms, just not just one platform or multiple, especially on launch. And lastly, this growth is attributed to the acquisitions we've done. We've seen acquisitions contribute roughly around 20% of the inorganic revenue similar to h one, with the lion's share being versus evil, the third party publisher that we acquired. The reason why we're highlighting versus evil is because even though we see a healthy growth in regard of our EBITDA, we did see a decrease in margins, and this is based on the third party margins that receivable have and currently have. That being said, we've been transitioning versus evil to own IP as well as working in terms of, the synergies between both companies. We're expecting that the margins for for this to improve in 2023, but the full transition from versus you will have a similar margin profile as TINYBUILD. We're expecting that to come through at the end of twenty twenty four.

12:24 Regarding our adjusted cash from operations, our adjusted cash, operations conversion was around, 80%. This is as we expected and we spoke about h one based off the timing differences when it came to the games being launched near the end of the year. For reference, any revenue that's earned in q four is paid out in q one, and then q one and q two. And this is due to the payment terms when it comes to our vendors. And our vendors are blue chip companies such as Microsoft, Apple. We haven't received any risk in terms of receiving this this revenue. For the next time, we'll go through our p and l. And the main thing to highlight our p and l is really that revenue growth that we just spoke about as well as the adjusted EBITDA margins being decreased based off of the the acquisitions from last year from 2022.

13:12 And just to reiterate and to highlight, the expectation is in 2023, these margins should improve based off of the transition to versus able to own the IP, but the full effect is gonna happen or what we expect is gonna happen is we'll get the end of twenty twenty four. When it comes to the balance sheet, this is one of the main slides I highlight is first is the trade receivables. These trade receivables of 23,400,000 is based off of revenue earned in q four, specifically near the end of q four due to the the launches of our games. And this drive has been received based off the terms when it comes to our partners. And I have to highlight is is the intellectual property. This shows the acquisitions that that we've been doing and and the increase of that asset.

14:02 But more specifically, software development, we've seen an increase significantly in terms of, at the end of the year. And what this is is the investments that we're doing, as part of our commitments in the public regarding investing public funds, just in acquisitions and in in overall growth, but also increasing our portfolio as well as the value and the production value of this portfolio. As a to reiterate what what we had spoken about and the believe in the r and s was when it comes to game development, it takes roughly two years from concept to market, for it to be released. And sometimes it could expand between three, four, or five years. And what this means is at the end of the year of 2022, we start seeing the first games that use public funds come into market.

14:51 And part of that includes the ROI that Allison mentioned in 1.9 x. And we'll dive deeper into it later on in the presentation in terms of, those games. However, our expectation in terms of our investments is two x ROI based on the life cycle of the game. Historically, we've been able to to get two x two x ROI at a accelerated pace. So lastly, when it comes to our financial statements, we're looking at our cash flow. Our cash flow what we wanna focus on cash flow is really crossing that bridge between the p and l and the balance sheet. We could see the software development expenditure is significant, and this is due to the investments that we've been doing. It's important to note when it comes to the cash generated from operations. This continues to be healthy.

15:38 However, we continues continuously grab this cash from operations and reinvest it into the business. As part of our commitments on IPO, this is something we've been doing. We've been successful in. Regarding the purchase of intellectual property, we did see a decrease. This is largely due to the large acquisition in 2021 with respect to Versus Evo net service. We continue to invest the our funds into not only our product, but also acquisitions. To break out our cash this is to visualize the where we're spending our cash regarding the investments and development cost and shown that it is the the majority in terms of our investment as we look to continue to expand our portfolio and diversify our portfolio, not just from what we're able to see done, but going forward.

16:28 So we see when we look at the breakout terms of that that game dev investments. In terms of our game dev investments, we could see that continuously diversify our portfolio since we do see our our business as a portfolio of business. And this is one of the ways that we would look to derisk the company is by continuously diversifying the revenues. And with that, I'll get out to do this strategic review. Yep. Alright. Thanks a lot, Tony. I I think the really important aspect here is our five year plan. And investors who have been following us for the past two years because we have been listening for two years may notice something, and that's we never deviated from our story. We know exactly what we're doing. We're using data to make decisions, and the next five years look, like, all about intellectual property and franchise.

17:25 So this year, we're going heavy on games as a service and not the traditional, you know, like, Fortnite battle pass style. It's it means that we are servicing our players for most titles that come up where it makes sense. We release something, and we continue servicing the players. Therefore, Gats is going to be about the animated series and the bigger titles that we'll start releasing. You will start seeing this year some titles that we have invested in shortly after we went public. Then, throughout the years, it will be about scaling, essentially, the best marketing you can do for your games, which is canonical commercials, which John will talk about in more detail. When we we do what a lot of companies did in the nineties, which, like, if you look at transformers or teenage mutant ninja turtles, they have, used cartoons to sell toys.

18:18 So they had a, strategic business for making anime series and use those to go ahead and sell higher margin products. So we're going to be doing the same. The idea is that within five years, we'll be able to originate IP not just from games, but also from other medias Because in the example of our cartoon that we're working on, the time line is actually much shorter for production than for video games. You can make a cartoon once you have a pipeline in less than a year. And that's important when you build a franchise because you need to have consistent flow of products. You can't just have game number one, and then three years later, game number two. You need to splice a lot of content in between to get that value up. Then, let me me see. Jazz, what do you do?

19:11 The other aspect that we have here, is the decentralization. So what we did is, well, I started noticing this when we crossed about 60 people, in the company. Right now, we are we're, about 500, is that when you scale from a start up where you're, like, a dozen people, everyone knows each other, everyone knows what everyone is doing, As you scale, you inevitably have like, you know, your marketing person becomes the marketing lead. Your producer becomes the production lead, and you start making these departments. Right? And the problem is that when you're in the business that can change overnight, you can, slow down on innovation. This kind of structure works when you have something established and very predictable.

19:58 But when you're in a lead or department director style structure, the best people who do the actual work may have phenomenal ideas and may not be encouraged to go through, essentially, a web of bureaucracy to get those ideas implemented. So we decided to decentralize. We got rid of the traditional structure, and instead, instead, we now have product groups where, let's say, between three and seven people will be working on a range of products, either defined by genre, geographical location on developers, and whatever makes sense. And we empower those product groups to make decisions really fast, And this is, how we kept on being successful. And this structure, it doesn't work for everyone. It requires a lot of, process in hiring.

20:43 It requires very extensive personality test to predict how people deal with ownership and decentralization. But when it works, it feels like magic. It's, unlike anything. It feels even though you're hundreds of people, it feels like a start up where anyone can make an impact. And that's how we ended up shipping games on all platforms. Have increased accountability through the group. We can verify our marketing viability way before launch and predict with a high degree of certainty exactly how our games are going to do. This is the example of the games we talked about. So three games launched in q four, each over a million dollars. Average return, 1.9 x until end of year. So if we do this analysis today, these numbers are going to be significantly higher.

21:34 And we are now investing into much larger gains. Since this is a public presentation without giving too much away, we're just going to show a couple of pictures on the projects in development. We're not going to do any names, but, for example, this is a project that revolves around investing into serious technology that allows you to render thousands of nonplayer characters on screen. And unlike, similar games that came before, we have, like, you know, 1,000 chickens versus 1,000 ninjas, and you pull up them together. This is a real simulation. The player actually, in this, example runs around with a machine gun, mowing down thousands and thousands of enemies in the field. This is a tech we invest into. And then, this is a screen cap from this is in game from, our CEO in Lviv, Ukraine.

22:26 They have been working hard on this project that blends, the concept of, building your own pirate ship in a way, but it's not a pirate ship. It's a giant walking robot in the dune like world. There's a couple of more screen caps. This is me playtesting. This is a screen cap from a cinematic. And then this one, it was supposed to play as a GIF. I apologize when we convert to PDF. Obviously, GIFs don't play. But this is an example of project ferocious. Look it up. This is a game that's been announced, and it's one of those games that we decided to scale into that over $1,000,000 mark because the original developer did a phenomenal job at making a small scale prototype, which we all loved. We approached him and said, what will it take to make this into a proper double a level experience?

23:15 And he said he he needs a team, so we hired a team. And right now, there are close to a dozen people working on this project, and there'll be announcements on the release plans of this coming quite soon. More gifts. Just a couple of words about our strategic events business. And the person who runs it, she was supposed to be here, but prints physical tickets, and someone had to go get them. So a couple of words about, the business. We have actually invested into events, into a conference business, which gave us, a unique position to, see a lot of content before it is out there widely known, and also to position ourselves as a thought leader sharing our knowledge and experience in a very open, fashion.

24:06 We've actually signed over 30 titles that we discovered at this event and hired over 50 people into our company. As you can see by the picture over there, that's us in Binya, Slovenia where 750 people attended the event. And with that, I will do a very smooth transition because at DevGam, I met John who, was at the time working at Twitch and now runs our very exciting project on Hello Neighbor called the animated, series. So I'm going to give the microphone to John. Absolutely. Thank you. Thank you guys for having me. Thank you for joining us today. A little bit of background about myself as I jump into all the cross media, awesome things that we're working on. My name is John Carnage. My real name is Jonathan Joyce. But I go by John Carnage because that's my stage name. I started out as a streamer in 2008, 2009 on a small platform called Justin TV.

25:01 In the course of my streaming career, I created a channel that became quite popular. And while my channel became super popular, the creators of Justin TV, asked me to join them and said, hey. Can you do that that you've done in your original channel on our platform? I said, yes. Of course. I was hired number 40 at Twitch, so I'm one of the founding Twitch team members over there. And it's been an incredible journey to grow Twitch. And in that process, I went to Cartoon Network, joined their sister site called Adult Swim, worked on a bunch of cool stuff over there. And now I'm here at TINYBUILD working on our how are we gonna do this? I guess you need to. Here we go. Finally, welcome to Raven Brooks. This is Hello Neighbor.

25:46 Welcome to Raven Brooks. Raven Brooks is the neighborhood where Peterson and all of the action actually goes down. So this is our first forte into a full animated series. There's 18 episodes. Each episode ranges in about ten to twelve to fourteen minutes. They vary because we are making this from the ground up in house. We are working with an outstanding stellar team. You may have heard of some of the stuff that they've worked on in the past. They are the creators of Big Hero six, Ben ten, and, the most recent one is Sonic on Netflix. So we're working with an outstanding team, and the best part about that team is some of the writers that and I I have the privilege of working with are, hardcore gaming fans. So this was an easy partnership for us to, work with them because they got it right away.

26:36 And so now as we dive into Ravenbrooks, we'll find out more about the mystery. It's not just a story about a creepy guy across the street that is stalking kids or kids stalking a creepy old guy across the street. This is a full story that gives a lot of answers to a lot of questions. And when you have a lot of questions that are answered, you get more questions. Let's go to the slide. Oh. Yeah. I don't think the video is So we released it. We released this in a early preview, and this is some of the early reception that we got. So we've been releasing these on YouTube. That's been the platform of choice for now. And when we released these, in December, some of the feedback that we got was overwhelmingly positive. As you can see, 24,000 thumbs up, And the second one, also with tens of thousands.

27:22 Thumbs up. Thumbs up. So the comments are also overwhelmingly positive as well, and they're in the tens of thousands. The comments often say, hey. Where's episode three? Where can we get more of this? I love TINYBUILD games. I wanna go and check out their website. It it all of it. All of it. All the positive stuff that is there is really, really warming. And so we've been creating content in a unique way, much like other people would create a commercial, advertisement spend on a thirty second ad somewhere. We've decided to create cartoons and create an infinite loop that would be considered content at the same time it's maybe considered a commercial. And in this infinite loop back from hello neighbor cartoon to hello neighbor video game to TINYBUILD as a platform for new games back to the cartoon, This will be ever.

28:16 This is gonna be something that people watch over and over and over again. So the reception has been outstanding. Let's go to the next slide. So the timeline for the the show, will be this year. We're gonna be releasing this in three drops. We're gonna stretch out our drops in six episodes per drop. And this keeps us going and keeps us, in the in the minds of our fans. This cartoon is going to end on episode six with a great cliffhanger, same as well as our final with 18. We were gonna stay relevant for a very long time because this is content that is ever best in and will stay with people. And our hardcore fans are gonna get a bunch of content that they've been looking for for a long time as well as new fans that have never heard of this series.

29:06 It's super important to create content that people will embrace because it's their first time seeing it. We didn't wanna exclude anyone. So as Alex was talking about in a road map, my five year timeline, this is our timeline for this year with this single cartoon. And what he mentioned before is that it's easier to make an animated series because once we have these assets created, they can be reused over and over. A good example of that is how quickly the Simpsons can come out with episodes, how quickly South Park can come out with episodes. So it's just much faster, and it's a little bit more predictable. Although development for this was, pretty intense in the beginning because we had to get it right. This is Hello Neighbor. This is, one of the most talked about franchises in TINYBUILD's history. So and it's also the most beloved. So we have to get it right. We have to tell a great story, and we are making that happen right now.

30:00 So, this is an interesting thing. Maybe I can get this point across digitally. The boat I've been working in pop culture for a really long time. I started out selling comic books as a kid. And what I've noticed, as a kid being an avid fan of comic books as now an adult working in the games industry, I know what you see right here is both of these are arguably the first or the most important of that thing. So most important comic book would be action comics number one, first appearance of Superman, and that is a graded issue selling for quite a bit of money. Now you look over at the other side, you see Super Mario, our first appearance of Mario, in in a in a sense, right, graded, now worth $2,000,000. So what's going on with this in my mind and what I think I'm seeing is video games are becoming this generation's comic book, where it took Superman seventy years to become a film or maybe forty years to become a film, a blockbuster film. Mario Brothers is now taking thirty five years. You you about the one in the nineties and eighties.

31:05 Let's talk about the new one that's coming out right now. Video games are this generation's comic books. The next mega IPs of tomorrow are going to come from video games, much like the mega IPs of today came from comic books. So there you go. Alex, you wanna take it away? Yeah. Thanks a lot, John. I think just to reiterate, the story for design you build has not changed. We're doing what we set out to do, and we're more confident than ever that we're going to be able to achieve. So I'll just reiterate that TINYBUILD is a global video games publisher and developer. We focus on owning intellectual property and scaling it to franchises that will exist on multiple media formats that will hopefully outlive us as a generation.

31:54 Because my goal is to build something today that will scale to mega blockbusters. And as John said, we believe that the, timeline of unlocking IP value is accelerated today. So the things we will make today in a decade, two, three from now will still be remembered and will be bigger than ever. With that, I do see that we have quite a lot of questions, so I'll just, put this slide up, which I'm really obligated to do. Perfect. Alex, let me just jump in just to give you a quick break and thank everybody firstly for all their engagement this afternoon. You're quite right. You've received a number of questions. But just for the company, take a few moments to review your questions that you submitted today. I would just like to remind you the recording of this presentation along with a copy of the slides and the published Q and A will be accessed via your Investor Meet company dashboard.

32:39 Alex, as you can see, those pre submitted questions that you have in front of you, thank to the investors that sent those ahead of today's call. But if I can just hand back to you to maybe read out those questions and give a response where it's appropriate to do so, and then I'll pick up from you at the end. That sounds great. I think one of the questions that we should address, Khadan, is, someone asked, Alex, can you please talk to us about the launch of Hello Neighbor two? It seems you rushed the launch overpromised, upset, and alienated gamers, quality glitches, etcetera, etcetera, etcetera. So, this is a really interesting question because, to, the person asking us and who people under the impression that, we might be disappointed with the launch, I would highly advise you to look for articles from 2017 and videos from 2017 about the original game's launch.

33:31 Because the original launched to similar criticism from mainstream media, especially from review, magazines, and press. And, the thing is, Wired magazine, called it the worst game of 2017. And when they talked to the a a year after that, I talked to the author that wrote that review. Right? And, no disrespect or aggression from my end. I was just like I was like, how did you like the ending of Hello Neighbor? And he said, oh, yeah. Like, you know, this this is what happened. I was not happy. I was like, you didn't beat the game. He's like, what? You did not beat the game. So, what I would advise people to do is, watch a story explained videos for hello neighbor one, hello neighbor two, hello neighbor hide and seek the prequel, and secret name. Because, unfortunately, there is limited data points.

34:25 And when you look at the game like hello neighbor or totally reliable delivery service in our portfolio, you might be using Steam data as your reference point. And for the four games that are out in the Hello Neighbor franchise, Steam has been the smallest platform by far. The game is a console game first. It's also got a huge following on mobile. In fact, over 100,000,000 downloads on mobile. And what I'm getting to is that the target audience for Hollow Neighbor does not need to be told if it's good or not by someone else. They decided that for themselves. And everyone who don't necessarily understand the franchise or why it's so entertaining to be part of this community, it's easy to be cynical because that drives a lot of clicks. You make a video about why Hollow Neighbor two is bad, it becomes the most popular video on your YouTube channel. Seriously, look it up. Just search for Hello Neighbor bad or something like that on YouTube, sort by views, and then go to the channels and check what is the most popular video on that channel.

35:29 And not to be cynical or anything, it's just the reality of this because the enjoyment of Hello Neighbor comes from being part of the community and knowing how the game is made. That's part of the game. And I will not spoil the true ending of the original Hello Neighbor. Please look it up. Just search for true ending of Hello Neighbor, and you'll understand why a lot of people are so excited. That said, it landed exactly within our financial expectations, and we built a platform that we are able to deliver a lot of quick updates to. So it's been fourteen weeks since how our neighbor two is out in the market. We delivered six updates. We came out on day one on PC, Xbox, PlayStation, current on last gen, and Nintendo Switch. The original came out on PC and Xbox, and then took two years to get to PlayStation and Nintendo Switch, and took a year before we could update it. That said, we're very happy with the release of Call of Neighbor two.

36:27 Please do not use Steam as the only data source for that, and please look at things like Google Trends that show you exactly how popular a franchise is. And right now, our internal data suggests that players have enjoyed the game and are spending a lot of time in this world. That's it. Which question should we jump into first, Jas? This is on You got a list of questions. Go ahead, please. Thank you. Karen, continuing with you, Alex. You mentioned the bigger budget games. What is the typical budget for a new game these days? And do you see a correlation between budget, size, and return? Right. So we used to be right around 500 k up to a million.

37:17 Right now, we have quite a few titles that are over a million dollars, and the reason we're confident in that is because we have three games in a row prove that we're able to deliver and have a significant ROI on those. The reason, we're doing that is well, because we can, but, also, this allows us to lower games to more platforms, which cost a lot of money, and to create scope, for these projects that facilitates over one hundred hours of gameplay. We see a direct correlation between how much time people spend in our games and how much money and long lasting revenues they create. Next question is specifically on disclosure of consensus analyst consensus in the trading updates and possibly adding a small broker that could publish their research for free.

38:07 I'm gonna take that one. We technically can't disclose analyst consensus without being seen as using that as a guidance. So it's a it is a choice. Some companies do that, but they officialize that as a as a guidance that we don't have. So that's not something we can do. And in terms of adding more coverage, we are, for our size, one of the most thoroughly covered companies by equity research analysts. We keep working on that. We do expect more brokers to come on board, but it it it is somehow out of our hands. Next question is for Tony. Amortization period moved to three years. Can you confirm whether this is straight line or front loaded?

38:57 Yeah. So the amortization is gonna only be for. Third party is still dollar for dollar, but the amortization is heavy year one and two and reduction in year three. K. Thank you, Tony. Another one for you. Can you give us a size for dev cost that went into the Hello Neighbor to Hello Neighbor animation? And the follow-up for John, how do you intend to monetize that? Regarding the size, in terms of the overall investment, it's still a nonmaterial impact regarding the rest of the the investments we've done. The exact size is confidential given it being Sensitivity. Sensitivity.

39:48 Yeah. And with that, good job. Well, in terms of monetization, Alex, how do you wanna explain this? Well so the we we have the worst case scenario is that we publish it on YouTube where most of our users are anyway. Right? We're exploring a lot of opportunities right now. And, in the worst case business model, it makes us money back. Right? But it's not our core business. It's great that it makes us money back, but its sole purpose is to elevate the brand and to drive game sales. Right? So we use this as a marketing tool first and foremost or as a canonical commercial. Right? The example was, TV shows or cartoons and toys. Same logic applies. You don't make a transformers cartoon to make money of it. You make money of the toys. We make money of the games.

40:37 Great. I'm gonna take the next one. It's about dilution from the third consideration of m and a, whether we have any mechanism in place to reduce that dilution as the price fluctuates. Yes. We do have in every m and a agreement, we do have an anti dilution close. So when the price goes below a certain threshold, we have options and and and the the the freedom not to issue shares even if that is part of the compensation and to to use other means for paying the total consideration. Next question is on for Tony. Revenues from own IP decreased in 2022.

41:25 Can you explain why and what you expect for 2023? Yeah. In 2022, we had some extended life monetization events such as for graveyard keeper, which is a very strong third party game that that we have in our portfolio, as well as the launch of Asteroidos, which is one of the higher budget games we released that have had positive ROI, which is also a third party game that we have in our portfolio. Regarding going forward, we don't give guidance on future numbers. That being said, we'll continue to do monetization events when it makes sense even if it's a third party IP. That's great. Thanks, Tony.

42:11 Alex, you you've been very close to the situation in Ukraine and helped the first time to relocate staff for both in Ukraine and Russia. What is the outlook in terms of further charges for, for the conflict in Ukraine? Right. Well, no one can predict what is going to happen. What we did last year was make sure that, development continues, and we have given you, eight months of some games that we'll be announcing this year coming from the studios in Ukraine. Moving forward, it's it was all about setting up a prep plan, for any scenario that happens to make sure that people are safe. So we can't give a definitive answer because that is outside of our control. The next question is, in my view, somehow related.

42:57 Can you tell us about the employee churn at TINYBUILD? Is that stable, improving? And and what what are you thinking in the future? Yeah. So our churn is still low single digits. And what we're seeing is when you look at it under the context of two year at least two year development cycles, you need to be 100% confident in all of your people involved with publishing. Because of the decision you make today, you will feel as a business two, three, four years from now. So you can't have a high churn in the publishing business because people will make this decision today, and then others will have to live with it. Right? Everyone loves making decisions. It's about the longevity of following through with those decisions. Oh my god.

43:44 You're scrolling. We still have a lot of questions. Oh, you wrote a lot of those down. I see. Yes. The next question I'm gonna take is on buyback. If we have considered buying back shares on the market given the low levels of the stock. Yes. We have considered it. We have a lot of opportunities for investments in the business. We we are very, very close to shareholders. As you know, Alex has a 3037% stake in TINYBUILD. So we we went for a middle ground solution, which is setting up an employee benefit trust, which is currently buying shares on the market. We have spent so far short of just short of $500,000 on that on that side, but we have to balance the different opportunities of investing for growth versus buying back shares on the market.

44:42 Next question for you, Alex, on mister Beast. Can you tell us the thinking behind it and the impact we had on the franchise? Right. For context, mister Beast, we had it's the biggest YouTuber in the world, and we partnered up with him so that they could build the neighbor's house and drop a meter on it to see what happens. It's one of, the bigger viewed videos on his channel, and the logic here was to support the launch of Whole Neighbor two. And also that, unlike traditional advertising where there is a start of your campaign and an end, this video will live on for years. So we're, seeing we have seen an immediate impact and the residual impact from that, video specifically. And we're looking forward to a lot of interesting collaborations like this in the future.

45:29 Thank you. Next one for Tony. The development spend in 2022 was high at 36,000,000. What do you expect in 2023? Yeah. So wanted to reiterate when it comes to the development cycle of games being between two years to four or five is essentially anything we invest will that we invest at, you know, started coming through the company in terms of to market late last year. It's difficult for us to commit to development spend in terms of the end of the year. So it's actually a little bit our growth. That being said, the expectation is by the end of twenty twenty four, the part of the business regarding the what's on the balance sheet as well as cashback for investments as a percentage of of the revenue and percentage of our profits will essentially mature and and be much more sticky in terms of what's on the balance sheet as well as the cash percentage outflow.

46:32 Perfect. Thank you. The next one, I'll I'll take it's been a question we had often on the on the IR email, which is about a persistent large seller on the shares and the absence of an RNS. So any holder in The UK that goes through a certain threshold, three, four, 5%, and so on, has an obligation as a shareholder to issue a notification to the market. The the the obligation is not on the company. It's on the shareholder. Nevertheless, we have checked whether all of the obligations have been respected, and we can confirm that that is the case. So on our website, on the shareholder page, you find our largest shareholders, including Alex and and institutional investors.

47:24 There has been no change on on that. For sure, nobody none of the management team has sold any shares. Next question is on dividends. Please explain why TINYBUILD is paying dividends to the company. That was not the case. That's Tony, for you. So regarding the amount of that were paid to that guy who was associated with the prior year, and this has to do with just the interest between the company and us owning the authority while while still having its. Next question is for Alex. Can you tell us about the balance between growing the core business of video games publishing and studios versus studio for hire as Red Servers?

48:23 Right. Red Servers is a an exception to a strategy, which is a strategic position to have testing capacity when we do need it. The core strategy is still the same. It's about publishing our own intellectual property, and some of the auxiliary businesses are strategic. I'd say that right now, it's Red Servers, DevGam, and our cross media business that are the strategic aspects that help us grow the core business. Okay. Thank you. In terms of cash utilization and cash allocation, Tony, can you guarantee us that it's the right balance in terms of safety for the financial position and growth, I. E, that we're not growing too quickly burn through cash, in other words.

49:13 Yeah. So regarding the cash burn, we have financial controls in place in terms of monitoring the cash required for operating businesses versus the the investments. We monitor that pretty regularly and closely. And the the whole commitment to this the market was to to invest wisely regarding, obviously, public funds, but continuously reinvest the company profits back to the business, and and that's what we are doing. Okay. Another question for you, Tony. There has been a a write down of goodwill for versus evil and red servers and acquisitions of number 21. Can you tell us the rationale and the impact on p and l and cash flow? Yeah. So regarding the write down of versus, the revenues are healthy. They were what we expected.

50:07 However, the the in terms of the margins, they that's where they had underperformed. When it came to the consideration or the total or that's what the they were looking at for for that acquisition, it was to help motivate them to correct the the margins in the first year, given how development cycle of video games take anywhere between two to four to five years, that amount of that earn out of the the net hit was missed. So in terms of the write down, it was also balanced out by the release of that liability, that consideration, which had a a material impact in terms of the p and l. Okay. The next question, has already been answered, but just in case, we have an anti dilution system in place for any m and a, the the volatility on the stock price is not gonna cause excessive dilution in terms of earn outs.

51:05 Next questions in terms of revenue diversification. While this is same prudent strategy overall, it's naturally important not to spread since I understand. So can you tell us about the departure of your COO, the process of decentralization, and how you look at a potential replacement or not? Right. So what happened in the beginning of the year is our CEO and cofounder, Luis Burtis, had a kid and went on paternity leave. The guy has been on holiday for ten years, so he really deserved it. And, what we did is we used that as an opportunity to start testing the decentralized model. We knew it was going to be, where we go as a company in terms of direction, and this gave us the opportunity to really stress test it. And, going through it, Luke's position essentially became, distributed between several other people.

52:03 And, this has actually worked out quite well because, the company is very global, and I counted nine time zones that we operated. And for a single person to be a bottleneck for so many time zones, well, we attempted to do it in the early days. Right? I was on the flight pretty much every week. It's not sustainable long term. So going for the decentralized model made a lot of sense, and Luke has decided that he wants to spend more time with his family. And we we came to this decision in over a year of iteration because we was ready to jump in when we were decentralizing. That said, the reason there is no longer a need for a centralized function of a COO is because the job is distributed, people are able to make a lot of decisions.

52:49 We do have general managers for a lot of our studios, and those perform the role of mini CEO COO or, well, the GM as in the name. So right now, we do not see that as a a potential challenge. We actually have, been pleasantly surprised by the level of ownership that people get and how they maintain see that ownership and accountability. Brilliant. We left with only two questions. Looking to close the bank on time with the time allocated. One for Tony. In terms of employee compensation targets, do you see using EBITDA and revenues versus EPS in order to avoid excessive dilution?

53:35 Yeah. We we don't necessarily disclose as to what we we used to measure, employee compensation. What we can say is that we look at the the more meaningful impacts regarding what's the in terms of what what earns a compensation and and compensate poorly based off of quality of their skill. Thank you. And the last question for Alex, I don't see any new question. Alex, you are a shareholder. You've been feeling the pain like many of the people online. Would you like to buy shares now? Yes. I absolutely would and expect expect measures to be taken that would allow me to do so at a general vote.

54:29 Because right now, I hold over 30% of the company. Therefore, buying any share would trigger a takeover event. So, I just to put it on the record, I am really excited about the opportunity of buying more shares. And, there was another question, today, not as part of this, but I think it's relevant. Is, well, the price is low. Why are employees not buying it? Well, because we don't have that many people in The UK where it's actually super easy to buy our shares. And we're in the process of helping our employees set up processes so that they would be able to do so. Because just yesterday, a lot of people came to me and excited about where we are as a company, and they were like, how can we buy shares? Okay. You're in this country. This regulation applies, so we're in the process of figuring that out.

55:15 And that was the whole reason we decided to go public is to enable all of our people to be able to share the success of the company. Operator, over to you. That's great. Thank you very much indeed, and thank you for taking your time with the q and a. If any more questions do make themselves available, we will definitely send those to you post today's call. Alex, I know investor feedback will be particularly relevant and important to the company, and I'll shortly redirect those on the call to give you their thoughts and expectations. But if I may, before doing so, if I could just ask you for a couple of words and a few closing comments. I think I am extremely excited where we are now. And just on the concerns part of some people was the share price. I will believe that there was a week last year in, at the end of q three, beginning of q four, where everyone profit weren't, and a lot of people expected us to profit. We did not do that. In fact, we have landed broadly in line with expectations in a very tough market while playing this game on extreme difficulty.

56:19 So now, just imagine what it is going to be like for us when we're back to playing a normal or easy mode when, things change. And it's usually darkest before dawn, so I'm really excited about when it does, when the sun does go up. That's great. Alex and to the team from TINYBUILD, thank you very much indeed for your time this afternoon. Ladies and gentlemen, please do not close this session as we're now gonna automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This may take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of TINYBUILD, we'd like to thank you for attending today's presentation. May I wish you all a very good afternoon.