tinyBuild, Inc. (TBLD) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the tinyBuild Full Year Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company [Indiscernible] questions submitted today, and we'll publish those responses where it's appropriate to do so. Before 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.

Yes. 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? No, I really ask for [Indiscernible] terrible opening jokes for a presentation. So why did the game developer quit his job? He didn't get [Indiscernible]. Anyway, that concludes the joke part. We have had a quite an interesting year. 2022, everyone heard of the disclaimer, it's been a year of change and transformation for the company. And if -- when we listed 2 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. When you play that in extreme difficulty, that's what it felt like. That said, we did go out on top. And today, we want to talk about the results and share some insights of what's coming. Today, I'm joined by Tony Assenza, our CFO; by Jon Carnage, our Head of Cross Media, who is going to share some exciting news on cartoon; and many of you know Jaz, our Head of M&A and Investor Relations. Now extremely difficult year followed by record setting in 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 have confidence or we proved that we are able to launch bigger budget games. So historically, tinyBuild has been in the sub $1 million range. I'd say about $500,000 was the sweet spot of the budget, including all costs to support the game localized market, et cetera. Last year, in Q4, we launched 3 over $1 million games in a row, which gave us a blended return on those by end of year of 1.9x. Now internally, we target 2x as the return over the life cycle of the game. And here, we have 3 big budget games that have a really high return very, very fast. We also had a record number of what we call a 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 bad capital [Indiscernible], right? Things will be 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. All right. The highlights of the year, I'm sure you've seen that. And now we're just looking at the camera and the this angle makes me look more fat than I actually am. So we're going to try to [Indiscernible] this. Let's see. Everyone who has like a little bit of belly knows exactly what pain I am going through right now. But we have that 21% revenue growth. Our portfolio move to over 80 titles. It's still mostly online people, 77%, 3 over $1 million games of new launched, and we still have a lot of cash on hand plus an evolving 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 signed a game with an external developer, they own the intellectual property. We work on it together, we launch it and the transaction is that we will 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 was a publisher. They would rather do something else themselves. And that's solely fine. But what I am really interested in is long -- longevity and long-term returns from our investments. So this is why we started investing into IP, which comes with higher profile returns, higher margins, right? So in the example of second party, where we own the IP and other developments to you, we have about a 50% margin compared to 30% or even less on third party. And when we bring [Indiscernible] in-house, when we buy them, it's first party and the margins are 80%, 90%. Now we did not do this overnight. It started off 5 years ago. If you see in the middle of the slide, we have fiscal year '17, 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 will run weekends, we have had a lot of revenue concentration on that hit, and that's [Indiscernible] is going away. In fact, today, we don't have a single tile that contributes over 15% of the revenues. So this is just to preface the obvious questions about Hello Neighbor 2 because a lot of coverage on [Indiscernible] made it seem like it was going to be a very highly concentrated revenue scheme for us. No, we knew exactly where it was, and I'll talk about how that launch fit. Speaking of our back catalog. As you can see, we continue to be powered by it. And the formatting on the slide just got a little bit awkward was converted to PDF. So 80% of our revenues come from our back catalogue. And mind you, this is based on calendar year, right? So anything we have launched in December of last year, will be considered back catalogue. And if we, for example, launch a new DLC or bring the game to a new platform, for example, to consoles or VR, et cetera, unless it's built from the ground up, it won't be considered back catalogue. 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 11 years in the business and our very first published games are still making money. So I'll let you know when those stop making money. A little bit about M&A. Last year, we have had 4 M&A transactions. 3 of them were acqui-hires for studios we have worked with, basically Demagic, Scythe, [Indiscernible], and Konfa Games. These have been partners that we enjoyed working with and we brought them in-house. It's a very easy integration for us. And in fact, these 3 studios are now working under game #2. 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'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 projects. It's a very different business that took us about 6 years to learn because our first M&A we did about 6 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 CEOs are now working under next operations because that just shows the confidence we have in them and their ability to go up. And also, we bought 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 are able to because the portfolio [Indiscernible] portfolio sales, it scales and you can extract a lot of value. Finally, we're getting some industry recognition and [Indiscernible] pats ourselves on the back, but we did recently win the work for best in the publisher even though all of our games will be considered [Indiscernible] at this point, it's still great. And if you look at the picture over there, it's like a Thor hammer and they're like when they come in stage like do not take it [Indiscernible] I take it and [Indiscernible] it broke up. We [Indiscernible] but a lot of our other new titles are being nominated which inspired broadcast and social crafts. I'd say most notably, not for broadcast is nominated for the BAFTA awards tonight so as of this we're going straight to the BAFTA awards, 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 know is when you are fully open about how we do things. Other companies will attempt to copy our whole work and as [Indiscernible], it may send a wrong message. So we will be skipping questions on the part of how we decide which games to invest into. That is what we'll call secret sauce. And next time, we'll just make these like super spicy sauce models as that label. But we used 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 3 larger investments we have done through last -- the end of last year was 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.

Thank you, Alex. Hello, everybody. 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. So to start with taking a look at our net game revenues. We've seen that continues to grow at a healthy pace. And this isn't only due to launching more titles as well as with our close partnership relations. It's also based off of market opportunities such as VR and road blocks. It's also -- one of the big factors also being able to launch multiple platforms, just had small 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 H1, with the lion's share being Versus Evil the third-party publisher that we acquired. Retail, we're having Versus Evil is because even though we see a healthy growth in regard to our EBITDA, we did see a decrease in margins, and this is based on the third-party margins that Versus Evil had or 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 this to improve in 2023, but the full transition from Versus Evil will have a similar margin profile of [Indiscernible] we're expecting that to come through at the end of 2024. Regarding our adjusted cash from operations, our adjusted cash operations conversion is around 80%. This is as we expected [Indiscernible] around H1 based off the timing differences when it came to the games being launched near the end of the year. For reference, any revenues earned in Q4 is pay out of Q1 and -- in Q1 and Q2. And this is due to the payment terms when it comes to our vendors. Our vendors are [Indiscernible] of companies such as Microsoft, Apple, we haven't received any risk in terms of receiving this revenue. For the next half, we'll go through our P&L. And the main thing to higher P&L [Indiscernible] that revenue growth that we just spoke about as well as the adjusted EBITDA margins being decreased based off of the acquisitions from last year from 2022. And just to reiterate and to highlight, the expectation is in 2023, these margins should improve based off of the transition from Versus Evil to own IP, but the full effect is going to happen or that we expect it's going to happen as we get to end of 2024. Because of the balance sheet, this is one of main [Indiscernible] I highlight is, first, is the trade receivables. These trade receivables of $23.4 million is based off the revenue earned in Q4, specifically near the end of Q4 due to the launches of our games. And this has been received based on the terms when it comes to our partners. The highlight is the intellectual property. This shows the acquisitions that we've been doing and the increase of that asset. 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 commitment to the public regarding investing public funds, not just in acquisitions and in overall growth, but also increasing our portfolio as well as the value -- the production value of this portfolio. As [Indiscernible] we had spoken about I believe in the [Indiscernible] was when it comes to game development, it takes roughly 2 years from concept to market [Indiscernible]. Sometimes it can expand between 3, 4 or 5 years. And what this means is, at the end of the year 2022, we started seeing the first games to use public funds coming to market, and part of that includes the ROI that Alex had mentioned the 1.9x. And we'll dive deeper into it later on in the presentation in terms of those gains. However, our expectation in terms of our investments is 2x ROI based on [Indiscernible] game. Historically, we've been able to get 2x ROI at an accelerated pace. So lastly, when it comes to our financial statements, we're looking at our cash flow. Our cash flow -- what we want to focus our cash flow is really crossing our bridge between the P&L and the balance sheet. We could see a 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. However, we continuously grab this cash from operations and reinvest it into the business. As part of our commitment to IPO, this is something that we've been doing and we've been successful at it. Regarding the purchase of the total property, we did see a decrease. This is largely due to a large acquisition in 2021 with respect to Versus Evil as a service. But we continue to invest our funds into only our product [Indiscernible] acquisitions. To break out our cash [Indiscernible]. This is to visualize the -- where we're standing our cash regarding the investments in development costs, it has shown that it is the majority in terms of our investment as we look to continuously expand our portfolio and diversify our portfolio, not just from see [Indiscernible] down going forward. [Indiscernible] when we look at the breakdown terms from that Game and Dev investments. In terms of Game and Dev investments, you could see that continues to diversify our portfolio since we do see 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 give Alex through the strategic review.

Yes. Thanks a lot, Tony. I think the really important aspect here is our 5-year plan, and investors and have been following us for the past 2 years because we have been [Indiscernible] for 2 years, may notice something and as we never deviated from our [Indiscernible]. We know exactly what we're doing. We're using data to make decisions. And the next 5 years look like all about intellectual property and projects. So this year, we're going heavy on games as a service and not the traditional Fortnite Battle Pass style, it means that we are servicing our players for most titles that come out where it makes sense. We release something and we continue to start seeing [Indiscernible]. Therefore [Indiscernible], it's going to be about the [Indiscernible] and the bigger titles that we'll start releasing. You're also seeing this year some titles that we have [Indiscernible] 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 Jon will talk about in more detail, where we do what a lot of companies did in the '90s, which like if you look at Transformers or Teenage Mutant Ninja Turtles they have used cartoons to sell toys. So they have a strategic business for making animes [Indiscernible] and use those to go ahead and settle higher-margin products. So we're going to be doing the same. The idea is that within 5 years, we will be able to originate IP, not just from games, but also from other medias, because the example of our cartoon 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 just have game #1, and then 3 years later, game #2, you need to slice a lot of content in between to get that value out. Then -- Jaz, what do you do. The other aspect that we have here is the decentralization. So what we did is -- well, I started noticing this when we cross about 60 people in the company, right now, we are about 500, is that when you scale from a startup where you're like a dozen people, everyone knows each other, everyone knows what everyone is doing, as you scale, you inevitably have like your marketing person becomes the marketing lead. Your producer becomes a production lead and you start making things the parts, right? And the problem is that when you are in a business that can change overnight, you can slow down on innovation. This kind of structure works when you have something established and very predictable. But when you're in a lead or a department director style structure, the best people who do the actual work my have phenomenal ideas and it 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, we now have product groups where, let's say, between 3 and 7 people will be working on a range of products, either defined by genre, geographical location developers and whatever makes sense. And we empower those product groups to make decisions really fast. And this is how we kept them being successful. And this structure, it doesn't work for everyone. It requires a lot of process and hire. It requires very expensive personalities as to predict how people deal with ownership and decentralization. But when it works, it feels like magic. It's unlike [Indiscernible], even though you are 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. We have increased accountability through the group. We can verify our marketing availability 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 3 games launched in Q4, each over $1 million, average return 1.5x until end of year. So if we do this analysis today, these numbers are going to be significantly higher. And we are now investing into much larger games. Since this is a public presentation without giving too much away, we'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 non-player characters on screen. And unlike similar games that came before, we have 1,000 chickens versus 1,000 ninjas and you put all them together, this is a real simulation deployer actually -- and this example runs around was a machine mowing down thousands and thousands of enemies in the field. This is tech we invested, too. And then this is screen pack from [Indiscernible] from our CEO in Lviv, Ukraine. They have been working hard on this project that blends the concept of building your own pirate ship in a way, but it's not a pirate ship, it's a giant walking robot in the [Indiscernible] world. There's a couple of more [ spin caps ]. This is [Indiscernible]. This is [Indiscernible]. 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 decide to scale into that over $1 million mark because the original developers did a phenomenal job of making a small-scale prototype which we all loved. We approached them and said, what will I to make this into a proper AA level experience, and he said he needs to see. So we hired a team. Right now, there are close to a dozen people working on this project, and there will be announcements on the response of this coming quite soon. [Indiscernible] Just a couple of words about our strategic Events business and Lerika, the person who runs it, she was supposed to be here, but [Indiscernible] tickets, and someone has to go get that. So a couple of words about this. We have actually invested in events into a conference business, which gave us a unique position to see a lot of content before it is out there widely known and also to position ourselves as a thought leader, sharing our knowledge and experience in a very open fashion. We'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 [Indiscernible] where some competitive people attended the event. And with that, I will do a very smooth transition because at DevGAMM I met Jon, who was at the time working at Twitch and now runs our very exciting project on Hello Neighbor called the animated series. So I am going to give the microphone to Jon.

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 Jon Carnage. My real name is Jonathan Joyce. But I go by Jon Carnage because that's my stage name. I started out as a streamer in 2008, 2009 on a small platform called Justin.tv. And in the course of my streaming career, I created a channel that became quite popular. And while my channel became super popular, the creators of Justin.tv asked me to join them and said, "Hey, can you do that you've done in your original channel on our platform? I said, yes, of course, I was hired [Indiscernible] 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, we've done on a bunch of cool stuff over there. And now I'm here at tinyBuild, working on or how are we going to do this? [Indiscernible] -- here we go. Finally, Welcome to Raven Brooks. This is Hello Neighbor Welcome to Raven Brooks. Raven Brooks is the neighborhood where Peterson and all of the action actually goes down. So this is our first forte into a full animated series. There's 18 episodes. Each episode ranges in about 10 to 12 to 14 minutes, they vary because we are making this from the ground up in-house. We are working with an outstanding seller team. You may have heard of some of the stuff that they worked on in the past. They are the creators of [Indiscernible]. Ben 10, and the most recent one is Sonic on Netflix. So we're working with an outstanding team. And the best part about that team is some of the writers that -- and I have a privilege of working with our hardcore gaming fans. So this was an easy partnership for us to work with them because they got it right away. And so now as we dive into Raven Brooks, we'll find out more about the mystery. It's not just a story about a creepy guy across the street that is stocking kids or kids stocking a [Indiscernible] 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 give more questions. Let's go to next slide. So we released it. We released this in an early preview, and this is some of the early reception that we've got. So we've been releasing these on YouTube. That's been the platform of choice for now. And when we release 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 thumbs up. So the comments are also overwhelmingly positive as well and there are in there tens of thousands. The comments all then say, hey, where's episode 3? Where can we get more of this? I love tinyBuild games. I want to go and check out their website, 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 who create a commercial advertisement spend on a 30-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 -- may be 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 vesting. This is going to 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 time line for the show will be this year. We're going to be releasing this in 3 drops, bringing in stretch out our drops in 6 episodes per drop. And this keeps us going and keeps us in the minds of our fans. This cartoon is going to end on episode 6 with a great cliff hanger, and same as well with [Indiscernible]. We were going to stay relevant for a very long time because this is content that is ever vesting, and we'll stay with people and our hardcore fans are going to get a bunch of content that they've been looking for, for a long time as well as new fans that have never heard of this series. It's super important to create content that people will embrace because it's their first time seeing it. We don't want to exclude anyone. So as Alex was talking about in a road map, my 5-year time line, this is our time line 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 [Indiscernible] can come out with episodes. How quickly [Indiscernible] 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 a Hello Neighbor. This is one of the most talked about franchises in tinyBuild's history. So we -- 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. So this is an interesting thing. Maybe I can get this point across digitally. [Indiscernible] 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 the most important of that thing. It's a most important comic book would be action comic #1 first appearance to superman. And that is a graded issue selling for quite a bit of money. Now you look over at the other side, and you see Super Mario, our first appearance of Mario in a sense, right, graded now worth $2 million. So what's going on with this, in my mind, and what I think I'm seeing is video games are becoming this generation's comic book, where it took Superman 70 years to become a film or maybe 40 years to become a film, a blockbuster film. Mario Brothers has now taken 35 years, forget about the one in the '90s and '80s. 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 here go, Alex, you want to take it away?

Yes. Thanks so much, Jon. I think just to reiterate, the story for tinyBuild has not changed. We're doing what we set out to do, and we're more confident than ever as 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 outlet us as a generation because my goal is to build something today that will scale to mega blockbusters. And as Jon said, we believe that the time line of unlocking IP value is accelerated today. So the things we will make today in a decade 2, 3 from now, will still be remembered and it won't be bigger than ever. Was that -- I do see that we have quite a lot of questions. So I'll just put this slide up, [Indiscernible].

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, just take a few moments to review your questions that you submitted today, I'd just like to remind you the recording of this presentation, along with a copy of the slides and the published Q&A will be accessed by your investor meet dashboard. Alex, as you can see, those pre-submitted questions that you have in front of you, thank you to the investors that send 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.

It sounds great. I think small of the questions that we should address head-on is someone asked, Alex, can you please talk to us about the launch of Hello Neighbor 2. It seems you rush the launched over promised of certain alienated gamers, quality glitches, et cetera, et cetera, et cetera. 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 games launch. Because the original launch just similar criticism from mainstream media, especially from review magazines and press. And the thing is Wire magazine called it the worst game of 2017. And when they talked to the -- 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 said, "Oh, yes, I like this what happened, I was not happy." I was like, you don't view game. He's like, what you did not view the game. So what I would advise people to do is watch story explained videos for Hello Neighbor 1, Hello Neighbor 2, Hello Neighbor: Hide and Seek the prequel and Secret Neighbor. Because unfortunately, there is limited data points. And when you look at 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 4 games that are out in the Hello Neighbor franchise, Steam has been the smallest platform by far. The game is a console game first. It's also got a huge following on mobile, in fact, over 100 million downloads on mobile. And what I'm getting to is that the target audience for Hello Neighbor does not need to be told if it's good or not by someone else. They decide that for themselves. And everyone who don't necessarily understand the franchise for why so [Indiscernible] to be part of this community, it's easy to be cynical because that drives a lot of clicks. You make a video about why Hello Neighbor 2 is bad, it becomes the most popular video on your YouTube channel. Seriously look it up. Just search for Hello Neighbor bad or something like that on YouTube, so in my views and then go to the channels and check what is the most popular video on that channel. And not to be [Indiscernible] 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 then we won't spoil the true ending of the original Hello Neighbor. Please look it up, just search for true ending of Hello Neighbor. And you understand why a lot of people are so excited. That said, it lined up exactly it was in our financial expectations, and we built a platform that we are able to deliver a lot of quick updates too. So it's been 14 weeks since Hello Neighbor 2 is out in the market, we delivered 6 updates. We came out on day 1 on PC, Xbox, Playstation, [Indiscernible] and Nintendo Switch. The original came out on PC and Xbox and then took 2 years to get to PlayStation and Nintendo Switch, and took a year before we could update it. That said, we are very happy with the release of Hello Neighbor 2. Please do not use Steam as the only data source for that, and please look at things like Google trends that show you exactly how popular a franchise is. 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 just...

I've got a list of questions. Continuing with you, Alex. You mentioned the bigger budget gains, what is the typical budget for a new game these days? And do you see a correlation between budget, size and return?

So we used to be right around $500,000 to $2 million. Right now, we have quite a few titles that are over $1 million. And the reason we're confident in that is because we have 3 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 100 hours of game play. We see direct relation between how much time people spend on our games and how much money and long-lasting revenues they create.

Next question is specifically on disclosure of consensus, analyst consensus in the trading updates and possibly adding a small broker that could publish their research for free. I'm going to take that one. We technically can't disclose analyst consensus without being seen as using that as a guidance. So it is a choice. Some companies do that, but they officialize that 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 [Indiscernible] companies by equity research analyst, we keep working on that. We do expect more brokers to come on board, but it is somehow out of our hands. Next question is for Tony. Amortization period moved to 3 years. Can you confirm whether this is straight line or front loaded?

Yes. So the amortization is going to only be for owned IP. Third party is still [Indiscernible], but the amortization is heavy year 1 and 2 and a [Indiscernible] in year 3.

Okay. Thank you, Tony. Another one for you. Can you give us a size for the capitalized debt costs that went into the Hello Neighbor animation? And a follow-up for Jon, how do you intend to monetize that?

Regarding the size, in terms of the overall investment is still a nonmaterial impact regarding the rest of the investors you've done. The exact size is confidential given activities [Indiscernible]

Well, in terms of monetization, Alex, how do you want to explain this?

Well, so the -- 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 takes its money back, but its sole purpose is to elevate the brand and to drive gain 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 [Indiscernible]. You don't make [Indiscernible] cartoons to make money, but you make money of the toys, we may make money [Indiscernible].

Great. I'm going to take the next one. It's about dilution from the third consideration of M&A, whether we have any mechanism in place to reduce that dilution as the price fluctuates. Yes, we do have in every M&A agreement, we do have an anti-dilution clause. So when the price goes below a certain threshold, we have options and the freedom not to issue shares even if that is part of the compensation and to use other means for paying the total consideration. Next question is on -- for Tony, revenues from own IP decreased in 2022. Can you explain why and what you expect for 2023?

Yes. In 2022, we had some extended life monetization events such as [Indiscernible], which is a very strong third-party game that we have in our portfolio as well as the launch of the [Indiscernible], which is one of the highest 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 and the future numbers. That being said, we'll continue to do monetization in advance when it makes sense, even if it's a third-party IP.

That's great. Thanks, Tony. I see you've been very close to the situation in Ukraine and help the first time to relocate staff both in Ukraine and Russia. What is the outlook in terms of the further charges for the company in Ukraine?

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 of [Indiscernible] of some deals that we'll be announcing this year coming from the CEOs in Ukraine. Moving forward, it was all about setting up a prep plan for any scenario that help us to make sure that people are safe. So we can't give a definitive answer because that is outside of our control.

The next question is, in my view, somehow related, can you tell us about the employee churn at tinyBuild, do you see that stable, improving, and what are you thinking in the future?

Yes. So our churn is still low single digits. And what we're seeing is when you look at it under the context of 2 years -- at least [Indiscernible] development cycles, you need to be 100% confident in all of your people involved with project. Because the decision you make today, you will feel as a business 2, 3, 4 years from now. So you can't have a high churn in the publishing business because people will make [Indiscernible] today and then others will have to look [Indiscernible], right? Everyone loves making decisions, it's about the longevity of following through with those decisions. Oh my God, [Indiscernible] we still have a lot of questions [Indiscernible]

Yes. The next question I'm going to take is on buyback. If we had considered buy back shares on the market given the low levels of the stock. Yes, we have considered it. We have a lot of opportunities for investments in the business. We are very, very close to shareholders. As you know, Alex has a 37% stake in tinyBuild. So 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 $0.5 million on that side, but we have balanced the different opportunities of investing for growth versus buying back shares on the market. Next question for you, Alex, on Mr Beast Can you tell us the thinking behind it and the impact we had on the franchise.

Right. For context, Mr Beast, we have -- its the biggest youtuber in the world, and we partnered up with him, so that they could build the Neighbor's house and drop [Indiscernible] on it to see what happens. It's one of the bigger view [Indiscernible] on his channel. And the logic here was to support the launch of Hello Neighbor 2 and also that online traditional advertising, where there is a start of your campaign and this video will live on for years. So we're seeing -- we have seen an immediate impact and there is usual impact from that video specifically. And we're looking forward to a lot of interesting collaborations like this in the future.

Thank you. Next one for Tony. The development spend in 2022 was high at $36 million, what do you expect in 2023.

Yes. So I wanted to reiterate when it comes to the development [Indiscernible] games between 2 years to 4 or 5 is essentially anything we invest. We invested that started coming to 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 [Indiscernible] our growth. That being said, the expectation is by the end of 2024 and a part of the business regarding the [Indiscernible] balance sheet as well as cash stack for investments as a percentage of the revenue, as a percentage of our profits, we'll essentially mature and be much more steady in terms of what it was on the balance sheet as well as the cash percentage outflow.

Thank you. The next one, I'll take -- and it's been a question we have often on the IR e-mail, which is about the persistent large seller on the shares and the absence of an [ RNS ]. So any holder in the U.K. that goes through a certain threshold, 3%, 4%, 5% and so on, has an obligation as a shareholder to issue a notification to the market. The obligation is not on the company [Indiscernible]. 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 institutional investors, there has been no change on that. For sure, nobody -- none of the management team has sold any shares. Next question is on dividends. Please explain why [Indiscernible] is paying dividends to [Indiscernible].

That is not the case.

Tony, for you.

So regarding dividends [Indiscernible] prior year. And this has to do with -- just [Indiscernible] between the company and only the majority will also have [Indiscernible]

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 higher as [Indiscernible] servers?

Great. [Indiscernible] is an exception to a strategy's, 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 ancillary businesses are strategic. I'd say that right now, it's for servers, DevGAMM and our Cross Media business that are the strategic aspects that help us grow the core business.

Okay. Thank you. In terms of cash utilization and cash allocation, Tony, can you [Indiscernible] that it's the right balance in terms of safety for the financial position and growth, i.e., that we're now growing too quickly burn through cash in other words.

Yes. So regarding the cash cow, we have financial controls in terms of monitoring the cash required for operating businesses versus the investments. We monitor that [Indiscernible] and the whole -- to [Indiscernible] the market was to invest [Indiscernible] regarding [Indiscernible] to continuously reinvest in company [Indiscernible] business, and that's what we are doing.

Okay. Another question for you, Tony. There has been a write-down of goodwill for Versus Evil android servers and acquisitions of '21, and you tell us the rationale and the impact on P&L and cash flow.

Yes. So regarding the write-down Versus Evil specifically, the revenues are healthier or what we expected. However, in terms of the margins, they -- that's going to underperform. When it came to the consideration [Indiscernible] total [Indiscernible] that they were looking at -- for that acquisition is to help motivate that to correct the margins in the first year. [Indiscernible] development cycle of video games, [Indiscernible] 2 to 4, 5 years. But that amount -- that fair amount that hit was missed. So in terms of the rate down, it was also balanced out by the release of that liability with that consideration, which had a natural impact in terms of P&L.

Okay. The next question has already been answered, but just in case, we have an anti-dilution system in place for any M&A. So the volatility on the stock price is not going to cause excessive dilution in terms of earnouts. Next question is in terms of revenue diversification. While it's a prudent strategy overall, it's naturally important not to spread. And since I understand -- so can you tell us about the departure of your COO at the process of decentralization and how you look at potential replacement or not?

Right. So what happened in the beginning of the year is our CEO and Co-Founder, [Indiscernible] had a kid and went on paternity leave. The guy has been on holiday for 10 years, so he really deserve 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 with Luke's position essentially became distributed between several other people. And this has actually worked out quite well because the company is very global, and I counted 9 times zone that we operate in. And for a single person to be a bottleneck for so many time zones, well, [Indiscernible] in the early days, right? I was on the flight pretty much every week. It's not sustainable answer. So going for the decentralized model make a lot of sense. And Luke has decided that he wants to spend more time with his family. And we came to this decision in over a year of [Indiscernible] because [Indiscernible] we jump in when we were decentralizing. That's the reason there is no longer a need for centralized function of the COO is because the job is distributed and people are able to make a lot of decisions. We do have general managers for a lot of our studios. And those performed the role of mini COO or GM [Indiscernible]. So right now, we do not see that as a potential challenge. We actually have been possibly surprised by the level of ownership that people get and how they maintain that ownership and accountability.

Briliant, we left with only 2 questions and looking to close bang on time we have allocated 1 for Tony. In terms of employee compensation targets, how do you see using EBITDA and revenues versus EPS in order to avoid excessive dilution?

No, we don't necessarily disclose us to what we used to measure employee compensation. What we can say is that we look at the more meaningful impacts regarding what -- in terms of what earnings on compensation and compensate quarterly based off of quality of their skill.

Thank you. And the last question for Alex. I don't see any new question, Alex. You are a shareholder. You've been feeling the pain like many of the people online. And would you like to buy shares now?

Yes. I absolutely would and expect the measures to be taken that would allow me to do so at a general vote because right now, I hold over 30% of the company, therefore, buying any share would trigger a takeover event. So I just -- to go on record, I am really excited about the opportunity for 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 U.K. easy to buy our shares. And we're in the process of helping our employees 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. 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&A. If any more questions, do make themselves available, I hope we will definitely send most of 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'm extremely excited where we are now and just on the concerns part of some people with the share price, I want to reiterate that there was a weak last year in -- at the end of Q3, beginning of Q4, where everyone [Indiscernible] and a lot of people expect us to perform. 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 difficulties. 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 the team from tinyBuild, thank you very much indeed for your time this afternoon. Ladies and gentlemen, please do not close this session as we're now going to automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This may take a few moments to complete but I'm sure it'll be greatly valued by the company. On behalf of the management team of tinyBuild, I would like to thank you for attending today's presentation. May I wish you all a very good afternoon.