Company Updates - TBLD

On Monday (30th Sep), tinyBuild released its half year results for the six months ended 30 Jun 2024. In this update I'll be going through these results, as well as discussing some of the company's recent and upcoming releases.

We've been on quite a journey with tinyBuild. If you want to read the complete archive of my writings on the company dating back to Mar 2023, you can find it here.

Let's start by having a look some highlights from the half year results:

• Total revenue fell by 19.1% to $18,835k (1H23: $23,295k), primarily due to development services revenue, which saw a further drop to $1,408k (1H23: $5,224k; 1H22: $11,134k). Game and merchandise royalties held up much better at $16,837k (1H23: $17,455k; 1H22: $17,466k), along with events revenue, which amounted to $590k (1H23: $616k).
• Cost of sales decreased by 15.5% to $11,692k (1H23: $13,832k), making the gross profit before impairment of development costs $7,143k (1H23: $9,463k), and the corresponding profit margin 37.9% (1H23: 40.6%).
• We can further examine the cost of sales by excluding the development cost amortisation charge of $4,537k (1H23: $4,996k) to get $7,155k (1H23: $8,836k). Subtracting this reduced cost of sales from the total revenue gives us a profit figure of $11,680k (1H23: $14,459k), and profit margin of 62.0% (1H23: 62.1%). These values are likely to be closer to the company's revenue share from game sales.
• There were $3,028k of development costs impaired during the period (1H23: $18,288k), of which $2.9m resulted from a reappraisal of the value-in-use of Broken Roads following its poor reception on release. The remaining recoverable amount for the game was calculated to be $0.5m using a discount rate of 7%.
• Subtracting these impairments gives a gross profit of $4,115k (1H23: $8,825k loss), from which the margin can be calculated to be 21.8% (1H23: NM).
• General administrative expenses came down 18.2% to $11,092k (1H23: $13,561k) and there were no further intangible asset impairments (1H23: $8,908k). I'd expect the administrative expenses figure to fall further in H2, when factoring in severance payments made in H1. This may be offset by marketing costs however.
• There was a $773k gain on disposal of intangible assets recognised in relation to the sale of Totally Reliable Delivery Service and Surgeon Simulator for total cash consideration of $3m, of which $2.6m was received upfront and the remaining $0.4m within 6 months of the closing date.
• With these operating expenses exceeding the gross profit, the company incurred an operating loss of $6,169k (1H23: $31,942k) and a net loss of $6,581k (1H23: $25,523k), after subtracting $95k attributable to non-controlling interests (1H23: $240k). For those unfamiliar, the non-controlling interests relate to DevGAMM.
• Moving to the balance sheet. Total non-current assets, principally comprising intangible assets, reduced by 4.1% to $50,758k (YE23: $52,932k). This was due to net additions failing to offset the amortisation and impairment charges during the period.
• Total current assets increased by 18.6% to $19,180k (YE23: $16,166k), as cash inflows exceeded a reduction in trade and other receivables to $9,978k (YE23: $13,666k). Cash and cash equivalents at the period end were $9,202k (YE23: $2,500k), with the rise primarily due to the net proceeds of the capital raise completed at the start of the year ($11.4m).
• On the liability side of the balance sheet, trade and other payables decreased 21.1% to $15,964k (YE23: $20,227k). Total liabilities saw a corresponding 19.3% reduction to $16,933k (YE23: $20,993k).
• Netting the two sides off, total equity saw a 10.2% increase to $53,005k ($48,105k) of which $53,261k is attributable to owners of the parent company and ($256k) to non-controlling interests.
• Cash generated from operations before movements in working capital was $3,418k (1H23: $2,114k), and after subtracting net working capital movements of negative $1,431k (1H23: positive $4,175k), the figure comes to $1,987k (1H23: $6,289k). Adding interest received of $6k (1H23: $261k) brings the net cash generated from operations to $1,993k (1H23: $6,550k).
• If we exclude the $2m payment to Steve Escalante in February, that is recognised as a decrease in payables, the movement in net working capital would have been positive c.$600k, and cash generated from operations c.$4m.
• Software development investment fell by 48.3% to $8,748k (1H23: $16,925k), reflecting the multiple studio closures and project terminations that have occurred. Subtracting the net proceeds from disposal of intangible assets, amounting to $2,295k (1H23: $1,234k spent), and adding $11k (1H23: $287k) for purchases of property, plant and equipment, brings the net cash used in investing activities to $6,464k (1H23: $18,446k).
• Net cash generated from financing activities totalled $11,173k (1H23: negative $262k), coming principally from the net proceeds of the capital raise.
• Combining all the above yields a net increase in cash and cash equivalents of $6,702k (1H23: $12,158k decrease).
• With increased spending around the release of several major titles in the second half of this year, management has cautiously said that the cash balance may fall between now and the year-end. I would however expect the inflection point at which cash flows from operations exceed investment to occur no later than the first half of next year.
• Finally, we got some stats for the first season of the Hello Neighbor animated series - Welcome to Raven Brooks. It has accrued over 275 million minutes watched across YouTube and Amazon Prime Video. This puts it in the same league as some mainstream media shows, and opens the door to a potential deal with a streaming platform (e.g. Prime, Max, Netflix, etc).

Let's now discuss some of the recent releases:

• Train Valley World - This game didn't attract a great deal of interest before launch, with a pretty low wishlist ranking (#873) and follower count (c.2k). The release saw a peak CCU of 285, and it has received a total of 158 reviews since 9 Aug, of which 70% are positive. In comparison, the prior game (Train Valley 2), released in 2019, has a 91% positive review score. Not too concerning as the release of this game was always going to be pretty inconsequential.
• Rawmen: Food Fighter Arena - Released as an Epic Games Store exclusive on 23 Jul, with a free to play monetisation model. It's hard to get many insights into how the game has performed, but it currently has a 4.4/5.0 star rating which is very solid. Once the exclusivity period ends, they'll be able to decide whether they want to change the monetisation model for the Steam and console launches. They've also apparently not fully utilised the marketing opportunities available through their relationship with Epic.
• Level Zero: Extraction - Having been a standout title in the Steam Next Fest, this game had a lot of momentum leading into its 13 Aug early access release. It launched with around 30k followers and a wishlist ranking of #59, putting it somewhere in the region of 500k wishlists. Unfortunately, it has since struggled, with player numbers dropping significantly from its peak of 2,601, to just 138 in the last 24 hours. You see this also in the reviews, which managed to briefly touch 70% positive, but have subsequently dropped to 63% overall, and 50% for those posted in the last 30 days.
• I've played the game for around 14 hours spread over 3 weekends, and can say my experience followed a similar trajectory to the review score. It was initially challenging but pretty good fun, as everyone was similarly equipped, and consequently the combat between mercs was fairly evenly balanced. By the second and third weeks though, the hardcore players had progressed to much higher tier weapons, while casual players like myself were still using entry level guns. This resulted in some very unbalanced and frustrating combat, that is evidently driving away new and casual players.
• The developers are working to fix this imbalance, possibly through some kind of match making system where players with similar gear and experience are put together, but however they do it, it's likely going to require a full relaunch with associated marketing to get players back.
• Currently, I'd estimate sales at somewhere between 50k-100k, with the price per copy ranging between $17.99 for the base game with a 10% launch discount, to $35.00 for the ultimate edition, which includes extra downloadable content. A rough estimate for the net revenue after Steam fees, sales taxes, etc, would be $660k-$1.32m (0.6 x $22.00 x (50k to 100k)). I'd be inclined to lean towards the lower end of this range given the drop-off we've seen.
• Drill Core - Now this game has seen a much more solid release. The pre-launch stats weren't anything special, with a wishlist ranking of #250 (~100k wishlists) and around 7.3k followers, but it flew out the gates to hit a peak CCU of 2,549, and has an 82% positive review score from the 584 reviews received since 12 Sep. CCU numbers have subsequently held up well, with a 24 hour peak of 628 at time of writing.
• The game has been priced at $19.99, and received a 20% launch discount taking it down to $15.99. While there weren't any higher tier editions, tinyBuild cleverly bundled it with Black Skylands - the prior game from Hungry Couch - which helped increase the revenue generated.
• I'd estimate sales at between 30k-50k, making the net revenue somewhere in the range of $306k-$510k (0.6 x $17.00 x (30k to 50k)). To this we can add an estimated 3k-5k sales of Black Skylands at $5.99 a piece for an additional $10,782-$17,970.
• Overall a very strong early access launch, and a great ROI given it's been in development for under a year. There are plenty of opportunities for further monetisation as it heads to v1.0 and gets ported to consoles.
• Duckside - The most recent title to release and another decidedly solid one. It was the #92 most wishlisted game at launch, equating to somewhere in the region of 300k wishlists, and had around 17.6k followers. Peak CCU was 3,513 and it's still holding above 3k a week later. It's currently sitting on a 78% positive review score from 829 reviews.
• A lower base price of $14.99 has been chosen for the game, with an additional duck-ops edition priced at $19.99 that includes a supporter pack. It still carries a launch discount of 35% on the base game and 45% on the duck-ops edition, taking the prices down to $9.74 and $10.99, respectively.
• It's early days, but the game is still the #144 top selling game on Steam (translating to low-to-mid single digit thousands of copies sold each day) and I'd estimate it to have sold at least 50k copies in total to this point. This would equate to net revenue of around $300k (0.6 x $9.99 x 50k).
• We'll have to keep track of how well it does over the coming weeks, particularly after the launch discount ends, but it's off to a good start.

Now let's move on to some of the upcoming releases:

• Streets of Rogue 2 - This is set to release on 22 Oct, and is currently ranked the #62 most wishlisted game on Steam (equating to around 500k wishlists). It has just over 27k followers, in addition to the 95.7k that follow the first game.
• If it delivers on release, I'd estimate this has the potential to do 5k-10k CCU and sell north of 100k copies in the first 7 days. Pricing is likely to be around the base price of the first game at $19.99, though possibly with some kind of launch discount. I expect they'll also bundle it with the first game to juice up revenue a bit.
• There's supposed to be a playtest happening before the early access launch, and with the October Next Fest running from the 14th to the 21st, it seems no accident that the 22nd was chosen as the release date. The entry of a demo into this event could really supercharge the launch.
• Kingmakers - Now we move to the big daddy of the pipeline. Kingmakers is currently ranked #23 in the Steam wishlist rankings (equating to around 1 million wishlists) and has over 51k followers.
• The sky's really the limit with this game. If it becomes a breakout hit, we could be looking at millions of copies sold in the first year, and ongoing sales of a similar magnitude thereafter. In the downside scenario of a flop, the current wishlist count means we'd still expect to see it sell a few hundred thousand copies.
• With the potential for game sequels set in other locations and historic periods, and the announcement of a live action movie project in the works, there's a very rich franchise opportunity should the initial game be a success.
• While we don't have a hard release date yet, it's currently planned for 2024, meaning we should expect an announcement shortly, and given the price of comparable early access titles, I'd expect it sell for between $30-$40.
• SAND - This game has been steadily gaining momentum over recent months and now sits at #72 in the wishlist rankings (equating to around 400k wishlists), with over 28k followers.
• There's no firm release date yet, but they've begun accepting sign-ups to a playtest expected to take place in early Q4 this year. On this basis, we might expect the early access release to occur in H1 2025.
• Pricing wise, we can perhaps expect something similar to Level Zero: Extraction, so around $20 for the base game and then some higher priced tiers.
• It's quite possible they'll look to have the playtest during the upcoming October Next Fest. This strategy worked very well with LZE, Duckside and Drill Core back in June, and could help propel SAND to around the 500k wishlist mark at launch.
• Ferocious - Currently sits at #134 in the wishlist rankings (equating to somewhere between 200k-250k wishlists) and has over 19.6k followers.
• We don't have a release date yet, but they are accepting applications for a playtest, so this is another one that could be taking place in Q4, and possibly during the October Next Fest. A successful playtest will hopefully take it into the top-100 wishlist rankings before launch.
• The King is Watching and Voin - These two games are likely to be significantly smaller than the aforementioned titles. They currently sit at #736 and #550 in the wishlist rankings, with around 2.3k and 4.2k followers, respectively. Their combined wishlist count is likely to be less than 100k.
• We don't have release dates for either game, but both have demos and The King is Watching is slated for release during Q4 2024.
• Welcome to Raven Brooks S2 - The first two episodes of season 2 of the Hello Neighbor animated series are set to premier on 10 Oct, with the rest of the episodes being released at a weekly cadence thereafter.
• The third season is currently in production, and I expect its release will be timed to coincide with the next Hello Neighbor game.
• Deadside - Finally, I wanted to mention a major update coming to Deadside in the near future, that will bring, amongst other things, an entirely reworked building system, a large new region of the map containing a military airfield, and land vehicles (a jeep and several varieties of motorcycle).
• They've been working for a long time to bring land vehicles to the game, and it is by far the most requested feature by players. Their addition brings the v1.0 finish line firmly into sight.
• In terms of immediate sales, I'd expect this update, which will also coincide with the release of a new paid DLC, to generate a significant spike - much like the addition of the city of Kamensk in the last major update.
• This game is still one of the largest in the portfolio, with over 100k steam followers and 30k reviews. I'd put total copies sold at >1m, and somewhere between 100k-200k in the last 12 months.

My thoughts

I'll end with my thoughts, which on the whole are positive.

The company has very significantly reduced to its cost base, and looks to be approaching a level where it can be covered by back catalogue revenue alone.

Uncertainty around the cash balance is keeping the share price subdued, but I feel we are very near the inflection point for both cash flows and investor sentiment.

I believe management when they say their current pipeline is the strongest in the company's history, and if they can successfully navigate through the coming 12 months, all the franchise potential envisioned around the time of the IPO can still be realised.

It also seems that they have been suitably chastened by the events of the last couple of years, with a renewed focus on ensuring the success of each individual title, and executives taking a much more active role in their development.

Key milestones to watch in the coming months will be the launch of Streets of Rogue 2 and Kingmakers. If these do well, next year will look a lot brighter than any of the analyst forecasts, and the current price will be a screaming bargain. If they don't, then we're back to bailing out the ship, and further cost reduction measures will be necessary.