Half Year Results

26 September 2024

Devolver Digital, Inc.

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

Unaudited results for the six months ended 30 June 2024

Return to Adjusted EBITDA profitability as expected, on track to meet FY 2024 guidance

Devolver Digital, the award-winning digital publisher and developer of independent ("indie") video games, announces its unaudited results for the six months ended 30 June 2024. All figures relate to this period unless otherwise stated.

A focused strategy driving return to growth

·    1H 2024 trading in line with expectations.

·    Growth driven by strong back catalogue sales, contribution from new releases and improvement in platform deals.

o  3 new titles released in 1H 2024 (1H 2023: 4), with record-matching average Metacritic score of 80 (76 average for 1H 2023).

o  Back catalogue revenues up 22%, accounting for 89% of game sales revenues (1H 2023: 87%), reflecting the continued strong performance of Cult of the Lamb and other key titles, plus the new contribution from System Era's Astroneer title.

o  Platform deals saw recovery from 2023's low level, being weighted to 1H 2024.

·    System Era, acquired last year, is performing in line with expectations and is integrating well, adding a full six-month contribution to 1H 2024 revenues.

Financial performance - return to EBITDA profit

·    Revenues in line with FY24 expectations:

o  1H 2024 revenues up 18% to $51.6m; Adjusted Gross Profit up 62% to $15.3m.

·    Strong execution and operational discipline leading to improved Adjusted EBITDA profit, as previously guided:

o  1H 2024 Adjusted EBITDA profit of US$4.7m, pre non-cash impairment (1H 2023: US$2.5m loss).

·    Non-cash impairment of US$1.7m recorded in 1H 2024 (1H 2023: US$0.9m) relating to previous releases where sales have been softer than expected.

·    Statutory net loss of US$4.5m¹ (1H 2023: US$10.1m loss).

·    Cash of US$31.9m as of 30 June 2024 (year end 2023: US$42.7m), not including $9.8m net proceeds from the primary issuance of shares in early July 2024.

Current trading and outlook

·    10 new titles expected for full year 2024, with 7 releases in 2H 2024: Anger Foot, The Crush House, Sumerian Six, Demon's Mirror, The Plucky Squire, Neva and Stronghold Castles. 

·    System Era integration on track with full year contribution in FY 2024.

·    Strong Balance Sheet boosted by $9.8m primary share placement in July 2024.

·    On track to meet previous guidance: revenues over US$100m and Adjusted EBITDA after non-cash impairments in the mid-single digit US$ millions. We continue to expect an improvement in 2025.

·    Healthy pipeline of more than 30 new titles due for release in the next three years.

Harry Miller, Executive Chairman of Devolver, said:

"As expected, the first half of 2024 saw a return to Adjusted EBITDA profitability, driven by strong back catalogue revenues supplemented by new releases, an improvement in platform deals and a solid first half contribution from new acquisition System Era. We are pleased with the record high average Metacritic ratings in 1H 2024, which we believe can bolster the longevity of our games.

We are building momentum going into 2H 2024, with 6 new titles including the highly anticipated release of Neva in October, on the back of the recent success of The Plucky Squire. We reiterate our guidance for FY 2024, with improvements expected through 2025 and 2026."

Notes

1.   Including non-cash impact of US$2.4m of share-based payments.

About Devolver Digital

Devolver is an award-winning video games publisher in the indie games space with a balanced portfolio of third-party and own-IP. Devolver has an emphasis on premium games and has published more than 120 titles, with more than 30 titles in the pipeline scheduled for release over the next three years. Devolver has in-house studios developing first-party IP titles and a complementary publishing brand. Devolver is registered in Wilmington, Delaware, USA.

Enquiries

OPERATING REVIEW

1H 2024 - return to profit, with three new high Metacritic titles

Devolver released 3 new well-received titles in 1H 2024 - Dicefolk, Pepper Grinder and Children of the Sun - with an average Metacritic rating of 80, matching the record high average for a single six-month period. High Metacritic scores and positive user ratings are important as they help to bolster the longevity of releases.

The quiet release schedule mirrored that of 1H 2023 (4 titles), but 1H 2024 overall revenue benefitted from a significant contribution from platform deals for front and back catalogue, as well as the addition of a full six-month contribution from recent acquisition System Era. These two factors drove an 18% YOY increase in total group revenue in the first half of this year compared to 1H 2023.

Hit releases support 22% growth in back catalogue

Fan favourite Cult of The Lamb provided strong revenue momentum in 1H 2024, a trend continuing through this summer. The contribution from Cult of The Lamb, in combination with a full six-month contribution from recent acquisition System Era's Astroneer game, drove a 22% increase in back catalogue revenues in 1H 2024 compared to the previous year period. BAFTA-winning Inscryption also continued to perform well in the first six months of 2024, alongside other evergreen titles in Devolver's back catalogue.

The strong growth in back catalogue revenues, coupled with a lighter release schedule in 1H 2024, meant that back catalogue revenues accounted for 89% of  game sales revenues (1H 2023: 87%). Our back catalogue includes all titles released in or prior to the last financial year (2023 or earlier). As of 1 January 2024, the back catalogue consists of over 120 titles, including numerous indie cult classics, supporting highly diversified revenues.

Summer Game Fest 2024

Devolver marked June 2024 with celebrations in the summer showcase to commemorate the company's 15^th year anniversary of its founding. Devolver's iconic live broadcast formed part of the Summer Game Fest 2024 in June, featuring reveals of future new releases and expansions to fan favourites Cult of the Lamb and The Talos Principle 2. New titles included Possessors, a slick side-scrolling action game from developer Heart Machine, the creators of Solar Ash and Hyper Light Drifter, and a reveal for Tenjutsu, the pending release from Dead Cells lead developer Deepnight Games. The game puts players in the role of a renegade yakuza fighting through the criminal underworld and mixes pixel art visuals with some fast-paced action.

Recent releases Anger Foot and Crush House received attention, and we also highlighted the Road to Elysium expansion from The Talos Principle 2, introducing a host of new challenges spread across three chapters - Orpheus Ascending, Isle of the Blessed, and Into the Abyss - each with their own look and storyline. The broadcast also highlighted Cult of the Lamb's Unholy Alliance expansion (rolled out on August 12^th), which included some new quests, gear and other items, and added a co-op gameplay mode, underscoring our commitment to successful title expansion.

Disciplined Cost Control

Devolver successfully controlled operating expenses in 1H 2024, with growth in revenues outstripping total operating expenses, resulting in margin expansion in both gross profit and Adjusted EBITDA.

FINANCIAL REVIEW

Unaudited first half 2024 results to June 30 2024

The unaudited financial results included in this announcement cover the Group's combined activities for the six months ended 30^th June 2024 (prepared in accordance with applicable International Financial Reporting Standards, "IFRS").

Adjusted results

The following refers to Adjusted results, as presented in the financial statements contained within this release. Adjusted results exclude any one-time exceptional items during the respective half-year periods.

Adjusted EBITDA results are not intended to replace statutory results and are prepared to provide a more comparable indication of the Group's core business performance by removing the impact of certain items including exceptional items (material and non-recurring), and other, non-trading, items that are reported separately. These results have been presented to provide users with additional information and analysis of the Group's performance, consistent with how the Board monitors results. Further details of adjustments are given in Note 4 to the condensed financial statements contained within this semi-annual results release.

P&L results and margins

Devolver Digital's first half 2024 performance was in line with expectations, with 3 new title releases compared to 4 titles released in 1H 2023. Revenues of US$51.6 million rose 18% year-over-year. Gross profit was US$15.3 million, an increase of 62% year-over-year. Adjusted EBITDA after non-cash impairments delivered a profit of US$3.0 million versus a US$3.5 million loss in 1H 2023.

Gross profit margin increased to 29.6% in the first half of 2024, up from 21.4% in the year-earlier period. Gross margin expansion was a result of first-party IP contributions from late 2023 new releases, other new releases in recoup in 1H 2024, and a full six-month contribution from Astroneer, System Era's popular expandable game. This compares to 1H 2023 when the royalty pay-out mix was heavily weighted towards third party titles.

Adjusted EBITDA margins before non-cash impairments improved to a positive 9.1% from a negative 5.7% in the first half of 2023. The expansion in 1H 2024 gross profit had a direct flow-through effect which benefitted Adjusted EBITDA.

Statutory net loss for 1H 2024 was US$4.5m, improved from the US$10.1m loss in 1H 2023.

Cash Balances

Cash holdings at end of June 2024 were US$31.9 million, a reduction of US$10.8 million compared to end of 2023's level of US$42.7 million, on the back of continued investment into game development. After the period end, a primary share placement in July 2024 resulted in net proceeds of US$9.8m. Devolver has no borrowings across the Group.

Appointment of Joint Broker

We are pleased to have Panmure Liberum join the Devolver family as Joint Broker to assist in broadening our investor coverage and business scope.

CURRENT TRADING OUTLOOK

Our busy release schedule for 2H 2024 has already featured Anger Foot, The Crush House, Sumerian Six and Demon's Mirror, as well as major title The Plucky Squire. NEVA, from the developers of the award-winning Gris, will release in October, alongside the mobile title Stronghold Castles from our subsidiary Firefly. The Plucky Squire released with a Metacritic score of 81 and very positive user reviews. NEVA, slated for release in October, has had very positive pre-release trailers, and has also built a healthy wishlist ahead of launch.

Trading for the full year 2024 continues to be in line with consensus expectations of revenues exceeding US$100 million and Adjusted EBITDA to be in the mid-single digit US$ millions, with improvements expected through 2025 and 2026.

Our momentum, robust balance sheet, deep pipeline and strong contribution from extensive back catalogue all support our confidence of further progress in 2025 and in the future. The Board believes that we are well positioned for future success, and we look forward to reporting on our progress into 2025.

Harry Miller

Chief Executive Officer

Condensed Consolidated Statement of Profit or Loss

*Adjusted EBITDA is a non-IFRS measure and is defined as earnings before interest, tax, depreciation, amortisation (but does not exclude amortisation of capitalised software development costs), share-based payment expenses, foreign exchange gains or losses and one-time non-recurring items and non-trading items.

For the six months ended 30 June 2023, the Group distinguished between Normalised Adjusted EBITDA and Adjusted EBITDA and presented both measures. This distinction was removed post June 2023 for a simpler, clearer presentation in line with industry peers,  and therefore the Adjusted EBITDA for the six months ended 30 June 2023 as previously reported is no longer presented, and the Normalised Adjusted EBITDA previously reported is presented as Adjusted EBITDA in the above table.

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Statement of Financial Position

*Due to the identification of an additional tax liability for prior periods relating to state income taxes, the reported financials for the period ended 30 June 2023 have been adjusted for a US$1.6 million increase in the non-current Trade and other payables and a US$1.6 million decrease in opening Retained earnings.

Condensed Consolidated Statement of Changes in Equity

Condensed Consolidated Statement of Cash Flows

Note 1: Basis of preparation 

These condensed consolidated financial statements have been prepared in accordance with the recognition and measurement requirements of International Accounting Standard 34 Interim Financial Reporting. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. The condensed consolidated financial statements as at and for the six months ended June 30, 2024 have been prepared on the same basis as the audited annual financial statements.

Operating results for the six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. For further information, refer to the consolidated financial statements and footnotes thereto included in the Group's annual report for the year ended December 31, 2023.

The Directors are confident that the Group will remain cash positive and will have sufficient funds to continue to meet its liabilities as they fall due for a period of at least 12 months from the date of this first half 2024 announcement and have therefore prepared this unaudited semi-annual announcement on a going concern basis.

Tax charged within 6 months ended 30 June 2024 has been calculated by applying the effective rate of tax which is expected to apply to the Group for the year ending 31 December 2024 as required by IAS 34 Interim Financial Reporting.

The financial presentation in this release should be read in conjunction with the notes to the consolidated financial statements as at and for the first half ended 30 June 2024, as contained within this release.

These preliminary unaudited financial statements were approved by the Board of Directors on 25 September 2024.

Note 2: Revenue

The Group does not provide any information on the geographical breakdown of revenues, as game publishing revenue is earned via third-party distribution platforms which hold the sales data of end consumers.

Note 3: Earnings Per Share

Note 4: Adjusted Results

*Adjusted EBITDA is a non-IFRS measure and is defined as earnings before interest, tax, depreciation, amortisation (but not excluding amortisation of capitalised software development costs), share-based payment expenses, foreign exchange gains or losses and one-time non-recurring items and non-trading items.

For the six months ended 30 June 2023, the Group distinguished between Normalised Adjusted EBITDA and Adjusted EBITDA and presented both measures. This distinction was removed post June 2023 for a simpler, clearer presentation in line with industry peers,  and therefore the Adjusted EBITDA for the six months ended 30 June 2023 as previously reported is no longer presented, and the Normalised Adjusted EBITDA previously reported is presented as Adjusted EBITDA in the above table.

A reconciliation from the operating loss to adjusted EBITDA is set out in the table below:

Note 5: Intangible Assets