Operator  

Good afternoon, and welcome to the tinyBuild, Inc. Investor presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company can view all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Alex Nichiporchik, CEO. Good afternoon, sir.

Alex Nichiporchik   Co-Founder, CEO & Executive Director

This really underpins our business as a whole and creates a solid base for us to continue growing.

Now if we look at the IP portfolio, last year, we had a higher share of revenues from third-party IP, and that was mostly strategic with sequels to legacy titles that we have, and we're now back to 78% of revenues coming from our own intellectual property. And this will be more important -- more evidently important later on. And if you look at the chart on the left side of the slide, we continue to diversify our revenues. So we're not dependent on a single title or anything like that. This is a testament to the work that we do on our portfolio and we continue to invest into it, creating a safety cushion for the business.

If we look at the back catalog, I just want to highlight a few games here that you should check out. They're on the slide here. It's Streets of Rogue, it's Secret Neighbor, it's [ Despot's Game], it's Deadside, et cetera. So in general, our back catalog is very healthy and continues to generate meaningful revenues for the business. And with that, I will hand it over to the financial review before taking it over on the strategy side.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

First half of 2024, so net game revenues, excluding events for 20% as we still suffer from a lower platform deals, peaked in 2022. In terms of adjusted EBITDA, we reported $1.9 million loss in the first half of 2024 with a positive underlying trend month-on-month from the beginning of the year, that leaves us confident in achieving consensus around breakeven for adjusted EBITDA for the full year and to close in terms of net cash from operations on the right-hand side, dropped to $2 million in the first half of the year as we supported -- as we went through some one-off charges, which are not necessarily disclosed separately, including restructuring charges and still exceptional cost for the war in Ukraine.

Diving a little deeper in the profit and loss, breaking down revenues. Revenues from direct sales of games were down only 4%, showing how resilient the business is in underlying terms. Development Services, which include platform deals was actually down 31%, and that's really what's moving the needle in the first half of the year.

You can see on cost of sales and G&A, the strong impact of our cost saving plan put in action at the end of last year and beginning of this year, a drop of 16% and 28%, respectively. This now cut back in line with our expectations, and we are ready for a more balanced second half. I also want to call out a EUR 3 million impairment of development costs, which relates to Broken Roads, one of the last games released by Versus Evil, which delivered below expectations.

In this chart, we look a little bit more in the asset platform deals, a very large peak in 2022, a very sharp drop in 2023 and the further drop in H1 2024. Year-on-year, there is still a decline, which means that the second half of the year, we're going to have slightly easier comps, at least in terms of platform deals.

Moving to cash flow. Net cash from operations, as I said, $1.9 -- $2 million positive that has some change in net working capital, which are mostly related to seasonality and timing. We have typically a strong Q4 in terms of P&L with cash [ received ] in the part of the year. But what I really want to call out on this slide is the software development charge, which moved from $16 million -- $17 million to $8.7 million in the first half of 2024, witnessing our strong commitment to cost cutting and to align investments with the revenues.

This chart shows more clearly the effort we took in terms of development software, software development costs peaked in the second half of 2022, and came down sharply from $21,500 to only $8,700 in the first half of the year. On the right-hand side, we combine software development and M&A. And you can see small disposals happen in the first part of the year. In 2024, two small IPs that are not consistent with our strategy of 1,000-hour game and allowed us to strengthen our financial position.

In terms of balance sheet, what I really want to call out is the cash at the end of the year, $9.2 million -- at the end of June, $9.2 million cash at the end of June. And in this slide, you see positive cash generation, the positive impact of the share issuance in January, the net working capital and software development cost, M&A positive, as I said, disposals to add up to $9.2 million at the end of the half.

We're going to continue to use cash in the second half of the year as we near the release of some high-potential games and larger budget games we have been investing. Back over to you, Alex.

Alex Nichiporchik   Co-Founder, CEO & Executive Director

Thank you so much, Jaz. Now if we look at the games launched so far in 2024, we've actually had quite a busy first half and more recently, a very busy summer. I would want to point out that the first four are legacy titles and are not necessarily part of our core strategy. That said, we did have a pleasant surprise with low Lil' Gardsman, which is a very, very wonderful game that had a lot of positive reception and will have a strong long tail going into the end of this year and into next year.

Now the games that I do want to mention fall into our 1,000-hour game strategy. Many [ acute ] investors have noticed the launch of Level Zero: Extraction earlier in August, which is a tactical extraction horror game where we have alien and mercenaries fighting it out. Now the game had a really great launch and then has seen some of its player numbers go down. And we are working on fixing that because we have very clear feedback from players, and we understand exactly what to do.

This game is an early access, and this is to be expected. Some of our most popular games have had similar launch situations where at launch, we get a lot of players. And then we do a lot of modifications, rebalancing, adding features and then they go back up. That said, I will want to focus this slide, on the two bottom ones, Duckside and Drill Core. So Drill Core launched a few weeks ago. It is from our own internal studio that previously launched the game called Black Skylands to a lot of fan reception.

And Drill Core is a game -- the next game by that studio that focuses on very systems-driven gameplay, infinite replayability, et cetera. And we are seeing that in the player numbers.

If you look at the CCU or concurrent users chart of the game, you will see that within the first week of its launch, it gained more peak players than the day before. And this is exactly what we want to see with the 1000-hour games because the more time players spend in the game, the more users the game will actually attract because we know the users are enjoying the game, they already recommended to other players, and that makes our marketing efforts so much easier.

Please take a look at the SteamDB stats for Drill Core to understand what I mean. And more recently, we have had a very first in the company's history with the launch of Duckside last Wednesday. So for acute investors, you will know that we bought a company called Bad Pixel responsible for a game called Deadside, which is a survival PVP show.

And what we did is for our Studio in Riga, Latvia, tinyBuild Riga, we Took the technology of that site and allow the studio at Riga to reiterate on it because the technology is very unique. It allows over 50 players to be on the same map, build a lot of constructions, build their own basis and be able to compete with each other for resources. This is extremely difficult to do. And within 10 months of starting development on Duckside, we were able to launch it last Wednesday. And between Wednesday and yesterday, Sunday, we were gaining more and more concurrent players at their peak.

This is a testament to technology being shared between our studios and really an example of when a studio that we have internally ships a game, which is very important to be able to ship a game. They have shipped Hello Engineer, which was a Hello Neighbor spinoff game for the Google Stadia. And in a record time, we were able to ship another game with that studio that has now gained a lot of fanfare. I'm happy to answer questions about that one.

But this shows how using a lot of data-driven decisions, data-driven marketing, we are able to, in record time, set the precedent for a game launching that is essentially a massive multiplayer game was[ Duckside ] that was announced on April 1 to take the market by storm. So I'm really excited about that one, and please send us questions about that one.

That said, going towards the pipeline. We have a very exciting pipeline that is announced. We have more games, obviously, in the works. I just want to highlight a couple of games here. The one that does have a launch date is Streets of Rogue 2, which is set to the end of October, which is the highly anticipated sequel to the original.

Please consider going to the Streets of Rogue team page and scroll all the way down to the reviews there and see the amount of hours that players have spent in the original. So we have been working on the sequel for a few years, and that's coming at the end of October.

Another obvious one that I'm sure many people have submitted questions about is Kingmakers. Kingmakers is a unique example of when you have a technology into works for years under the hood that gave players something that they were not expecting, yet they know they want it. So the premise of Kingmakers is that you have a time traveling van of all things, kind of going back to the future. And you travel back in time to medieval [ boroughs ] in England with modern weapons and you're able to mow down thousands upon thousands of enemies on screen. It sounds like something a 5-year-old me would come up with. And yes, it is true. Yet no one was able to make a thing like that.

And the announcement -- the reception has been absolutely phenomenal. There's a lot of expectations for this game, and we are going to be sharing the release plans for that relatively soon. Another title that is in the portfolio that is making a lot of traction is Sand, created by the studio behind one of our most most-played games, I would say, Secret Neighbor, which is Hello Neighbor spinoff, Sand takes you to the planet of Sofie, where players compete for resources in giant walking [ maps ] that are also their basis. So for context, in games like Duckside and Deadside, players build basis to store their loot and those remain in a single location on the map.

Here you have a walking base, you have a lot of risk and also a lot of reward because you can steal other players look loot while competing on this phenomenal world that the team has designed. Now just a reminder on our 5-year plan. We're still on track this year. We are launching more big titles, and we have actually recently gotten into a Live action media With a brief announcement from Story Kitchen on an upcoming Kingmakers film. That said, we are really excited by live action media and also animation because animation has been at the core of our business for the past few years with Hello Neighbor franchise, and I will talk about that in depth.

But the idea is that while platform deals right now on the gaming side are a little bit deflated. What we're seeing is that Hollywood is actually very hungry for great intellectual property. And if you watch the Fallout TV series, you don't need to be a fan of the games to really enjoy that series. And this shows how in video games, you can create an IP from essentially scratch and then overnight become a worldwide phenomenon.

And this is where I believe the businesses will converge in the next couple of years, where we will have cross media originating from video games and then transitioning to theaters to streaming services, et cetera. So this is a really exciting time, and I'm going to talk a little bit more in depth about the Hello Neighbor animated series styled Welcome To Raven Brooks. We have launched Season 1 just over a year ago. And so far, it has generated over 275 million minutes watched.

Now for some million minutes watched is a weird term. This is what the Nielsen rating uses. To contextualize this, the most expensive show in the world Rings of Power based on a Lord of the Rings by Amazon has generated about 1 billion minutes watched in its first week. Now I understand that this is not apples-to-apples, but this is just context. we are releasing Season 2, this Halloween and Season 3 is currently in production. And what we have seen is a direct correlation between an uplift in sales and traction for the animated series.

And with really lore-rich franchises such as Hello Neighbor, we're seeing that putting that lore into a linear media format that is easily consumable, actually, expands the audience and fans are calling this the best product within the franchise. And that's outside of millions of books sold, millions of game downloads across all platforms, et cetera. So we are really excited about the future of doing this cross media strategy and fueling our core business, which is video games. To close off, just to remind everyone about our core strategy, we are a global developer publisher.

We invest into intellectual property with the ultimate goal to bring that IP to multiple media formats, to expand it and to unlock its full potential over the years. And you may not know this, but typically, the video game intellectual property unlocks its full potential over the course of a decade or even more. We have seen this with major publishers like CAPCOM with a Resident Evil series and countless others.

So we're really excited to continue following the strategy because we strongly believe in it. And the Board does remain confident that we have adopted the right strategy and we are on track to deliver within expectations. And with that, let's dive into Q&A. I see we have a lot of questions.

Operator  

[Operator Instructions] I'd like to remind you the recording of the presentation along with the copy of the slides and the published Q&A can be accessed by your Investor dashboard. As you can see, as you just said, Alex, we have received a number of questions throughout today's presentation, and thank you very much for investors for those. And Jaz, if I may just hand back to you and just click on that Q&A tab, more appropriate to do so readout the question. I'll pick up from you at the end.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Certainly, I've tried to regroup the questions already received in different sections. So starting with games. The first question is on Hello Neighbor 2. What changes have you made or can be made to improve Hello Neighbor 2? Would you consider improving existing game to align it to the 1000-hour strategy, for example, adding multiplayer, making a map more open world or what else?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

With Hello Neighbor 2, it has been quite an interesting challenge in terms of development because we have always anticipated the game to be more open world. That said, in the public domain, there have been some developments within the Hello Neighbor franchise that I cannot disclose the insights of, but if you search for RBO on Steam, you will get an idea of what we are cooking, and it does involve multiplayer and I can neither confirm or deny if it's part of the Hello Neighbor franchise.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Second question on Level Zero: Extraction, actually, a few questions on LZE. Can you discuss the performance of LZE to date? Why has the momentum faded into launch compared to the beta and the demos?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

Yes. So the launch has actually been quite the momentum. There was a lot of traction behind it. And the challenge with these kind of games is we really wanted to make an asymmetrical game, so you have two classes of players within any match. You have the Aliens and the mercenaries. The aliens are fighting the mercenaries, and the mercenaries are also fighting each other.

And the challenge was that kind of game design is balance of how do you make it [ infinitely ] payable because, if you look at the reviews, whenever we do a patch and we do a, it's called a Buff, so essentially making one side stronger than the other. Then The side that is not made stronger is really upset.

And we have a clear plan over the next few months of how to use data-driven decisions to turn that around. It is definitely a challenge and it's also an exciting one.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

What is the strategy to get players back, again on LZE?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

The strategy is updates that revolve around major changes to spice up the gameplay.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

And what about the impact of cheaters in the game?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

Right. So if you've done your homework and I see the person that asked that question has done it. What we did on launch day is we had a press event where because of some technicalities, the anti-cheat system was not implemented for the first about 6 hours of the launch day, and that's when we got a lot of comments about cheaters. That issue has been fixed. Let me just caveat that. You can never fully fix a cheater problem in an online player-versus-player game. But right now, it is much smaller than it was on launch.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Moving on to Rawmen. How has Rawmen actually done in terms of revenues? And do you regret going for free-to-play?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

I still believe that the strategy of going free to play on the Epic games Store was the right one. The question is, if we can turn the stats around and make sure that users continuously -- continue playing. That is an ongoing project that we are still committed to. And I'm excited about's Epic marketing capability, which has not been fully realized yet for when we turn the stats around for that title.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Moving on to Duckside. Is there any cannibalization with Deadside in terms of players? And how did you determine the price for Duckside?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

Right. So Duckside, as I mentioned, shares the game engine of Deadside. And we're actually not seeing cannibalization at all because even though they're in the same genre, the Deadside target audience is much more hardcore, and they come from military style shooters. And while Duckside actually fixes a few issues that casual players have with hardcore survival shooters.

And there are two main issues with that. One is the amount of running because in an open world, if you get taken out by other players, and you don't have respawn points around, there's a lot of running in idle time. And some players do enjoy that, and that is a lot of the Deadside side. While in Duckside, you fly. That was the thing that we wanted to fix. We wanted to make the character controller really fluid and mobile.

The second issue that players have in these style games, it is called roof campaign. When you build a large base, you sit on your roof, you're untouchable and you just take off players and well, essentially laugh at them. Again, in Duckside since you are able to fly, there is no such thing as roof campaign. So the crossover is, it is there, but it's also quite minimal in terms of the more hardcore versus the more casual players and players will hate me for calling them casual because the game is still very difficult, but it's more accessible, I would say.

The price point for the Duckside, we had a lot of discussions about because what we believe is that a lot of players don't know that they will love this kind of genre. A lot of players in Duckside have been playing what's called PVE survival games, so player versus environment, where there is no player-versus-player interaction. So there is no risk dying to another player.

And we determined that a $15 price point would be a really accessible way for players to experience that which we're seeing with the concurrent player of numbers. And also, we launched with a large discount that puts us just below $10, which gives game a lot more visibility, which I do believe is paying off right now.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

I want to close on that Deadside. Is the engine, the game engine possibly usable for other games like Sand or else?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

So Sand does use a different game engine because of its mechanics where you have giant walking bases. But one would be smart to assume that reusing existing technology might be fruitful.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Moving on to Streets of Rogue. Does tinyBuild own the Ip?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

Do we ever disclosed that? Well, it is an internal studio, so yes.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Moving on to Kingmakers. It has become one of the most anticipated titles since reveal. Can you give more color on the upside of the game?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

So the game is one of those rare [ lighting and ball ] situations where everything went right with the REVEAL and with the upcoming marketing [ beats ]. We are knee deep or probably neck deep at this point in the game design to make sure that we deliver something that players, on one hand, expect and on the other hand will be really pleased by. So there is a lot of pressure on us with Kingmakers and I'm personally committed to making sure that the game launches in its best shape and form.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Is this an internal studio for Kingmakers or external? And do we own the IP?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

I will revert the second question to you because I'm not sure if we have ever revealed that. That said, it is an external studio that we have a great relationship with that had previously launched a hit game called Road Redemption.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Yes. We haven't disclosed the IP ownership. Moving on to more questions on games, more general questions. How do you ensure you attract the casual less committed players to 1,000-hour games?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

That is a phenomenal question. I think what makes a more casual game great is when it becomes a habit. And what I mean buily that is when every night you sit down in front of your PC or maybe your portable device, and that is your go to game to relax. And I think the best example we have so far is one of the most recent ones is the Drill Core. We see players coming back every night and spending 2, 3, 4, 5 hours of just like one more match.

And while the game visually appears, maybe a little bit more hard core, through the Steam recommendations engine, we were able to attract an audience that just continues playing it and never actually knew that they would enjoy it so much.

So for anyone who hasn't tried Drill Core, if you're remotely gamer, if you like, games like the classic mine sweeper or one of my all-time favorites Kingdom Rush or any tower defense game, please try it, you will love it.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Okay. Next question. Beyond you announced the pipeline of games, are there any other major title under development?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

We are always developing titles and doing a lot of them in stealth mode before revealing them. So we have a lot of games in development.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Shifting your strategy from building games -- game franchises to building 1,000-hour games, it seems risky because this success is less predictable. Why have you chosen this focus for new games?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

It's not a shift in strategy. It's the same strategy. We are building franchises out of games that players spend a lot of time. And therefore, if a player enjoys the game and continues playing it, it increases our chances of building a franchise. On the other hand, just for context, building a franchise out of a really expensive game that might win all of the Game of the Year awards that players play, let's say, for 10 or 20 hours is much more difficult because the expectations set by that original that players do love, they will finish it.

Between getting another title that players really enjoy within that franchise is just too much of a risk. So this is the less risky move to focus on systems-driven gameplay that players spend a lot of time in.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Moving on to multimedia. Can you disclose what is tinyBuild spending on the Kingmakers movie?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

We cannot disclose that, but what I will say is that we are not interested in funding expensive ventures ourselves.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Can you discuss the economics of Welcome to Raven Brooks Season 2 and possibly also of Kingmakers?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

I cannot discuss Kingmakers. What I can say is that the animated series for Hello Neighbor: Welcome to Raven Brooks has had a very positive effect on our core game sales. So that one is a very strategic investment that we have done that we're seeing is contributing to the franchise as a whole in a very positive way.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

How significant is the contribution to adjusted EBITDA generated from multimedia?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

That will be a question to you, Jaz. I don't think we've ever disclosed it.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Yes. So the multimedia bit is complicated for what Alex just said in terms of cross-pollination to games. So every time we start a multimedia project, we'll make sure that the Multimedia project pays for itself, which means limiting the budget on one side and making sure that we have that positive impact on game sales.

We are expanding our channels for Welcome to Raven Brooks. We added, for example, Amazon, giving us more visibility. And we're looking forward to the launch of Season 2 on Welcome to Raven Brooks. The trailers for Season 2 have been very well received. And we now have a good install base of followers. We're looking forward to that to see a more direct contribution to adjusted EBITDA.

Alex Nichiporchik   Co-Founder, CEO & Executive Director

Just for context on that, if you go to our YouTube YouTube.com/tinyBuildgames and go to the community tab, you will see the amount of engagement we get whenever we post any screen shot or GIF or a trailer for the Season 2 of the animated series.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Moving on to more financial questions, starting with a couple of questions on compensation. Why there is not an executive share-based compensation scheme? And maybe I can take that one. We are always working on improving compensation schemes for executive and not. There have been complications very, very plainly in particular due to the conflict in Ukraine. We have -- we think we're close to finding a solution and there might be an announcement soon.

What we have been trying to do internally is to make sure that everybody has a regular conversation to -- with the reporting manager and making sure that the compensation is adequate and revised the frequency.

Another question conversation is why not change executive performance-based payout to be linked to per share data. We have considered that, and that's still under consideration. There are drawbacks in moving to per share data like there are drawbacks in focusing only on revenues or only on profitability or only on cash. The best performance plan, the best targets are the ones that are fully embraced by everybody, management and the whole company. And for that, again, with the messaging internally and the teamwork internally needs to be -- and it should be the focus more than the actual measure per se.

Moving on to financials. What is the outlook for the depreciation and amortization in the coming years, given the level of capitalized software development in recent years. Is 2024 peak year for D&A or that could increase in 2025?

So We have spoken very openly about the launch of new high potential games. High-potential games also means higher budgets, slightly higher budget or higher budget together. So there will be an increase in amortization of debt costs in 2025 as new games, new higher potential games launch. When can we expect a return to positive free cash flow generation? Another question. Consensus for this year is looking at around breakeven at the adjusted EBITDA level. It's going to take a little longer to get to positive free cash flow generation. We will have to go through the launch of these games. Bear in mind that towards the last phase of development of the game, you incur a higher cost that being a localization or QA or the same marketing.

So just before launching a bigger game, you're going to have a bigger cash need, which will then be offset by the coming revenues. Next question. How much in software development cost has, on average, been spent on each of the major titles to be released in 2024 and 2025. And how confident are you in achieving good returns on investment?

We haven't given out an average number. We have broken out softer development costs in past slides, and we might do that in future, if there is interest showing that we were investing in over 30 titles and that is a good metric to bear in mind.

Next question. Where should we expect the growth and operating margins to trend in 2025 given the level of own IP games being released? We are focusing on IP. We're focusing on improving gross margins and as a result of operating margins. The primary driver of margins at this point is going to be revenue growth. So we need to work on the titles on the high potential titles we have very carefully and make sure that the launch is successful.

Another question. Following the sale of several IPs recently, can you discuss the opportunities to unlock value from other assets in the company. For context, we have sold the two IPs in the first half of the year, Surgeon Simulation and Totally Reliable Delivery Services. We are always looking at our portfolio. There is nothing I can say, of course, about discussions in the future. if an IP or else doesn't belong, doesn't get the right valuation inside the portfolio, the disposal is possible. At this point, I can't make any further comments.

Next question. How much has the increased discounting of game prices pulled forward sales from future years across the back catalog. Maybe this one is for you, Alex. Discounting of game prices and if that pulled forward sales from future years?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

Yes, that's a very interesting one because whenever there is a deep discount on the game, what happens is two things. There are existing players who have wish-listed the game and might finally pull the figure on actually getting it. And then we usually do featured sales for specific titles, so they will show up on promotion on the Steam front page or on the console front pages and more people will actually wishlist them for a later date. So The discounting is -- I understand that the sentiment might be that when you do deep discount, you kind of like pull forward sales, we're not seeing that.

We're seeing that games after a discount when they perform well and players actually like them, we see their sales at full price actually slightly go higher. And this is normal amongst the other publishers that I talk to you when you do a deep discount.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Another question on catalog. How quickly could revenue from existing back catalog sales deteriorate in 2025 and 2026.

Alex Nichiporchik   Co-Founder, CEO & Executive Director

That's a wild hypothetical. We are seeing that games that players continuously play that they spent a lot of time in that they do not have a very significant rate of deterioration in terms of sales. I will caveat that, that you see that with more linear titles. So games that you can beat in a few hours, enjoy yourself and that's about it.

The thing about those style of games is that when you can watch a full walk-through of a game on YouTube, for example, or watch it Stream, many players feel like they've experienced it by proxy, by watching it, whereas with systems-driven games where you make your own decisions and your gameplay session is actually your own. It feels very unique to you.

It doesn't matter that people have watched the walk-through or a Stream, people will still want to experience those emotions for themselves. I guess that's the core difference between linear games and highly replayable titles.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

What proportion of revenues does merchandising makeup?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

I'm not sure if we ever disclosed that, Jaz. Do you want to disclose it?

Giasone Salati   CFO, Head of IR, M&A and Executive Director

It is minor. It is a very small percentage. Will you consider putting our annual multiyear guidance for key financial statement line items.

We would consider that if there was a clear advantage. The dilemma we are facing internally is setting any target that being revenues, adjusted EBITDA, cash or else could actually force the strategy into the right direction or the wrong direction for the long term. So for that, what we are focusing is value creation for the long term.

The fact that Alex is majority shareholder is the most -- the ultimate guarantee that is the ultimate focus of the company. Another question. Are there any games that have significantly outsold on Nintendo's platform versus other distribution platforms?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

Yes. And that's about as, much as I can say.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Can you comment on which one that is?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

No, that will be commercially sensitive, and there are games that sell very well on Switch compared to other platforms.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

What cash position would you like to return the business to and remain above over the next few years?

That's a great question. What are we trying to achieve in terms of cash position is a balance of revenues and investments? We have, as we see now a bunch of new investment opportunities, very interesting that we have not pulled the trigger on yet because we want to maintain a very strong financial position. The exact -- there is no exact number. It will depend on the time to ship the game for every single projects on the current trend of revenues on the current trend of the industry.

Right now, we feel like we have reestablished financial -- strong financial position. As I mentioned, we will still use cash in the second half of the year. So we go a little lower. The consensus is at low single digit for the full year -- for cash at the end of December 2024. But we want to maintain a few millions buffer and more over the long term.

Next question. In terms of the amount of development CapEx invested, what does your gain pipeline look like for 2025 in comparison to the game release planned for 2024?

I can take this one. yes. In terms of development CapEx, we continue to invest to create a smooth flow of games. So we are also investing now in games which have not been announced and in games that will release far in the future, possibly even after 2025.

We haven't disclosed exactly how much there is a balance. And as I said, games that are near launch consume more cash because there are more things to do, including porting, localization, QA and marketing. How many projects do we currently have in development? And what's the average budget per project?

A similar question. We have launched so far in the year 10 games. So you will look at us looking for a similar number of projects to the portfolio to maintain a nice flow of games in the future. There will be different budgets, low or high. When we say for clarity, when we say a higher potential game or high budget games, we mentioned -- we refer to games with a budget over $1 million. We will continue to have lower budget games because they represent a very interesting option and they typically have an interesting vibe that resonates with a lot of our audience.

Another question, do you see budget for future new IP titles coming down in relation to your recent and upcoming releases? Not necessarily. I don't think, Alex, we can see a direction up or down in terms of the average budget. We will again choose game-by-game situation by situation.

Alex Nichiporchik   Co-Founder, CEO & Executive Director

Yes, I would say that the industry has a very sobering slap on its face in terms of overall investment during the past few years, especially during the pandemic. But that said, there is no rule of thumb on the budgets.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

I'm moving to questions which have just come out during the call. So apologies if we would be jumping left and right. Could you please explain how the 946 bad debt occurred in H1. The technicalities of that is revenues, which we were expecting, which we realize we will not be able to collect any more. Which item in the cash flow statement contains the $2 million payment for the legal settlement with Steve Escalante?

I'll take that offline. Your Chairman said in the last annual report, in the next 12 to 36 months, there will be more space for tinyBuild games. Was that in reference to the start of 2024 or publication date of the report? Are you in a good position to profit for the next 2 or 3 years when you have the investments in new games compared to H1 2023?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

Okay. I will take a part of that question. I think the major thing that has changed for us in terms of company structure is that we are not going in the blind in terms of spending a lot of time in developing game and then revealing it. If you go to tinyBuild.com there is a Blog section where I talk about our tinyBuild Direct, how we announced a whole bunch of games during it in May and how we, I won't say dominate, but we are really, really visible during the Steam's summer next festival.

And it will give you an idea of how we approach investments. And how we test things as early as possible. And for those things that work, we will continue to invest and maybe invest more.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Another question from Jack. Could you please elaborate on the one-off charges in the cash flow from operations not separately listed in the earnings release. At the end of last year, at the beginning of this year, we had some one-off charges relating, for example, to a reorganization, the cost action plan. And we have decided that the materiality of them and the situation did not grant that status of exceptional charges. So we have list them as a simply recurring charges.

Another question coming from Shahin. Considering the success you had with the Drill Core and Duckside, while less than 6 months past between announcement and release, are you planning to take a similar approach with new games? Alex?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

We are taking a similar approach with some of the new titles. Keep in mind that these games are exceptional because their development cycle was also very short. Duckside, because of reusing existing technology from that Deadside has taken about 10 months from inception to launch and a slightly longer time line, still a very short was Drill Core.

So here, these were just unique situations that we have been building towards facilitating with our internal studios when we see a great idea, we see a great prototype and we can immediately jump on rapid development of it, knowing all of the variables and then double verifying or double checking that they click with the audience during early play tests. What I will tell you is that we do a lot of play testing as early as possible, and we do it a lot publicly, and we also do it a lot privately. That's where a lot of our decision-making comes from.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Question from Shahin as someone who doesn't play our games, can you explain what makes that Deadside different from games like Rust?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

Right. So games like Rust are very chaotic, and I love them because you need a lot of other players, and you have a lot of interaction with them, not all so positive. That is what makes it fun. In games like Deadside, it is for a slightly older audience that like their simulation, their military style genre. And this is what we've been working on a lot with the community is to figure out what upcoming features we focus on.

And if you read through the Steam post on Deadside side or join the discourse, you will get what I mean. We have a lot of the discourse and a lot of communication with that community, which is very particular.

And if you don't play survival games that are player-versus-player, if you download any game like Deadside or Rust or ARK: Survival Evolved, et cetera. I highly recommend you join what is called PVE servers, where other players cannot kill you. That's a great way to learn the game because otherwise, if you're trying to understand the genre and you go to a traditional player versus player server, you may not have a good time but players really love it, especially those that grew up playing games like this.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

What are the plans for Pigeon simulator?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

We right now do not disclose the plans for that specific IP.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Would you still sign new games where you don't control the IP?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

For strategic reasons, that is quite possible, and we are doing that and strategic reasons means that we may want to get into the new genre or we may want to continue working with the developer or something along those lines where we know that the long-term risk of not owning the IP is justified for a really good game launch.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Can you please advise your commitment to remaining a listed entity? Or do you think we are finally seeing the light at the end of the tunnel?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

I have invested $10 million of my own funds to remain listed earlier this year. So I'm pretty committed.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

What is the strategy to get the stock price on track?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

To launch really good games, to communicate with investors really transparently and to regain the trust in the markets as the industry rebounds.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

What is the strategy -- what is the reasoning behind the releasing Welcome to Raven Brooks Season 2 late, so late around Halloween and why not release it as soon as possible?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

Releasing it as soon as possible would be an option. However, the thematic of releasing it around Halloween, we're starting to release episodes around Halloween makes more sense in the spirit of the season. And also, the later we go into the year in most places, the weather gets worse. So fans are much more likely to tune into our show.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

What is your medium-term 1 or 2-year target for sales revenue levels and EBITDA margins or other applicable metrics.

Alex Nichiporchik   Co-Founder, CEO & Executive Director

So we look at 2024 as the year of reset, where we have, if you want to see the trough in platform deals have, as I said, seen the underlying revenues from actual game sales pretty much flat in the first half. So this is for us a starting point. We are working -- we have the best pipeline we've ever had. If you look at the number of followers or Alex post on the 3 million wishlist that we added in June, it gives you a very strong idea of how strong -- how big is the potential of the current pipeline.

So with that, should come revenue increase, and with that should come margin expansion. EBITDA breakeven for this year and an improvement for next year is what we're targeting.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

What is behind your focus on PC first when you launch games?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

Great. So a lot of our games that we launched this year, especially the strategic ones are in early access, which means that we can rapidly develop it and get patches out. The reason to launch on PC first is because there is a little bit less overhead in terms of -- it's called certification for consoles when we need to -- well, first, you need to optimize the technology behind the game to make sure that runs on consoles.

And second, you need to have that technology meet certain certification requirements for the consoles. So doing PC first is more rapid iteration. And going forward, the idea is that we want our games to be available on every platform possible, and we're just being very strategic with allocating resources to where it makes sense.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Okay. And then a final question on a lighter tone. What game have you -- what game from tinyBuild, have you most enjoyed playing in the last few months?

Alex Nichiporchik   Co-Founder, CEO & Executive Director

So full disclosure, I'm sitting in a brace right here, like my leg is covered and had some knee surgery that was long overdue, not an emergency, but what I've been playing the c*** out of -- pardon my French, is Drill Core. If you have a Steam deck or if any of your kids have a Steam deck, try it, have someone explain, well, the [indiscernible] is actually pretty good, so you will get the hang of it. I've been playing Drill Core like crazy.

And when I can sit in front of my PC, I've been playing Duckside. Both of those sales, I don't remember the last time I've spent hundreds of hours in our own games probably outside of Deadside. So please check those out if your gamers and you're listening to us. Once you get it, once you understand what I mean by the 1,000-hour game and your like tomorrow night or on the weekend, you're going like, "Oh, I'm going to play one more round of Drill Core." And then you have 7 rounds and it's 1 a.m. You will know exactly what I mean.

This is a really exciting time for the company because we finally figured out what the recipe is, what is the idea of creating long-term sustainable franchises with thousands of hours spent by players in them. It is real. It is here, and I'm really excited and also fully committed.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

That was the last question. Paul.

Alex Nichiporchik   Co-Founder, CEO & Executive Director

Okay. Well, we can also say some anecdotes while we wait in silence here. But that said, I think the core of this year has been a real reset for us. I'm just going to do a closing statement while we wait up for Paul. It's been extremely difficult with the whole industry being in turmoil. And I do believe that we've actually gone past that.

I do believe that the bottom of the games industry has been around April, May when we've seen a lot of team delays, we've seen a lot of over investment into the industry not pay off. Fortunately for us going through the extremely difficult period of the beginning of the year, we were able to get ahead of it and refocus on things that work and use very data-driven decisions for investments where we allocate those investments.

So I'm really excited about the industry, and I am committed to shipping some really, really good games.

Operator  

Fantastic, Jaz, Alex. Thanks indeed for updating investors today. Ladies and gentlemen, please do -- continue to stay on just while we redirect you to provide your feedback in order the management team can better understand your views and expectations. So it's only going to take a few moments to complete. I know it's greatly appreciated by the company. On behalf of tinyBuild and Jaz and Alex, many thanks, indeed, for attending today's presentation.

Alex Nichiporchik   Co-Founder, CEO & Executive Director

Thanks everyone.

Giasone Salati   CFO, Head of IR, M&A and Executive Director

Thank you.