29 March 2023

tinyBuild, Inc

("tinyBuild" or the "Company")

Preliminary Unaudited Results for the year ended 31 December 2022

Directorate change

tinyBuild (AIM:TBLD), a premium video games publisher and developer with global operations, is pleased to announce its unaudited results for the twelve months ended 31 December 2022.

Financial Summary (unaudited):

¹ Excludes share-based compensation expenses, and exceptional items (e.g. IPO cost, Ukraine/ Russia relocation) includes amortisation of Development costs

Financial highlights:

●     Revenue grew 21% to $63.3m (2021: $52.2m), reflecting a solid performance in the last part of the year from new titles including Hello Neighbor 2, Tinykin, Asterigos, Spiderheck and back catalogue sales.

●     Adj. EBITDA increased to $24.4m (2021: $22.2m) up 10% y-o-y, while margin decreased to 38.5% (2021: 42.6%) primarily due to the consolidation of Versus Evil and Red Cerberus acquired in November 2021.

●     Operating profit increased by 27% to $15.9m (2021: $12.5m), thanks to lower share-based payment expenses and exceptional costs. It includes a $11.1m write-off of the intangibles from the Versus Evil/ Red Cerberus acquisition broadly offset by a reduction in deferred earn out payment.

●     Profit before tax grew by 27% to $15.9m and basic EPS grew by 32% to 5.7c, reflecting a lower tax charge.

●     Operating cash flow increased 45% to $19.3m (2021: $13.3m), as a result of revenue growth and lower exceptional charges. Excluding $2m one-off items in 2022 (2021: $5.5m), operating cash flow increased by 13% to $21.3m (2021: $18.8m).

●     Net cash as of 31 December 2022 was $26.5m compared to $48.8m as at 31 December 2021, reflecting increased investments on development costs ($35.8m in 2022, vs $15.1m in 2021) and $4.2m cash payment for M&A in the year.

Operational highlights:

●     In 2022, tinyBuild released a number of new titles, including Tinykin, SpiderHeck, Asterigos and Hello Neighbor 2, plus version 1.0 of Cartel Tycoon, Despot's Game and Potion Craft, and a number of platform launches which generated growth across the entire portfolio of over 80 titles.

●     Notably, in 2022 the Company launched three new games with a development budget of over $1m that achieved an average return of 1.9x before the end of the year demonstrating the Company's ability to successfully bring larger-budget games to market across multiple platforms and providing a solid base for future releases.

●     Contribution to revenues from first/second-party games decreased marginally to 77% of Gaming revenues (2021: 81%), primarily due to the consolidation of Versus Evil's 3rd party portfolio.

●     Robust back catalogue sales represented 80% of total revenue (2021: 83%), demonstrating the Company's ability to extend the life cycle of games, while adding new titles.

●     Three acquihires completed (Demagic, Scythe and Konfa Games) plus the acquisition of Bossa's IP (Surgeon Simulation franchise, I am Bread, I am Fish) for a total upfront cash consideration of $4.2m.

●     Successfully relocated over a hundred people following the invasion of Ukraine, and set up a new studio in Belgrade, Serbia.

●     Expanded the size of the revolving credit facility with Bank of America from $25m to $35m and extended the maturity date to three years to maintain the flexibility to fund potential M&A in the most effective way. The facility is currently undrawn.

Directorate change:

●     After taking paternity leave in 2022, Luke Burtis, Chief Operating Officer (COO) and Board Member, has decided to resign from his board position and management role with immediate effect to spend more time with his family. Luke has been a valuable member of tinyBuild, and his contributions to strategy and operations in the early years have been invaluable. The Board of tinyBuild would like to express its gratitude to Luke for his contributions during his tenure and wishes him all the best in his future endeavours.

●     As the Company continues to move towards the more decentralised structure set out at the Capital Markets Day in June 2022, the responsibilities of the COO role have been distributed among a wider group of decision-makers, giving individuals and teams more autonomy and accountability for their areas of responsibility. Therefore, the Company does not currently intend to appoint a replacement.

Employee Benefit Trust:

●     Since the Company's pre-close trading update released on 23 January 2023, the Employee Benefit Trust has purchased an additional 419,200 ordinary shares on the market  and now holds a total of 573,500 ordinary shares. The EBT was set up in 2022 for the benefit of current and future employees and will continue to act independently of the Company to satisfy potential future option exercises of vested options granted. The maximum amount of the loan made available to the EBT at any time shall be capped at $10m.

Post Period End highlights:

●     Acquisition of NotGames, a UK-based studio, for an upfront cash consideration of $1.5m plus max deferred consideration of $4.2m, subject to stretched financial targets. NotGames is the developer studio of Not For Broadcast, a critically acclaimed full motion propaganda simulator. Not for Broadcast has a 94% positive review score on Steam and it has been nominated for the Game Developer Conference awards and BAFTA Game awards.

●     Recent announcements include the release date for I am Future, a brand new VR title in the Hello Neighbor franchise (Hello Neighbor: Search and Rescue), the VR version and the first DLC for Not For Broadcast, and the first announcement for Punch Club 2: Fast Forward, among others.

●     Hello Neighbor 2 users' review score continues to improve on Steam ("very positive" in the past 30 days). The roadmap for 2023 will focus on improving gameplay features: better AI, expansion of the Neighborhood with new unique characters, more complex investigations and more lore exploration.

●     The first two episodes of Hello Neighbor animated series have already collected over 1m viewers each. Season 1 will consist of 18 episodes, each 10-14 minutes long, all released during 2023. tinyBuild teamed up with Man of Action, the creators of Ben 10, to develop a new world that is at the same time coherent with and wider than the narrative already developed in the games, books and graphic novels.

Outlook

●     The pipeline for 2023 and beyond is strong and includes a number of larger budget games alongside continuous investment in the catalogue including updates, DLCs and console launches.

●     The timing of these investments and of new releases means that the net cash position is expected to dip lower in the first half of 2023 and to improve in the second half of 2023 to rise above $26.5m by the end of December 2023, excluding potential unannounced M&A.

●     The implication of the conflict in Ukraine and the evolving macroeconomic situation impose caution and vigilance and tinyBuild continues to carefully assess the position of its staff, its exposure in terms of revenues and any other factor that may have an impact on the business.

●     All considered, the Board remains confident the Company is on track to deliver results at least in line with expectations, plus accretive acquisitions.

Alex Nichiporchik, Chief Executive Officer of tinyBuild, commented:

"Last year was possibly the hardest test of our strategy and it validated the importance of investing in long-term, sustainable franchises and the people behind them. We faced unprecedented challenges, all while integrating acquisitions in different geographies and moving to a decentralised approach to keep the company agile at a larger scale."

"Our highly diversified portfolio of games continues to perform well as we push deeper into a wider variety of platforms and technologies. Our strong back catalogue performance supports an acceleration in organic investments while M&A multiples adapt to the changed environment. Finally, we see early signs of success of our cross-media product and we will continue to experiment with the aim to add additional revenue streams to our core business."

"On a personal note, I want to thank Luke for his enormous contribution to the Company and for his precious advice on so many occasions. As a team, we support Luke's decision to focus on his family and wish him all the best in the future."

Enquiries:

About tinyBuild:

Founded in 2013, tinyBuild (AIM: TBLD) is a global video games publisher and developer, with a catalogue of more than 70 premium titles across different genres. tinyBuild's strategy is to focus on its own intellectual property (IP) to build multi-game and multimedia franchises, in partnership with developers.

tinyBuild is headquartered in the USA with operations stretching across the Americas and Europe. The Group's broad geographical footprint enables the Company to source high-potential IP, access cost-effective development resources, and build a loyal customer base through its innovative grassroots marketing.

tinyBuild was admitted to AIM, a market by the London Stock Exchange, in March 2021.

For further information, visit: www.tinybuildinvestors.com.

Chairman's Statement

Building our portfolio, one IP at a time

The video games industry, much like its film industry cousin, is a hit-driven business. Once in a blue moon, a single title can boost a company or group's revenue overnight by adding a few surprising zeroes to its bottom line, and the pursuit of such an IP is the goal of most teams within game studios. Relying on a single hit, though, is not sound strategy: as a creative product, there is no blueprint for engineering a runaway success. If such a thing were possible, we would have companies consistently churning out billion-dollar franchises; the reality is that these come along quite rarely even for the most sophisticated and experienced creators. Counting on a single hit to materialise in order to meet expectations is not a sustainable strategy.

For tinyBuild's strategy, the hit-driven characteristic of our industry translates to operating with a portfolio approach. The larger our portfolio grows, the more resilience and predictability is built into our forecasts and operations. Overperforming titles make up for those falling short of the estimations, and on aggregate we are able to predict quite accurately our yearly revenues while still leaving the door open to the eventual runaway hit, the ultimate aim of every game project in production at the Group's studios.

The alternative of hyping and overreliance on a particular title, especially prior to its litmus test at launch, introduces volatility that, in our view, is incompatible with market expectations and our ambitions for growing the tinyBuild group at a sustainable and consistent rate. Instead, we choose to invest our energy in our teams by continually improving their skills, capabilities and confidence, therefore increasing the chances of their creative output beating their own ambitions and, eventually, resulting in an unexpected hit that could translate in a significant upside.

In the following pages you will see this very dynamic at play with the fourth quarter 2022 delivering our most successful quarter ever, against a disruptive background that saw teams and products relocating from countries at war in the middle of their live projects.

The investments made in the teams, a direct result of our people-first approach, lays down the tracks for our new GaaS (Game as a Service) launches in the years ahead. This represents a marked change of pace towards the future that sees the tinyBuild studios gradually leveraging its industry-leading community expertise to the benefit of organically growing nascent live service games. By expanding the portfolio with these new service titles, whose nature is such that their launch is just the start of their growth curve, we further our goal of increasing predictable and resilient revenues.

We closed FY'22 with record revenue and EBITDA, keenly focused on continuing the growth trajectory in the years ahead with a rapidly expanding portfolio of games, one successful IP at a time. The mindset of limiting downside with a broad base of titles, while creating the conditions for the upside provided by a hit, is the shared approach of the entire tinyBuild team. Our mission is clear, and its execution is ever improving: make more, better games our players fall in love with.

Henrique Olifiers

Non-Executive Chairman

CHIEF EXECUTIVE'S REVIEW

We recently crossed the two year mark since tinyBuild went public. On March 9, 2021 we listed on the London Stock Exchange. It is time to reflect on why we listed, and how it's going so far.

tinyBuild's mission is to build long-lasting, sustainable franchises across multiple media formats. We know video games. It's a great business. Our ultimate goal is to create franchises within video games, and take them to other media - beyond interactive entertainment, so that they outlive us as a generation.

WHY WE WENT PUBLIC

We considered listing in the US. Other exchanges looked even more interesting in 2020. Specifically, the London Stock Exchange already had a very well educated investor group and listed peers with comparable business models, if different strategies. In the US, you inevitably get compared to the big AAA companies and mobile juggernauts which have very different prospects to ours.

I also wanted to make sure we have a mechanism to align incentives in the Company. Having actual "shares" that are tradable achieves this. IPO it was.

I started my career playing video games professionally, and ended up in game production. No formal education. Founded tinyBuild while living in the Netherlands before we became a US company. Then I moved to the US. We have people scattered all over the world, and we all have a passion for playing and making video games.

DEALING WITH THE UPS AND DOWNS

It's easy to go insane when looking at your share price live on screen. I see many people obsessing over it.  Our shares have been volatile and it means that the share price can move up or down by 5% or even 10% in a day, but that volatility doesn't alter the fundamental value of the business.

With that in mind, the market has definitely gone down over the past half year, but it doesn't impact our operations or long term vision. We dealt with relocating over 100 people in a time of war, so we can manage a turbulent share price. The key is to not make short term decisions that may impact your long term growth potential. Every decision we make needs to get us incrementally closer to the long term goal.

From a personal perspective, running a public company is an amazing experience, one which I wouldn't necessarily recommend to everybody. People who know me may note this peculiar character trait of being able to focus on a specific issue at the time. It's important to know what you can impact, and spend your energy on that. Obsessing over situations you can't change is the biggest waste of time (the only finite resource we have) for any management team.

DECENTRALISED STRUCTURE

As of right now we operate a dozen internal studios working on our own franchises. The first catalyst was the acquisition of the development team of Hello Neighbor, and from there we started learning and building how to operate studios. We learned the hard way that it's better to decentralise as much as possible. You can't just go from being a publisher to suddenly running studios. It's a gradual process where you build up muscle, experience and discipline.

At one point just as we went public, it became clear that growth brings bottlenecks. Especially when it comes through rapid hiring. I've seen this happen in companies experiencing rapid headcount growth and didn't want to end up in the same trap. So, we started decentralising.

It's a painful process where instead of having departments and department leads (directors/heads/ managers), you build multi-disciplinary teams that focus on the product itself. Instead of having 50 people spread across 5 different disciplines (i.e. marketing, production, community management, etc) we have groups of 3-7 people working on specific products - and only those products. Instead of having product-centric decisions go through a director (bottleneck), they are decided within the product group itself. It's definitely a journey to get to such a structure, as you need to be extremely confident in your people. Most experienced professionals will have grown up in a traditional department structure, and the natural career growth is to become a manager - we have the opposite, everyone is hands on, including myself, and able to assist team mates. This is how tinyBuild was when we were 5 people, and that magic scaled to where we are now.

A simplified way to look at our structure is this: we have a supporting team at the top to keep the rain out, and supporting team below to make sure the company has a solid foundation with product groups working directly on products from both internal and external studios. The goal is to give as much ownership as possible to people actually working on products.

What happens when you have the right people is that everyone feels involved. Everyone has direct ownership. It's an empowering feeling. Alongside these product groups you build supporting layers. HR, development services (localisation/ QA), finance, contracts management -- those exist as supporting layers for the product groups.

This structure allowed us to start delivering games everywhere all at once. To both consoles/ PC, and mobile. If you want to create a franchise, it needs to be present on as many relevant platforms as possible. Any developer that's launched games to multiple platforms understand the major challenges involved.

STEPPING UP INVESTMENTS

Investing in long-term, sustainable franchises and the people behind them was validated as crucial during the unprecedented challenges we faced last year. In 2022, we accomplished a remarkable feat by shipping three titles in a row with a budget of $1 million or more and by the end of 2022, we had already achieved an average return of 1.9x.

We proved our publishing team is capable of handling larger projects, delivering them across platforms, on time, quality and budget. A great achievement in normal times, an outstanding achievement during the year we relocated over 100 people in a time of war.

We are now ready to step up investments and take advantage of opportunities created by an uncertain macroeconomic environment. We did not plan for the cost of living crisis or geopolitical instability, it is more like being prepared and ready for the unknown. One example is when we set up the $35m revolving credit facility with Bank of America, shortly after the IPO. Now we have an extra level of safety and more flexibility if required.

Counting on a publishing team that can deliver big games across various platforms such as PC, console, mobile, and VR, means that we can now confidently invest in games with a budget $1-5m and 2-5 year development cycle when peers are forced to retrench and the most interesting opportunities become more affordable.

In 2022 we found that M&A multiples were often anchored to unrealistic expectations, while we were having much more productive discussion with development studios working on new high-potential games. That's why we stepped away from some potential acquisitions and preferred to invest more directly.

Every week the executive team sits down and reviews all options. Every week we approach capital allocation decisions as if it was the first time, with no sacred cows and the determination to uncover new opportunities that have the right ingredients, both in terms of financial upside and strategic fit. This is not a linear process and sometimes we go for months without finding anything exciting, sometimes we can make decisions on many projects at once.

In 2023 we will continue to invest for the long term with the same down-to-earth approach, expecting a minimum 2x return on our investments and looking at the whole spectrum of options ahead of us. As the founder and tinyBuild shareholder, I can't see a better way to create value long term.

CROSS MEDIA

Another part of our strategy since before the IPO days, is our focus on cross media. I believe we are working on a truly groundbreaking TV Series for Hello Neighbor. With the writers behind Ben 10, Sonic, and Big Hero Six - we have an all-stars team and a division dedicated to bringing games to linear media, and to merchandise. We've proven we can produce books with over 4 million novels sold, now it's time to prove we can produce TV content of the highest quality.

We could go the easy way about it and ask one of the big platforms to fund the project, leaving us a thin profit margin and possibly having a say in how we have to go about it. Instead we preferred to make the investment to deliver what we see as a very innovative product, that has value both as a standalone TV series and as a multiplier of our video game franchises.

We are excited about the developments of what we call a "canon commercial". It's a canonically relevant piece of audiovisual content such as cartoons that has the potential to drive the best marketing possible. Just as cartoons were used to sell toys in the 90s, we can now use them to sell games.

In 2022 we launched the first two episodes of Hello Neighbor animated series inside the games, an absolute first in terms of marketing innovation - creating an immensely positive community response, and fueling the continued hype for the Hello Neighbor franchise. We have the whole first season being completed in 2023, unveiling secrets that Hello Neighbor players have been waiting for a long time for. And more to go after that with a low-risk, EBITDA-neutral approach that allows us to experiment without betting the house on anything specific.

THERE ARE NO SHORTCUTS

I've been working full-time since I was 14 years old, and I am turning 35 this summer. Playing games professionally, writing about the industry, marketing and producing games. What you learn is that the world is unfair, and you should focus on what you can impact and work on your skills. What you shouldn't do is take shortcuts. Every couple of years there's a new shiny thing that you don't fully understand why it's useful, and people are trying to sell you on it. Don't let the hype influence your decision making.

There are no shortcuts in life or business. Anything you do requires hard work, dedication, and love for what you do. Going public was a way to allow us to continue growing, innovating, and following our course and it's only the beginning of the journey. I feel lucky for being able to experience this in an accelerated way. Usually it takes companies years to go public, and to experience huge swings in the price. We listed in under a year, and within the past 2 years have seen insane highs and lows. It's humbling. It's an experience, it's levelling up. And I'm happy we said no to most "hyped" opportunities, such as going into social games a decade ago, all the crypto-esque scams, selling JPGs, and always stayed course.

OPTIMISTIC OUTLOOK

The market has been challenging. Still, I'm optimistic about the industry in general. In 2023 we will be seeing plenty of groundbreaking AAA titles, alongside standout AA/indie games that really set new trends. Our goal is to make sure we deliver high quality games on as many platforms as possible, and pave the way for them to become franchises. I can't wait until we start revealing our upcoming products in 2023 and beyond.

Alex Nichiprochik

CEO and Founder

Chief Financial Officer's Review

2022 saw a resilient financial performance for tinyBuild, both in terms of back catalogue and in terms of new games, in a challenging geopolitical and macroeconomic environment. Nine new titles were released, and the company closed the year with a portfolio of over 80 games. In addition, tinyBuild grew with four acquisitions, including Bossa Studio's IP.

Revenue

tinyBuild saw total revenues increase 21% (2021: 39%) from $52.2m to $63.3m, including the consolidation of Versus Evil and Red Cerberus, acquired in November 2021. tinyBuild's revenue is generated mainly from game sales on various platforms and a variety of platform deals (e.g. subscription programs, development partnerships and exclusivity agreements). Events include primarily revenues from DevGAMM, our game developers conference operator, which demonstrated incredible resilience in the face of the invasion of Ukraine.

Revenue generated from own-IP (1st and 2nd party games) decreased slightly to 77% of gaming revenues (2021: 81%), as a result of the consolidation of primarily third-party publisher Versus Evil. Our strategy is to continue to expand our own-IP portfolio, which will support underlying adjusted EBITDA margin growth in the long term.

Adjusted EBITDA and Operating Profit

Adjusted EBITDA increased from $22.2m to $24.4m in 2022, a growth of 10%, largely driven by solid organic performance and the consolidation of inherently lower margin Versus Evil and Red Cerberus.  The ongoing decentralisation process and the continuous shift toward own-IP support further margin increase in the medium terms, though the progression will depend on the revenue mix.

Adjusted EBITDA is presented net of amortisation of development costs, excluding share-based compensation expenses, amortisation of purchased IP and other intangible assets and exceptional costs, giving a clear picture of the underlying business progression. Development costs for own IP are now amortised over a 36 month period, in line with industry standards, to reflect the extended life-cycle of the games.

Operating profit increased 27% to $15.9m (2021: $12.5m) mostly as a result of lower exceptional charges (e.g. relocation costs relating to the war in Ukraine) and lower share-based compensation costs that dropped for the second year in a row.

Exceptional charges for 2022 include $1.7m for staff relocation following the invasion of Ukraine, where the situation remains uncertain and management cannot exclude further charges in the future. The $11.1m writedown relating to Versus Evil and Red Cerberus is offset by the decrease in contingent consideration ($11.1m other operating profit), resulting in no material impact on operating profit. 

Interest income and taxation

Interest income was $0.1m (2021: $0.0m) and taxation increased to $4.4m (2021: $4.3m), mainly due to changes in deferred tax due to new US tax legislation coming into effect.

Financial Position

In 2022, the net cash position decreased to $26.5m from $48.8m, mainly driven by larger investments in new games including a small number of larger budget titles. Capitalised software development costs, increased from $15.1m to $35.8m in 2022 reflecting a larger number of organic opportunities and investments in the upcoming pipeline releases.

Following the customary annual test, goodwill has been reduced from $13.2m to $3.7m, reflecting a downward revision for the carrying value for Versus Evil and Red Cerberus, a decrease which is offset by an equal decline in contingent consideration. IP has increased from $18.6m in 2021 to $23.1m in 2022 primarily due to identifiable assets from the acquisition of Demagic, Bossa IP and Konfa Games.

tinyBuild currently still holds a $35m revolving credit line with Bank of America, which remains undrawn.

Cash Flow

Cash flows from operating activities increased from $13.3m to $19.3m thanks to lower exceptional and tax charges more than offsetting increased marketing costs and the adverse impact of timing differences. Cash generated from operations include an add back of $1.7m for share based payments in the current year (2021: $2.5m)

Acquihires and Acquisitions

In 2022 tinyBuild acquihired three studios and Bossa's IP for a total upfront cash payment of $4.2m. In April 2022, tinyBuild acquihired DeMagic, a porting studio based in Serbia. In August 2022, tinyBuild acquihired Konga Games (Despot's Game) and Bossa IP (Surgeon Simulator franchise, I am Bread and I am Fish), a related party transaction. In December 2022, tinyBuild acquihired the studio Scythe (Happy's Humble Burger Farm).

Events after the reporting date

In March 2023, after taking paternity leave in 2022, Luke Burtis, Chief Operating Officer (COO) and Board Member, announced his resignation with immediate effect to spend more time with his family. As the Company continues to move towards the more decentralised structure set out at the Capital Markets Day in June 2022, the responsibilities of the COO role have been distributed among a wider group of decision-makers, giving individuals and teams more autonomy and accountability for their areas of responsibility. Therefore, the Company does not currently intend to appoint a replacement.

In March 2023 tinyBuild acquired NotGames (Not for Broadcast), for an upfront cash consideration of $1.5m plus max deferred consideration of $4.2m, subject to stretched financial targets. NotGames is the developer studio of Not For Broadcast, a critically acclaimed full motion propaganda simulator.

TINYBUILD INC.          

CONSOLIDATED UNAUDITED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2022

*Adjusted EBITDA is a non-GAAP measure and is defined as earnings before interest, tax, depreciation, amortisation (excluding amortisation of capitalised software development costs), share-based payments expenses and other significant one-off expenses.