REG - Devolver Digital - Trading Update

Devolver DigitalAnnouncement

03/08/2023 07:00

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RNS Number : 1383I  Devolver Digital, Inc.  03 August 2023

3 August 2023

The information contained within this announcement is deemed by the company to
constitute inside information stipulated under the Market Abuse Regulation
(EU) No. 596/2014 as it forms part of the domestic law of the United Kingdom
by virtue of the European Union (Withdrawal) Act 2018 (as amended) ("UK
MAR").  Upon the publication of this announcement via the Regulatory
Information Service, this inside information is now considered to be in the
public domain.

 

 

Devolver Digital, Inc.

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

Trading Update

Devolver Digital, an award-winning digital publisher and developer of indie
video games, announces a trading update for the six months to 30 June 2023,
and updated guidance for the current financial year ending 31 December 2023.

Our expectation for performance for 2023 has been impacted by three key
factors: delays to new title releases, a reduction in revenue from
subscription deals and a lower contribution from our back-catalogue.

Our strategy is to maximise the appeal and success of new titles by increasing
investment in development, quality control and marketing.  While critical to
our long-term growth, prioritising quality to meet the standards and
performance expected of Devolver titles is resulting in delays, higher costs
and greater complexity for new releases. As such The Plucky Squire, a title
that has been tracking well with audiences, will now be released in 2024. It
joins other titles previously earmarked for release in 2023, such as Anger
Foot, Pepper Grinder and Stick It to the Stickman, which were flagged earlier
in 2023 as delayed in order to continue value-add production to further
improve their chances of success and longevity. Devolver released one major
title in 1H 2023, the award-winning Terra Nil.  In the second half of 2023,
we expect to release Wizard with a Gun and The Talos Principle 2, as well as
other titles in Q4 2023.

After a period of strong contribution during COVID, we have turned down some
subscription deal proposals in 2023 that we felt did not adequately recognise
the value of our titles.  While subscription deals with key platforms remain
a part of our long-term growth strategy, the management team has declined
several weaker propositions from major platform partners as we felt they
undervalued the proposed games' value and revenue opportunity in 2023 and
2024.  We expect this trend of reduced revenues from subscription deals to
continue in 2024, compared to the period of heightened subscription revenues
in 2021 and 2022.

Back-catalogue sales have been softer following the weaker performance of
three key title releases in 2022, except for Cult of the Lamb which has
continued to perform strongly. As highlighted earlier in 2023, a weaker
overall economic environment continues to soften back-catalogue momentum
year-to-date.

In light of the performance year-to-date we expect Normalised Adjusted
EBITDA(1) to be negative in the first half of 2023. For the full year ending
31 December 2023, we now expect Group Normalised Adjusted EBITDA to be at
least break-even.  The Board expects Normalised Adjusted EBITDA to return to
growth in 2024 and accelerate in 2025.

Devolver has a robust balance sheet with c.US$64m net cash on hand as at end
June 2023, which takes into account a c.US$7m purchase of shares in the market
in 1H 2023, which are now held in Devolver's Employee Benefit Trust.

Devolver will provide further details on trading in its half year results
announcement, which is expected to be released in September 2023.

 

 Harry Miller, Executive Chairman of Devolver Digital, said:

 

"We are disappointed that 2023 performance will be lower than expected, as we
see an impact from delays to new titles, fewer subscription deals and weaker
back-catalogue revenues. We want to ensure that we invest the right amount of
time, effort and money into our titles as the best way to do justice to our
healthy pipeline of releases scheduled for the next 24 months. We continue to
look for ways to improve our return from the back-catalogue, as well as taking
the right steps to maximise revenues from our new releases.

 

We have seen a strong showing for upcoming Devolver titles at the PlayStation
Showcase 2023 in May, and have secured exciting longer-term title wins such as
Human Fall Flat 2. We are focusing on our programme to translate the benefits
of greater scale and quality into improved revenues and margins beyond 2023,
expecting a return to growth in 2024 and 2025. As we work towards these
long-term goals, we will pursue a capital allocation strategy that reflects
our faith in the long-term strategy of the business. We look forward to
updating the market on our progress in the coming months."

 

-ENDS-

Notes

1. Normalised adjusted EBITDA excludes: 1) stock compensation (share-based
payment) expenses and revaluation of contingent consideration; 2) one-time
expenses and other non-recurring items; 3) amortisation of IP (but does not
exclude amortisation of capitalised software development costs), and; 4)
impairments of goodwill, acquired IP and cancelled, unreleased games.
Normalised adjusted EBITDA does include impairments of capitalised software
development costs of underperforming released games.

 

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 100 titles, with more than 30
titles in the pipeline scheduled for release over the next few years. Devolver
has in-house studios developing first-party IP titles and a complementary
publishing brand. Devolver is registered in Wilmington, Delaware, USA.

 

Enquiries

 

 Devolver Digital, Inc.                                                                                                 ir@devolverdigital.com
 Harry Miller, Executive Chairman

 Douglas Morin, Chief Executive Officer

 Daniel Widdicombe, Chief Financial Officer

 Zeus (Nominated Adviser and Sole Broker)                                                                               +44 (0)20 3829 5000
 Nick Cowles, Jamie Peel, Alexander Craig (Investment Banking)

 Ben Robertson (Equity Capital Markets

 FTI Consulting (Communications Adviser)                                                                                devolver@fticonsulting.com
 Jamie Ricketts/ Dwight Burden/ Valerija Cymbal/ Usama Ali                                                              +44 (0)20 3727 1000

 

 

 

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