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 EBITDA¹ 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. 

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