GDEV Inc. annual report, Q4 FY2021

Business context and reporting period

This is Nexters Inc.’s audited Form 20-F annual report for the fiscal year ended December 31, 2021, filed April 29, 2022. The company develops and publishes free-to-play mobile, web and social games and reports under IFRS. Although the request metadata identifies GDEV, the filing names the registrant Nexters Inc. (Nasdaq: GDEV; warrants: GDEVW). This is a full-year report, not a standalone fourth-quarter filing.

Hero Wars was the central business: it generated approximately 99% of 2021 revenue and 99% of Bookings. The company completed its SPAC business combination on August 26, 2021 and ended the year with 196.5 million ordinary shares outstanding.

Financial and operating metrics

• Revenue increased 66% year over year; Bookings increased 26%. Revenue growth included a $116.5 million increase in Bookings and a $56.7 million decrease in the change in deferred revenue.
• Gross profit, calculated as revenue less disclosed platform commissions and game operating costs, was approximately $297.9 million, or 68.6% of revenue. The operating loss was about 28.4% of revenue and the net loss about 27.1%.
• Selling and marketing expense rose 63% to $270.2 million, including $266.9 million of advertising costs. Platform commissions were $117.2 million; game operating costs were $18.9 million.
• Operating cash flow declined about 13% despite higher revenue. The filing attributes the decrease primarily to higher cash outflows for marketing and platform commissions.
• Borrowings were zero at year-end; lease liabilities totaled $1.9 million. The balance sheet also included $22.0 million of warrant obligations. Equity was negative $161.0 million.
• Current and non-current deferred revenue totaled $422.7 million. The balance-sheet presentation also reports $116.5 million of long-term deferred platform commission fees.
• Average DAUs were 1.048 million, average MAUs 5.9 million and average MPUs 362,000. Monthly payer conversion was 6.1%; ABPPU was $123, versus $126 in 2020.

Material changes versus the prior comparable period

• Revenue rose from $260.9 million to $434.1 million, while the net loss widened from $0.8 million to $117.4 million.
• The 2021 loss included a $125.4 million non-cash, non-recurring share-listing expense related to the business combination. Net finance income was $6.9 million, including a $10.1 million gain from changes in warrant fair value.
• Marketing investment expanded substantially; general and administrative expense increased to $23.0 million from $3.7 million, reflecting the Nasdaq listing, acquisitions and business growth.
• Asia revenue increased 151% to $106.4 million; it represented 24.5% of revenue. The United States contributed 31.5%, Europe 21.6%, and Former Soviet Union countries 13.3%.
• The company restated 2020 and 2019 comparative financial information for errors involving withholding-tax calculations and complex share-based options. The auditor’s opinion was unmodified and specifically referred to the correction.

Outlook, commentary, risks and unusual items

• Management said cash and operating cash flows should cover ordinary operating needs and planned capital expenditures for the foreseeable future. The filing provides no formal numeric revenue or earnings guidance.
• Management’s stated strategy is to sustain Hero Wars, release one to two new titles annually, expand in Asia and pursue acquisitions. The company launched Chibi Island and Island Questaway in 2021 and released a web version of Throne Rush.
• Russia’s invasion of Ukraine and related sanctions arose after year-end. At the filing date, Nasdaq trading in Nexters securities had been suspended since February 28, 2022; the company said delisting remained possible. Management expected a significant decline in Bookings and revenue from Russia, including because Apple Pay and Google Pay services tied to sanctioned Russian bank cards were suspended.
• The company reported material weaknesses in internal control over financial reporting and concluded disclosure controls were not effective at December 31, 2021. Weaknesses involved financial-reporting oversight, risk assessment and IT access/change controls; remediation was underway but not complete.
• Revenue concentration, paying-user concentration, reliance on third-party platforms, privacy and cybersecurity obligations, foreign exchange exposure, and regulatory uncertainty around game mechanics are material risks. The company reported no cybersecurity insurance and generally limited insurance coverage.
• Acquisitions announced or completed after year-end include Pixel Gun 3D and interests in studios behind RJ Games and Royal Ark titles. The filing estimated approximately $71.6 million of 2022 capital expenditure through its reporting date, primarily for studio acquisitions; acquisition accounting was incomplete for several transactions.
• Management reported no material legal proceedings expected to adversely affect the company, while noting that litigation outcomes are inherently uncertain. No cash dividends had been declared by Nexters Inc.; the company did not anticipate dividends in the foreseeable future.

Important facts for investors to verify

• Whether Nasdaq trading resumed or the securities were delisted, and the operational and liquidity effects of the Russia-related sanctions and payment restrictions.
• Subsequent reported revenue, Bookings, payer activity and marketing returns, particularly for Hero Wars, which accounted for nearly all 2021 revenue and Bookings.
• Progress in remediating the disclosed material weaknesses and whether controls have operated effectively for a sufficient period.
• Actual cash consideration, contingent payments, financing requirements and integration results for post-year-end acquisitions, including related-party transactions.
• The assumptions behind deferred revenue recognition, especially player-lifespan estimates: the company disclosed that a 10% increase in estimated lifespans would have reduced 2021 revenue by approximately $29.0 million.
• The effects of the restatements and any further tax assessments, particularly withholding and indirect taxes and unrecognized deferred tax assets.