CFO Comment on the 2024 Accounting

Foreword

I am updating our followers and community on the 2024 Accounting. Consistent with previous years, we follow simple cost accounting rules without complicated adjustments like revenue recognition or intellectual property amortization. This is aimed at making the update straightforward and easy to understand.

The Accounting published here follows previous year formats showing “income,” net of sales taxes, as invoiced or accrued, and costs as incurred. We add to this capital expenditure as “spent.”

As usual, we aim to give more relevant details regarding how the income and costs are classified compared to what we would be required to do in published financial statements. The basis of this analysis remains the management accounts numbers that underpin the financial statements we provide to our auditors, upon which they perform their work for the annual audit.

Overall

2024 was a year of consolidation and delivery at Cloud Imperium.

Having invested heavily in 2023 to expand our capabilities, acquire Turbulent and dedicate resource to getting Squadron 42 to feature complete, 2024 was a year to double down on those investments and deliver more progress on Star Citizen whilst moving Squadron closer to our release goals.

Total income grew by 3% to $147M reflecting the ongoing loyalty and engagement of our community. Pledges and counter income fell slightly by 3% to $116M – reflecting a year of fewer headline releases for much of the year as we concentrated on the significant technical features needed for the future of Star Citizen – the results of which we only delivered in the final quarter of 2024. However, subscriptions rose by 14% to $7.3M and other income (incentives, partnerships and credits) increased by a very significant 34% to $23M. The latter reflects the growing scale and value of our international development operations and the corresponding incentive and partnership income they generate, bolstered further by the third-party income arising from Turbulent’s existing external clients.

On the cost side, 2024 demonstrated meaningful rationalisation following the major structural changes of 2023. Total costs including capex fell by $2.2M to $161M, with the most striking movement being a more than halving of contracted game development costs as we internalized capability through the Turbulent acquisition. This saving was partially offset by ongoing salary and overhead investment in our Rest of World operations, principally in Manchester.

The net outcome was an EBITDA loss ($6.3M) and ($14.3M) after including capex. This represents our mid to longer term planning horizon and is encouraging that we managed to rationalize some costs from 2023 and reduce our losses whilst we remain in a period of significant investment ahead of commercial release.

We continue to substantially reinvest our earnings into our development and technology and in 2024 we demonstrated a return on this investment by delivering two landmark product milestones: the release of Star Citizen Alpha 4.0, which brought the Pyro system and the first phase of Server Meshing to our players, and at CitizenCon 2024 in Manchester, where we showcased the 1.0 roadmap for Star Citizen and demonstrated an early playthrough of the opening Squadron 42 chapter.

Headcount reduced from 1,085 to 1,031 by year-end, primarily through a reduction in US headcount as we moved our US HQ to Austin Texas and prepared to close our LA office, whilst consolidating our development activity in our Rest of World locations, particularly Manchester.

The second phase of the Turbulent acquisition reduced cash slightly further, by ($1.2M), but this was more than offset by third-party income from Turbulent’s existing clients and increased local incentive income. This underlines that the acquisition was an excellent investment, both for the expertise it added and for its cost efficiency.

Income

Summary

In 2024, total income grew modestly by $3.7M (3%) to $146.6M, a resilient performance against a challenging macro and games industry backdrop and a year in which our principal product remained in pre-alpha throughout with our primary update only delivered towards the end of the year.

Taking each revenue source as identified:

Pledges / Sales (from Counter) This line is taken directly from our daily published Funding Stats Counter, showing the net receipts from our backers and customers. The vast majority of sales are of starter pack sales granting access to the Star Citizen alpha game, as well as spaceships and digital items immediately delivered and playable in the game. A smaller fraction of sales come from pledges for concept ships, and all include a “loaner” ship for immediate use and playability within Star Citizen alpha.

Pledges and counter income fell by $3.1M (3%) to $116.3M. This is attributable to the shape of the Star Citizen release calendar in 2024 with a longer than anticipated development cycle between releases. For much of the year the community was waiting for the transformative 4.0 release, which launched in the final quarter. The 4.0 release, bringing the Pyro system and an initial phase of Server Meshing, generated strong end-of-year engagement and partially offset softer trading through the first three quarters of the year.

Subscriptions

Subscriptions grew by $0.9M (14%) to $7.3M, demonstrating continued deepening of engagement within our existing community. The subscription base provides a stable, recurring income stream that is broadly uncorrelated with the episodic nature of pledge sales.

Other Income

Other income grew strongly by $5.9M (35%) to $23.0M. This reflects the maturing of our international development operations, with UK development credits and related incentive income continuing to grow, as well as expanding partnership and hardware/software vendor income. This income line was further bolstered by a full year of Turbulent income including their local incentives and their existing web service business. This other income represents an increasingly important and diversified income stream, for the Group.

Trading Costs

Trading costs are broken down by territory and year into five broad categories.

Summary

2024 was the year in which the cost rationalisation implicit in our 2023 strategic decisions began to crystallise. Total trading costs fell by $3.1M (2%) to $152.9M, a modest reduction in absolute terms but one that masks some significant and deliberate shifts in cost composition.

The dominant structural feature of the 2024 cost base is the sharp fall in contracted game development costs, which fell by $7.0M (56%) to $5.5M as the Turbulent team, fully integrated into the group from the second half of 2023, replaced what had previously been externally contracted development services. This was always the intended outcome of the Turbulent acquisition and represents a significant return on that investment.

Salary and overhead costs in the Rest of World segment continued to grow as Manchester consolidated its position as the hub of our development operations, but the rate of growth moderated compared to prior years. US costs across all categories either held flat or reduced, reflecting the ongoing transfer of development activity out of the United States and the consolidation of publishing activities out of Los Angeles and into Austin.

Salaries and related on-costs

Salaries and related on-costs represent the total employee cost within the Group, excluding service-oriented publishing, community, and marketing personnel – whose salaries and related costs are included within that cost line.

Total salary costs increased by $3.3M (5%) to $71.4M. This growth was entirely driven by the Rest of World segment, where salaries rose by $4.1M (8%) to $56.1M, reflecting inflationary uplifts and continued investment in development capability in Manchester. US salary costs fell by $0.8M (5%) to $15.2M, consistent with the planned reduction in US development headcount as those activities migrated to the UK.

At year-end, the US had 28 development employees compared to 58 at the end of 2023, with the Rest of World (including Montreal) carrying 667 development staff, reflecting the decisive shift in where our games are being built.

Other group costs (overheads)

Other group costs include expenses for studio operations such as office rental, maintenance, travel, accommodation, IT, and other costs not included in the other cost categories.

In 2024, these costs rose by $3.6M (11%) to $36.7M. The growth was again concentrated in the Rest of World segment (+$3.9M / +16%), where the Manchester facility continued to operate at full scale and its associated running costs grew commensurately. US overheads reduced modestly by $0.4M (5%) to $8.1M as the US operational footprint contracted and further savings will be seen here following the closure of our LA office.

Whilst overhead growth in absolute terms remains a feature of our cost base, the rate of increase has slowed considerably compared to 2023, when overheads grew by 80%, including the commensurate costs associated with the Turbulent acquisition. The major facility investments (Manchester, Frankfurt) are now substantially complete and behind us.

Contracted Game Development Costs

These represent the costs of contracted services supporting game development work. In 2024, contracted game development costs fell dramatically by $6.9M (56%) to $5.5M, all of which was in the Rest of World segment. This is the direct and intended consequence of the Turbulent acquisition: the significant external contracted development services that Turbulent previously provided (and which were invoiced through to the group) were internalized upon acquisition and are now captured within salaries. From 2024 onwards, this cost line predominantly reflects residual specialist services that are not sensible to internalize such as head scanning, motion capture, and music composition and orchestration. There was no contracted development cost in the US in 2024.

Publishing Operations, Community, Events, and Marketing

These costs are associated with running the game, deploying online services, and providing customer support. They also include the costs of running our platform, publishing, data hosting, and server infrastructure. Sales collection, customer liaison, and the costs of our marketing and community events are also included in this category. Direct events and marketing costs made up only a small share of this category in 2024, accounting for 12% of total spend. Including personnel costs for sales and marketing raises that proportion to 21%, with the balance relating to the publishing and support functions needed to sustain the games currently in development.In 2024, total publishing and marketing costs fell by $2.2M (6%) to $37.5M. This was despite the growth in online platform infrastructure and community support activities as Star Citizen’s player base expanded with the launch of 4.0.

However, there was a shift in composition with a reduction in US costs of $3.9M (15%) to $22.0M whilst the Rest of World costs grew by $1.7M (12%) to $15.5M. But much of this was a consequence of the switch in venue of CitizenCon, from Los Angeles in 2023 to Manchester in 2024.

Nevertheless, underlying there was also a more disciplined approach to event spend and marketing expenditure. The 2024 CitizenCon held in Manchester was a good example of this, being closer to our operational centre of gravity and thus enabling us to manage it more cost-efficiently whilst still delivering an impactful showcase of the 1.0 roadmap and Squadron 42 progress.

The internalization of Turbulent publishing related costs, that we had hitherto contracted in, also contributed to the savings, but as noted last year supporting our growing community and customer base, while maintaining strong player engagement in the world we are building, remains essential. We therefore continue to invest in our servers, platform, and community tools to make the Star Citizen experience more robust, secure, and rewarding and this remains substantially the largest element of this cost category. Excluding personnel this element accounts for 56% of the total spend in this cost category and 71% of the publishing operations spending.

General and Admin

These costs represent insurance, accountancy, and other professional and legal fees not apportioned directly into the cost areas identified previously. With the Turbulent acquisition they also represent the costs associated with operating through that entity in Canada.

General and Admin costs fell by $0.7M (28%) to $1.9M in 2024, as the elevated M&A advisory and legal costs associated with the Turbulent transaction of 2023 did not recur. This is the continuation of normalisation following an unusually active 2023 in terms of corporate activity.

Capex and Investments

This includes capital expenditure on hardware, software, fixtures, fittings, and offices. It varies with staff numbers and includes expenses for hardware renewals, server upgrades, and other security and infrastructure purchases.

Total capex in 2024 was $8.0M, an increase of $0.9M (13%) on 2023. Rest of World capex increased by $1.2M to $7.3M, including continued server and hardware investment to support the major technical infrastructure upgrades underpinning the 4.0 release. US capex fell by $0.3M to $0.6M as the physical footprint of that operation continued to contract.

As noted in prior reports, we do not include depreciation in the trading cost analysis; instead, the total capital expenditure outlay is included here as a representation of the investment made in the period.

Headcount Analysis

The headcount analysis represents the people working at the end of the year under the broad disciplines identified. It is not an average-for-the-year figure. Total headcount decreased by 54 people (5%) to 1,031 by the end of 2024. This reduction was almost entirely a US phenomenon: US headcount fell by 65 people (31%) to 146, driven by the continued transfer of development activity (and people) to the Rest of World and a rationalisation of US publishing and marketing staffing. Rest of World headcount grew marginally by 11 people (1%) to 885, maintaining the scale achieved through the Turbulent acquisition whilst rationalizing in areas not critical to our focused activities.

Within the US, development headcount fell from 58 to 28 people, reflecting the staged and planned transfer of development activities to our Manchester hub. US publishing, community, and marketing headcount also reduced from 126 to 100. These movements are consistent with the long-term strategic objective of consolidating development in Manchester whilst maintaining a publishing and player-facing presence in the United States.

Rest of World development headcount (including Montreal) remained stable at 667 people (2023: 666), confirming that the internalization of Turbulent talent has been effectively absorbed. The 2024 year-end headcount reflects a more experienced and capable development team focused on advancing the games in line with the high standards of our engaged community.

Overall

In 2024, Cloud Imperium continued to execute against its strategic priorities in a challenging environment. The year’s financial results reflect both the discipline applied to our cost base and the reality that we remain in an intensive pre-commercial investment phase.

The improvement in the annual loss from ($20.2M) in 2023 to ($14.3M) in 2024 reflects the operational improvements achieved through cost rationalisation, partly offset by continued investment in our Rest of World capability. The pre-capex position improved more dramatically still, from ($13.1M) to ($6.3M), as capex remained broadly stable. The release of Star Citizen Alpha 4.0 in the fourth quarter of 2024 was a watershed moment for the project. The addition of the Pyro system and the initial phase of Server Meshing — technology first demonstrated at CitizenCon 2023 in Los Angeles — delivered on commitments made to our community and demonstrated the tangible return on the significant investment made over preceding years. As the Chairman noted in his 2024 letter, this is not merely the next iterative patch but a fundamental architectural advance: for the first time, the game runs across a mesh of servers covering the entire playable universe, with server boundaries invisible to players.

CitizenCon 2024 in Manchester marked another milestone, with the public presentation of the Star Citizen 1.0 roadmap and a live playthrough demonstration of a Squadron 42 chapter. These disclosures represent a significant step in our commercial maturation: we are now able to describe, with confidence, the shape and timing of the products we will be bringing to market.

The macroeconomic environment remains challenging and the games industry as a whole is experiencing headwinds. Our business model and loyal community provide a degree of insulation from these pressures, but we are not immune. Our investor shareholders continue to share our confidence in the long-term opportunity, as evidenced by their ongoing equity and financing support.

Looking to 2025, we expect to maintain the cost discipline established in 2024 while continuing to invest in the capabilities and infrastructure needed to deliver Squadron 42 and advance Star Citizen toward 1.0. The investments made in 2023 and 2024 created the foundation for parallel progress on both titles, while also improving the player experience in Star Citizen. That progress has already contributed to stronger player growth and engagement, helping deliver our best top-line performance to date in 2025. Our next priority is to build on this momentum while working to balance the business through to the release of these two highly anticipated games.