Cloud Imperium UK Ltd's 2023 Accounts Are Not Pretty

At the beginning of 2024 fans of Cloud Imperium Games were ecstatic. The company's cash shop had posted another year of record sales of $117.6 million, a year-over-year increase of 3.5%. But in the financial report for 2022 posted to the CIG corporate website, the company revealed worker headcount increased in 2023 from 860 employees to over 1100. Did the overall company revenue match the nearly 30% spike in employees? In a filing with UK Companies House on Friday, the answer apparently is no.

For the second year in a row, Cloud Imperium UK Ltd filed its annual accounts late. Why should followers of games like Squadron 42 or Star Citizen care? Because Cloud Imperium UK Ltd is the "Rest of the World" category in CIG's annual financial reports. The company describes itself in its strategic report as follows:

Principal Activities

Cloud Imperium UK Ltd. operates from the UK managing the rights for the video games Star Citizen and Squadron 42 outside of the US market. Cloud Imperium UK Ltd. generates its revenues from its subsidiary, Roberts Space Industries International Limited, a company engaged with publishing activities for worldwide markets excluding USA. From its revenues, it directly funds Cloud Imperium Games Limited, the largest video game development presence in the Cloud imperium Group and all other non-publishing activities pertaining to Star Citizen and Squadron 42 outside of the USA.

Looking at the Group Statement of Comprehensive Income one can see that the Group recorded a loss of £8.4 million, compared to a profit of £8.5 million in 2022. Here is CIG's explanation.

Fair review of the business

During the year ended 31 December 2023, the Cloud Imperium UK Ltd. group ("the Group") reported revenue of E47.9m (2022: E44.6m) following various alpha releases made during the year. Costs have risen to E67.7m (2022: E43.2m) as the Group continues to progress with the development of the video game Squadron 42, but to which it has added the development of Star Citizen. The primary development for Star Citizen is being undertaken from the UK following the early alpha release version at the end of 2022, which introduced persistence into the game and marked the end of that phase of development. The road to commercial release for the full Star Citizen game is being undertaken in the UK. As usual the publishing activities associated with the video game Star Citizen outside of the US continue to be undertaken within the UK group. Other operating income has increased to E 11.8m (2022: E6.9m) as a result of an increased video game tax credit arising from increased development activities in the UK, with the Group recognising a loss ofE8.4m (2022: E8.5m profit). At 31 December 2023, the group reported net assets of E33.3m (2022: E40.9m).

This loss is consistent with the mid to long term goals of the business aimed at commercial release of the games in development and in particular the cost committed to the development of Squadron 42 to get it to a stage where it can prepare for future commercial release with greater visibility and control.

The passage suggests that with development for Star Citizen now occurring in Manchester that costs in the US should have decreased significantly. But in 2022 the average number of employees working for Cloud Imperium UK each month jumped 49%, from 573 in 2022 to 854 in 2023. Given the total number of employees world-wide jumped to over 1100, headcount in the U.S. probably remained steady.

One of the problems with just viewing the financial information from the UK is that increased costs in one half of the company could result in lower costs in the U.S. Observers will need to await the posting of the comprehensive financial report for 2023 to appear on the CIG corporate website for actual profit or loss figures.

With the boring but required coverage of Cloud Imperium UK Ltd's losses out of the way, let's get to the interesting stuff.

The Turbulent Acquisition - When last year's strategic report revealed CIG purchased the remaining 75% of Turbulent for CA$9.8 million, I was awaiting fuller details about the transaction in this year's accounts. For those not familiar with CIG and its history, an explanation from the Group Statement of Comprehensive Income is below.

On 1 July 2023, the group acquired the remaining 75% of the issued share capital of Turbulent Media Inc., taking the group's total equity interest to 100%, for a total consideration of £4,330,702.

Cloud Imperium UK Ltd. and Turbulent Media Inc. have successfully collaborated since 2012 on the ongoing evolution of Star Citizen, the iconic Massively Multiplayer AAA video game currently in development. Turbulent Media Inc. is based in Montreal, Quebec in Canada.

Turbulent Media Inc. has been integral to the development of Star Citizen has equally been integral to the development of our e-commerce platform, building our marketing and platform infrastructure, and now to actively contributing to the development of Star Citizen and SQ42. Management recognises the shared cultural values and passions between the two companies, which have helped create a natural synergy and development pipeline for our joint projects over the past decade.

Management have estimated the useful life of the goodwill to be 10 years. The acquired software is integral to the daily development of Star Citizen that has now been moved to the UK. The strong customer relationships will generate external revenue for the group. The group will now utilise the assembled workforce to continue the development of Star Citizen and SQ42.

Upon derecognition of the investment in associate, the share of historical profits and amortisation of Goodwill of the investment have been recycled against retained earnings in accordance with FRS102.

The total consideration of £4,330,702 was CA$7.2 million at the exchange rate on 1 July 2023.

Reading the final details of the deal were amusing as CIG was able to consider £2.9 million owed to Turbulent wiped off the books. Also, payments owed to the two co-founders of Turbulent, Benoit Beausejour and Marc Beaudet, count as employment expenses of £1,945,744. The payments were contingent on the pair staying with CIG for two years. I believe the two-year period is over on 1 July 2025.

The Put Option - Last year a conflict arose over a financial arrangement made between the Calders and CIG when they made their initial investment into the company. The continued existence of the put option, however, is still causing conflicts between CIG and their independent auditors, PwC.

The auditor explained why the audit could only give a qualified opinion on the accuracy of the financial accounts.

Basis for qualified opinion

The Group and Company have disclosed a contingent liability within note 31 of the financial statements. This is a put option entered into by the Company in 2018 with certain minority sharehotders which, if exercised, would result in a contractual obligation for the company to deliver cash or another financial asset to the holders in exchange for the shares. In accordance with FRS 102 this should have been recognised as a financial liability within the balance sheet. After initial recognition, the liability should have been subsequently measured in accordance with section 11 and section 12 of FRS 102 with the changes recognised within the Statement of Comprehensive Income. Management has outlined a valuation within Note 31 which is material, however, we were unable to obtain sufficient appropriate audit evidence in relation to this balance and so have qualified our opinion in respect of this put option.

The put option as described at Note 31 is a bit confusing. First the description.

A contingent liability exists with respect to 1,877 ,400 (2022: 1,877,400) of the 11,745,920 (2022: 11,715,800) issued shares as of 31 December 2023. The holders of these shares have the right to put their shares back to the Company for repurchase at a minimum return premium of 6% per annum on the initial purchase price. For 1,599,900 (2022: 1,599,900) shares they also have a value formula based upon the three years' average revenue leading up to the start of the exercise period.

When the information first emerged last year, the smaller investor was identified as Eli Klein, who advised CIG on the Calders' initial $46 million investment in the company. The larger investors were the Calders, specifically Keith Calder and Indus Management, LTD. According to the above, the shares acquired from Ortwin Freyermuth last year do not qualify for the put option.

The timing of when the option may be exercised is unusual. The clock doesn't start running on the decision period until CIG completes its accounting for the fiscal period. A move that makes sense since in at least one instance the payout is determined by a formula that extends for three years.

For 1,599,900 (2022: 277,500 shares were exercisable between 01 January 2024 and 31 March 2024) shares their first put rights are exercisable within 30 days of the financial statements being delivered for the year ended 31 December 2025 and within 30 days of the financial statements being delivered for the year ended 31 December 2028 and for all   shares (2022: 1,877,400). Separately 277,500 shares are exercisable on 31 December 2027.

Based upon representations from the holders and given the company's financial position, budgets and forecasts the company currently assesses the probability of the holders exercising their put rights to be remote.

So according to the above, Klein can exercise a put option within 30 days of the financial statements being delivered for the years 2027 and 2028. For the Calders, the years are the end of 2025 and 2028. I had been under the impression a decision was required in the first quarter of those years.

The explanation for why CIG did not want to include the contingent liability is because, to summarize, the terms are confusing. How confusing? Here's the example CIG included in the accounts.

Consequently, consistent with prior years, the company has not recognised this put option as a financial liability measured at the net present value of the expected payments. If it were to do so at the minimum return value on the investment for those shares it would generate a liability with a present value of £30.4m at 31 December 2023 (2022: £31.1m) using a discount rate of 10% (2022: 7.32%). This would rise to £44.6m (2022: £47.8m), based upon a multiple applied to an estimate of three prior years revenue leading up to the exercise dates. There are many assumptions underpinning the calculation multiple before the probability of it being exercised is considered, and the fact that this is considered remote is the primary reason for not recognising the uncertain net present value of this potential contingent liability.

Of course, the claim that any of the shareholders wishing to take advantage of the put option is so remote the company didn't need to consider the possibility did not fly with the auditor. But if a put option is exercised at the end of 2028 probably would exceed $100 million.

Post balance sheet events - A loss of £8.4 million is possibly an accounting trick for tax purposes. The acquisition of Turbulent was possibly a shrewd move, especially considering the expenditure was much less than reported in the 2022 company accounts. The put options are complicated affairs that shareholders probably won't exercise in the next few years, if ever. But then we get down to the post balance sheet events. These are financially significant events that don't affect the evaluated year's balance sheet. 

The first is the sale of 247,520 shares to an existing shareholder on 15 January 2025. The sale price of each share was $20.20, making the purchase $5 million, or £4.1 million at the day's exchange rate. The fact the buyer was an existing shareholder was a new detail not known before the release of the accounts.

The second is a previously unknown event. On 3 March 2025 CIG borrowed £10 million, or $12.6 million from an existing shareholder. While the identity of the shareholder is unknown, the principal of the loan is due on 31 December 2027.

From page 6 of the 2023 company accounts

Looking back, Cloud Imperium UK Ltd posting an £8.4 million loss two years ago is potentially embarrassing but without the figures from the U.S. portion of the operation, explainable. The fact that the auditor of the report could only give a qualified opinion on the facts surrounding the Calders' put option, a contingent liability potentially larger than CIG's assets, is worrisome. Especially since the liability is likely to exist for the next 5 years. But the raising of £14.1 million ($17.6 million) over the past 3 months is part of a series of events since the end of 2023 that leads one to believe CIG is in financial trouble.

In March 2024 Chris Roberts explained the departure of staff as well as announcing the eventual closure of the Los Angeles office for game development. In April & May, Cloud Imperium co-founder and long-time business associate of Roberts, Ortwin Freyermuth, sold off his shares in the company and resigned from the board of directors in June. In December word once again spread about layoffs at Cloud Imperium, this time involving quality assurance staff.

In January, right before the sale of $5 million in CIG shares, word of a leadership shakeup leaked out. The new leadership team adopted a strategy that resulted in first quarter cash shop sales rising over 47% compared to the first three months of 2024. So in addition to raising $17.6 million from existing shareholders, the cash shop raised an addition $8.2 million. Add in the closure of the Los Angeles office for administration as well as game development and matters don't look good. And with Friday's announcement that CitizenCon would not take place physically and only last one day, the bad news continues to roll on.

Cloud Imperium UK Ltd Late Filing Penalty Set To £750

Correction: 6 April 2025 - Now that the documents are available, the timestamp shows the accounts were received on 29 March, not 4 April. This means that the fine is only £750, not £1500. The blog post has been updated accordingly.

This morning Cloud Imperium UK Ltd filed its group of companies accounts for the 2023 fiscal year with UK Companies House. 

This morning the filing of Cloud Imperium UK Ltd filed its group of companies accounts for the 2023 fiscal year appeared on the UK Companies House website. According to the website the accounts will be available to the public in 10 days, which is Monday, 14 April 2025.

As seen on 4 April 2025

The fine for the late submittal of the accounts by a private company or LLP between three and six months is normally £750. But as Cloud Imperium is filing late for the second year in a row, the fine is doubled to £1500. According to the Companies House website not only is the company subject to the fine.

The fine for the late submittal of the accounts by a private company or LLP between one and three months is normally £375. But as Cloud Imperium is filing late for the second year in a row, the fine is doubled to £750. According to the Companies House website not only is the company subject to the fine.

Consequences of not filing

Not filing your accounts or confirmation statements is a criminal offence. Directors or LLP designated members could be personally fined for this in the criminal courts.

Failing to pay your late filing penalty can result in enforcement proceedings. Any criminal proceedings for not filing confirmation statements or accounts is separate from (and in addition to) any late filing penalties issued by Companies House against the company.

You could get a financial penalty if you do not file your confirmation statement on time. The registrar could also take steps to strike your company off the register.

What does the news of Cloud Imperium finally filing its 2023 accounts mean going forward? For one, we may see the company file its annual financial report on its company website next week. I imagine the company's leadership will want to present its full report (and any spin) to the general public before the accounts become available on the 14th.

We also will get some answers to some questions. I currently am going on the assumption that the Calders' put option for Q1 2025 caused some conflict with the auditors. The option expired on Monday. The accounts will probably address whether the put option was exercised or the Calders will wait until the first quarter of 2028.

Another question up in the air is the status of Turbulent. The Montreal-based company was acquired in the summer of 2023. Will the company fall under the UK branch of Cloud Imperium or the US branch? If the UK, that move could have complicated the creation of the accounts. Also, such a move might signal the long term direction of the US branch.

Finally we come to the question of new offices in Manchester, and perhaps Frankfort as well. The construction for building both sets of offices completed in 2022. Cloud Imperium did not begin moving staff into the Manchester facility until 2023. A look at the accounts should show how much the company is currently spending on office space, at least in Europe.

I'm hoping that by the end of the month I can stop writing about Cloud Imperium's finances for 2023 and can move on to 2024. Based on recent history, CCP Games' release of its 2024 accounts should show up for public access on Iceland's taxing authority website in 4-6 weeks. As for Cloud Imperium? I really hope they submit their accounts on time for a change.

Breaking Through The Dawntrail 7.2 Gear Wall

Well, I did it. I am now eligible to enter Final Fantasy XIV's patch 7.2 trial, Recollection. I reached item level (IL) 715 on Sunday night. Of course, reaching the minimum item level of Recollection did not initially help me run The Underkeep. After melding my newly dropped gear, I managed to defeat the first two bosses cleanly but took 25 minutes to kill Valia Pira.

While not finishing well, my 9th run of The Underkeep did result in the drop of three more pieces of the healer's Underkeep healers set, giving me 7 out of 10 gear pieces at IL 725. My weapon, however, was still IL 710. Still, I could try to push on and get a first week completion of Recollection. But for my greater goal of crafting the Ceremonial healing set, I kept grinding away.

A funny thing about crafting the best armor sets in patch 7.2. The biggest hurdle is acquiring the Allagan Tomestones of Heliometry required to purchase the rest of the goods I need. Yes, patch 7.2 introduced 5 new legendary nodes whose materials are also acquired, but after two hours or so I had more than enough, even though the nodes only spawn twice every game day. I already had purchased the required Tomes of Regional Folklore in patch 7.1 so no speedbumps encountered in that respect.

The preferred crafting food for high-end crafting apparently switched to ceviche. The big pain is fishing the main ingredient, cloudsail. Not really hard, but I found a YouTube video that really sped the process up. As in going from catching 17 my first hour to catching 34 in 30 minutes.

So off to The Underkeep I trudged on Monday night. And then, something clicked. For my first run of the night I defeated all three bosses without dying once. I do have to credit my newly acquired dropped gear for giving me just enough health points to keep from dying to the second boss. Include a newly acquired instinct to self-heal immediately upon taking unexpected damage and I survived. Perhaps more importantly, I completed the dungeon in under 30 minutes. The 30 minute mark is key because without free company buffs food effects only last 30 minutes.

Interestingly enough, I almost didn't make that first deathless run. I had for the first time in my time playing FFXIV hit the weekly tomestone cap. I had reached my 450 Allagan Tomestones of Mathematics cap for the week and the reset wasn't until Tuesday. But as I really don't plan on grinding out the IL 750 Historia set so the "lost" tomestones didn't bother me so I decided to just run the dungeon twice to get the drudgery out of the way.

For those trying to get through the dungeon at my skill level, here's how I managed it. For the first two bosses, follow around G'raha Tia. But I was playing white mage. I'm not sure what to do for tanks.

The final boss was difficult because I couldn't follow G'raha around. Instead I tried to stay in space as much as possible. Entering the arena I dive directly to my right to the corner. From there I was able to observe what to do for the first minute or so. The first real problem mechanic is when the boss spreads out pie slices. Don't try to find an uncovered spot. Just stand in a dark red slice. From that first corner I could basically run forward to find a spot.

Another problem I had was the bosses half-arena attack. I did key off G'raha, and later on Krile, to know which side of the arena to run to. But that was probably after 50 pulls and only a handful of successes.

This isn't a walk through of the dungeon. Maybe I'll do something later, but for now I'm concentrating on gearing up my max level jobs. After another setting a personal best of 28:30 in completing The Underkeep last night, I'm looking forward to getting the final 171 tomestones needed to let me begin crafting my Ceremonial gear. That is only 3 more runs of The Underkeep to go.

All of the cutting edge raiders had arranged to get their Ceremonial gear to begin running the new Savage on Tuesday. While I technically don't need to do the same to continue on with the MSQ, I figure I need all the help I can get. The main difference is while crafters are out working to gear up their friends and FC mates, I'm making the gear for myself.

Cloud Imperium Records Record Sales in March And The First Quarter Of 2025

Cloud Imperium finished off a record quarter yesterday by finishing the month of March with $10 million in cash shop sales for the first time in the company's 13 year history. The $10 million, according to the CCU Game dashboard, represented a year-over-year increase of 40.2% over the $7.3 million in sales recorded in March 2024. For the first three months of 2025, CIG finished with $25.5 million in sales, a 47.3% YoY increase over Q1 2024's $17.3 million.

First quarter 2025 cash shop sales

The $799.5 million displayed on the Roberts Space Industries funding page at the end of March was not a comprehensive accounting for all of CIG's revenue since the project's Kickstarter in October 2012. Overall, the company has recorded $898.1 million in confirmed revenue (the funding page & the 2022 financial report).

• Sales/Pledges: $799.5 million (through 31 March 2025)
• Subscriptions: $33.0 million (through 31 December 2022)
• All other sources: $65.6 million (through 31 December 2022)

In addition, the company has received a total of $63.25 million in outside investment. According to the 2022 financial report, $4.8 million of the amount was returned to investors in 2020. Including the outside investment money, the total amount raised by CIG to create Squadron 42 and Star Citizen is $961.4 million, or $956.6 million when excluding the returned funds. An additional $5 million in shares sold in January 2025 are not included in the total.

The Funding Plateau - Over the last three years, Cloud Imperium has faced a sales plateau in the company's sales of virtual good like internet spaceships. Sales have fallen withing 3% of the average of $115.9 million between 2022-2024. I believe the shakeup of upper management that began in Q4 of 2024 is designed to break through and increase revenue for the company. So in addition to providing year-over-year metrics I will also comparing the sales figures from 2025 to the average sales for the years 2022-2024. I believe if sales continue to fall within the range of $112.4 million and $119.4 million the C-Suite at CIG, if not the board of directors, will not be happy.

In March the Marketing Masters In Manchester had a lot to smile about. Not only did sales rise 40.2% for the first quarter YoY, but increased over the previous 3-year average for the quarter by 31.4%. Sales really benefitted from both the continued effects of the release of Alpha 4.0.2 on 28 February and the final sales associated with the launch of Alpha 4.1 on 27 March.

March 2025 cash shop sales

Over the first seven days of March, the company recorded $1.6 million in sales, a $790,000 increase over sales in the first seven days of March 2024. Over the final five days of the month CIG received $4 million in sales, or an increase of $3.1 million over the same period in 2024. These two periods offset the disappointing performance of the annual Fortuna event which only brought in $3.4 million, a $1.4 million YoY drop from the event's sales in 2024.

New Account Creation - From 2022 to 2024 CIG saw the number of new accounts created each year fall by 44.5%. I'm assuming that part of the shakeup is aimed at improving that performance as well. So I came up with a simple predictive formula to estimate how big of a drop in new player account creation is expected based on historical trends. For the year, my formula comes up with a 19% drop in new user accounts created in 2025, which is twice as much as I predicted at the beginning of the year.

Q1 2025 new account creation

Overall in Q1, the number of new accounts created fell by 29% year-over-year, from 121,088 accounts in March 2024 down to 86,008 last month. I often get asked how sales revenue can increase to record heights while the game itself attracts less and less new people. The answer, as always, is any correlation between sales numbers and new account creation is purely coincidental. The marketing team is concentrating on sales to long term players with a proven track record of spending a lot of money (aka "whales").

March 2025 new account creation

However, for the first time since August 2024 CIG experienced a year-over-year growth in the number of accounts created in March. Account creation increased by 6.1% to 25,496 last month. While not a large amount compared to the over 40% cash shop revenue increase in March, the rise does represent the first uptick in the metric for the new leadership team.

Ongoing Concerns - March has come and gone and we do not have any indication if the Calders exercised their put option during the quarter. As the only remaining period to exercise the option is Q1 2028 the submission of Cloud Imperium's accounts to UK Companies House should provide a clue.

Speaking of UK Companies House, CIG had not submitted its financial accounts to the government body as of the writing of this post. From past experience a 7-10 day lag does exist before the paperwork will show up on the site. But as of today, the fine for late filing increases from £750 to £1500. If the accounts are not filed in April I'll begin to think something suspicious is occurring instead of just the regular Cloud Imperium shuffle.

We do know that the Cloud Imperium page is active on UK Companies House as back in February the company posted the required information, on a timely basis, on the allotment of $5 million in shares to as yet unnamed purchaser. The company probably will not reveal the buyer's identity until required by Companies House. The next deadline is in September.

Observers are still awaiting the traditional reveal of Cloud Imperium's 2023 financial report on CIG's corporate website. I believe, if not legally required in the UK, is traditionally seen as a bad sign by investors if one is not present. I'm still trying to track that piece of information down. Honestly, I didn't expect CIG to fall behind this late.

Finally, for a quarterly review, I cannot forget the shutdown of CIG's Los Angeles facility. In March 2024 Cloud Imperium CEO and co-founder Chris Roberts issued a "Letter from the Chairman" in which he announced game development work would cease in California but the office would remain a main administrative hub. Last month we learned differently.