Hello, and welcome to the last report for 2022, the Q4, and full end year report, with me, Fredrik Wester. Alexander Bricca. Good to have you with us. We're gonna walk you through a couple of the things that happened in the quarter. That's my name, by the way, if you click. Yeah. My name is gonna show on the screen. Let's see... Yeah. ...if it's connected now. We are live with the presentation as well. There we go. That's me. All right. We're gonna walk you through the most important events of Q4. I'm gonna do that, and then Alex will take you through the numbers as well with a few comments maybe from me if I have anything to add there. We're looking back at a good year, and by no means perfect, but we had a great lineup, strong sales, and we can't really deny that the weak Swedish krona has helped us a bit with some FX tailwinds. But we've also done some organizational changes leading to lower cost of goods. Most important, maybe not most importantly, but important for the EBIT and the profit margin is that we had very low write-downs, almost no write-offs at all, write-downs at all on games. We've done, throughout the year, we've had progress. We've been working with organizational realignment and to first and foremost strengthen quality of the releases, also to get better cost control, mostly on the marketing side, but throughout the whole organization. We've also, on the development side, worked a lot to get the release cadence up so we can get more content out there for our players. Obviously, quarter four was dominated by the release of Victoria 3 that has done, in our opinion, has done really well. Some mixed reviews, but we have to remember that Victoria is also the smallest of our grand strategy franchises. All in all, it's a good release with a fairly happy community, I would say. Yeah. For sure. Going through again, I come back, Victoria 3 is the big picture here on the left. We also released during the quarter one of the DLCs for Crusader Kings III and Northern Lords on console, Airport Simulator on mobile, and a couple of different things on the simulation and city building side with Cities: Skylines, Surviving the Aftermath and Prison Architect. It's worth mentioning that Cities: Skylines did a bit better than expected in Q4 as well, really helping the results. We also released the title, the space colony builder Stardeus through Paradox Arc in this quarter. When it comes to community, we've always said that we have 5 million active users, and now we are happy to say it's 5 to 6 million users, right? It's a bit above 5 million. We don't dare saying 6 million yet because we wanna see a strict trend line where we know we can say for sure that we're gonna be over 6 million. We're approaching 6 million monthly active users on a steady basis, which is a healthy growth on the player side. Obviously, the core focus on the marketing sales side is to engage our community more and work more together with our players and make sure that we meet the people in the channels where they wanna communicate. It's more forward-leaning community e-engagement activities to be expected in the future as well. After the end of the quarter, we, as you know, we announced Age of Wonders 4. That was a really positive announcement as well, met by a lot of praise from the fans so far. It's gonna be released in May 2nd, which is next quarter from now. We went into early access with Surviving the Abyss from Paradox Arc, we announced First Contact, a new DLC for Stellaris. With that, Alex, I leave the word to you. Thank you very much. As always, let's dig into the numbers. Record revenues in the fourth and last quarter, SEK 580 million compared to SEK 391 million, fourth quarter at 2021. That's a healthy 49% increase. It's the first time that we are above half a billion SEK in one quarter. Last record was Q3 2020. Crusader Kings. Yeah, when we released CK3. This is the first time we are above half a billion SEK, and it's with a good margin. Very good. Well. As always, it's what we release in the quarter that drives our revenue, and in Q4 2022, it was mainly Victoria 3 that made the big difference. We said, I think we went out with a press release after a month and said that we had already sold in half a million units of the base game. Yes. Quite successful. As you mentioned, Fred, Cities: Skylines was a big contributor in the fourth quarter as well. Financial District, the DLC they released. Yep. T hey did some CCPs, some Content Creator Packs. Yep. One or two radio stations as well. We should be talking to the audience of Financial District right here. Yeah. Who's listening to this stream should be the target audience. They probably are. And as Fred mentioned, a few DLC releases on some of our smaller games, Surviving the Aftermath, Prison Architect, Stardeus, we released, and the new mobile game as well, Airport Simulator. As we have seen in many quarters in 2022, we have had good benefits from the weakened SEK. I think the dollar is up some 20+% year-over-year. EUR not that much, but 8, I think, and GBP 5%. These are our biggest currencies in terms of revenues. Of course, when these currencies goes up, our revenue goes up as well. Top five contributors are not the five usual suspects, of course, because we have a new game, Victoria 3. We hope that we will start to say six usual suspects in the future when we report revenues, that Victoria 3 will establish itself as a long-term, main revenue-generating title. Profit. Operating profit, SEK 244 million compared to SEK 148 million the fourth quarter the year before. That is up the 65%. New record, profit-wise as well. Mm-hmm. That's the fourth quarter in a row that we break the profit record. Q1 was a record, Q2 new record, Q3 new, and now finally Q4, a fourth record. Fantastic. It is. As we said, also a record in terms of revenue. Profit of the financial items or profit before tax, SEK 244 million as well, compared to SEK 147 million last year. Profit after tax, SEK 194 million compared to SEK 116 million last year, last year's Q4. Profit margin 42%. It's up compared to 38% last year's Q4. It's down a bit if you compare it to the quarters we have had earlier this year. We had, I think 45%, 46% in Q1, Q2, and then fantastically 48% in Q3. Why are we down? Well, the most profitable thing we can do, we've said this many times, but that is to come out with the DLCs on our successful games. Q3 was a great example of that when we had DLCs on all our top five games, and then we had 48% profit margin. When we release a new game like we did in Q4, of course the revenues becomes very high, but it comes with a lot of cost, especially amortization or development cost. Therefore, we don't see the same profitability even though we are successful with the game release. Why do we release new games? Well, 42%, it's not bad. No. It's a decent margin. Our goal with a game like Victoria 3 and with almost all our game new game releases is that some of them will establish themselves as a long-term game that can live on for five, six, seven, eight, nine years. Yeah. And- Why not 10-15 years? Exactly. When it do so, it can just as we've seen with Stellaris, with Crusader Kings, with Beverly Hills, then they can start to turn out DLCs with very, very high profitability. That's the target. What more equity-to-asset ratio is increasing. It shows on our solid finances. Employees at the end of the period, 656. We were at our peak when we ended Q3 in 2021, so five quarters ago, I think we were at 742. We decreased roughly 90... Mm. ...back to, let's say end of Q2, so half year ago. Since then, we have been very stable. I think we have increased with two or something like that. I think that we are at a good level today. Let's move on. This chart, this shows three lines, revenue in green, and our three main cost items in yellow, blue, and red. The green shows very clearly what we have said. It's a record quarter, almost SEK 600 million in revenues. The costs, Cost of Goods Sold, selling expenses and admin expenses, all in all, SEK 321 million compared to SEK 261 million Q4 2021, so it's up SEK 60 million. That is almost entirely driven by the release of Victoria 3 and especially the amortization of the development cost. Let's dig into it a bit more. Cost of Goods Sold, as you know, if you've listened to the streams before, this is the cost for our nine internal development studios, cost for our external development, royalties that we pay to external studios. We amortize license and brands when we have acquired studios and IPs. We amortize that every quarter. This also contains the development cost that we have for our riskier projects, for example, that we run under our New Games Team. Yeah. Also some of the development costs that we have. We have some tech development in our publishing business, which that is not really game development, but still technical development. This is all under COGS. In Q4 2022, COGS was SEK 253 million compared to SEK 196 million Q4 2021, it's up significantly. This is, as I've said, the amortization of Victoria 3. The amortization part of the COGS is SEK 119 million compared to SEK 60 million the same quarter a year before, it's SEK 59 million up. We have released Victoria 3, and as we have done with the several other games released during the last years, we have this degressive amortization method where we take one third of the development cost in month one, and another third spread out during month two to six. That means in Q4, we released the game in October, so then we took one third. Yeah. November, December, we took another two-fifth of another third. Yeah. If you add one third with two-fifth of one more third, that is... I've done the math before. 25%. Yes. You're quick. 46%. 46. 46% of the entire Victoria 3 development cost up until release has been taken as cost in Q4, so therefore amortization and COGS goes up. Another part of COGS is what Fred talked about, write-downs or write-offs due to game cancellations. We had zero in Q4 of that compared to SEK 26 million in Q4 of 2021. This is now the fourth quarter in a row where we don't have any write-offs or write-downs on game development projects. We used to have this, roughly 1.5% to 2% of the capitalized development was being written down every quarter due to game cancellations. A year and a half ago, we did the big, kind of a cleanup project where we decided to cancel several game projects where we were not happy with the risk-reward ratio, you could say. Yeah. No, that's correct. We also changed the approach how to develop high-risk games, where we let our New Games Team run them. They invest much less at the beginning during the riskier phases of the game development, and during those phases, we don't capitalize. Clearly this method has paid off because we have now for four quarter in a row hadn't had one single write-down due to cancellation. Yeah. This New Games Team still cancels quite a lot of games. Yeah. I would say in the same pace as we've done always, but it doesn't show up, because we have already taken it as cost. Yeah. And- We've taken it as running cost basically. Exactly. And the costs are also smaller because we invest much less at the beginning. All that is good. What else is part of the COGS? Well, SEK 23 million is because we are, every quarter, we are amortizing on our acquired businesses, like Harebrained Schemes, Playrion, Prison Architect, the World of Darkness brands, everything. Every quarter, we amortize... SEK 23 million. ...23 million we take as costs, every quarter. Yeah. It was SEK 20 million Q4 of 2021. Yeah. It has gone up, not because we acquired more, but because the FX rate has gone up, so the... Okay. ...the amortization is slightly higher. What else is part of the COGS? Royalty is one. Royalty has gone up SEK 31 million in Q4 compared to SEK 16 million the same quarter a year before. The revenue's up in this quarter because Cities: Skylines did a good quarter, and there we pay royalties to the developer. We have also had not huge, but still significant revenues from Across the Obelisk and Stardeus. These are two co-publishing deals, which means that we take the full revenue into our books, but then we share a significant royalty with the developer. Yeah. Therefore you can see the royalty going up in Q4, the 2022 compared to the previous year. Also, then we have a part left on, in COGS, which is non-capitalized development and tech costs from the publishing business. That part has gone up from SEK 66 million in Q4 2021 to SEK 87 million in Q4 2022, and this is what we have talked about. The increase comes from this New Games Team's game development. When we develop high-risk projects, we take them as cost directly, and that ends up as a higher COGS directly. Selling expenses, SEK 45 million compared to SEK 43 million a year before. Perhaps some of you have had expected this to be higher because we have released Victoria 3. We have had significant cost due to marketing Victoria 3, but compared to a year ago, we have also done good efficiency activities within marketing and sales. That we are seeing the fruits of now. Admin expenses. Regarding selling expenses, I think it's worth pointing out, yes, we did market a new game, Victoria 3, but this is. It's a game in the middle of our core. We, we know the players. We, we have the players to a large extent, so it's a very efficient marketing we can do. When we will release games that are completely new franchises, we won't be able to do that with the same efficiency. We will need to spend some more money on the marketing when that day comes. Admin expenses is staying fairly flat, SEK 22 million, SEK 23 million. Let's move on. Revenues quarter by quarter and profit quarter by quarter. You can see here again that we are breaking the record. It is very clear here in terms of both the revenue and profit. You could also see if you look towards the left of the chart, you can see that it's very choppy, especially in terms of our profit. If you look to the right, it has been very steady for four quarters in a row. I would want to point out that this steadiness is more of a abnormality for Paradox. Our normality is more that the profit and revenue changes a lot from quarter to quarter because it's so tightly connected with what we release. Normally we don't have a smooth release pace. We can have some quarters where we release a lot and then one quarter where we don't release pretty much anything. No. I think, you should expect going forward, still, you should still expect volatile quarters. Yeah. You should expect, like you see in this graph, us to grow over time as well. Even if quarters go up and down, the long-term effect and the long-term idea is that we continue to grow, and we see no end to that growth as we look at the moment. We take it step by step. Yeah. I think you can see that if you move to the next chart where we have lumped the four quarters together. The trend, you see a clear trend here. If you kind of take out the big peak in the mid, in Q3, Q2 2020, and if you would remove the drop in one year afterwards, so Q2, Q3 2021, it is a fairly steady trend line, trending upwards, both in terms of revenue and in terms of profits. So that is, of course, very good. We had 12-month revenue, SEK 1,973,000,000. It's a bit annoying that we didn't reach SEK 2 billion, but... We'll do it this year. ... it's close. The operating profit for 12 months is SEK 887 million. It's almost up three times compared to the full year profit of last year. Cash flow, very strong cash from our operating activities, SEK 344 million. Great, not the record, but very strong. If we look at the cash flow from our last four quarters, so our last year cash flow from operating activities, SEK 1,085 million. As always, we invest a lot of that cash flow into new game development. SEK 251 million was invested in game development in the fourth quarter. Looking at the full 2022, we have invested SEK 807 million in game development. Quite a lot. If we look at the full year 2022, despite that we have invested SEK 800 million in game development and paying out SEK 106 million as dividends to the shareholders, in total, more than SEK 900 million has gone out, we have still increased our cash position with SEK 137 million. We have accumulated a substantial amount of cash, and it's more than we need at the moment. Therefore, the board has, as you have seen in the report, has proposed to the annual shareholders meeting that we increase the dividends from 1 krona per share to 2 krona per share. I think this is the final slide before we have the questions. Total equity is steadily going up, and it's, how much is it? It's worth mentioning, I think, it's almost all of this equity comes from our profit. 60,000 of, I think it's SEK 2.3 billion. 60,000 of that comes from other things. The rest is profits, profit minus dividends. I think we are in a very strong position balance sheet-wise. If you look on the yellow bar, total non-current assets, SEK 2 billion, they are the largest part is capitalized development. This is games that are, that we are waiting to announce and release. Exciting. Yes. Exciting for sure. That's it. I think, do you have We have a couple of questions as well. Yeah. We actually got a lot of questions. Yes. Thank you for sending those questions in, and make sure to do it on time next time as well so we can take some time to reply to them. Yeah. Let's see what we can manage to answer. The first one is for you, I think, Fred. With all the hype around generative artificial intelligence tools coming to the market, what long-term impact do you see for Paradox? I've said it before in an interview that I've never seen anything that will impact our whole business, I'm not only talking Paradox, I'm talking about the computer games business as a whole, as much as AI. It's everything from how you develop code to how you develop written content to how you develop graphics. That being said, I mean, at the moment we're prototyping, we're testing new things, we're seeing how it's gonna impact us. That being said, I think in the future we're probably gonna be able to do things faster and smarter with the help of AI. I'm not thinking first and foremost that AI is replacing anything that we're doing at the moment, or people that we have employed at the moment. It's... It's for sure gonna be a great tool for us to use. We're looking forward to digging deeper into what AI can offer. I think, like I say, it's a, it's a groundbreaking change that is about to happen to the whole industry. Mm. It's super exciting to see. Very exciting. Good. Next question. How impacted is Paradox's business during global recessions, as the one that has been predicted this year? Well, it's difficult to say. Of course, I think a global recession hits everyone. We need to be prepared and mindful and have respect for that going forward as well, of course. If we look historically, we can clearly see what impacts our financials more than anything is the content we release. If we manage to release X DLCs or X plus one DLCs, that difference makes much more impact than any financial sentiment on a global scale, I think. We also know that our players are very loyal. They spend quite a lot of time in the games. If you split up the DLCs that we release in a year on your favorite game, the cost per hour of entertainment is very low regardless with regardless what you compare it with. Yeah. So- That's true. We think we are in a strong position. What else can be said about the recession? It's, we're in a strong position financially. We have a good cash flow. No real debt on the balance sheet. This also puts us in a position where we can act opportunistically if good opportunities come up. We have for a couple of years been looking at IPs, studios that we would think would fit in greatly with Paradox. Historically, we think the price on those assets have been high. Yeah. Now it's probable that prices are coming down. We have already seen them come down. Maybe that can open up some interesting opportunity for us. For sure. Question for you, Fred. Any studio... Well, on that subject, any studio acquisition targets for the year? Those of you who have followed us for a longer period of time know that we are not very prone to make a lot of acquisitions of studios or... That being said, we've acquired a handful of studios, and we also acquired, for example, World of Darkness even before we listed the company. We are more opportunity based on this. If you invest in Paradox, like you know that our main source of growth is not gonna be from M&A activities. It's gonna be from us growing our business organically, and that's gonna be the goal going forward as well. That being said, if we see something of an opportunity for an IP, a studio, a game that is worth looking into for us, we might do something. We've, like Alex mentioned, that we're in a good financial position. We have money in the bank. We have no loans. We're in a good position to do M&As, but it's not what's gonna make this company fly in the coming two years. There are other things that will help us do that. Yeah. Alex, the FTEs, the number of employees seems stable. Are you satisfied with your ability to retain employees? Good question. In 2021, also in 2022, we have seen a significant increase in turnover. Many good reasons for it, I think. The work from home situation was one. We could see that increase not only ours, but other companies' staff turnover. A year and a half ago, we started to cancel several projects. With that, of course, came people involved in those projects leaving. Mm. We have been very conservative in rehiring not only for those projects, but in general. I mentioned earlier that we have decreased our staff from 742 to 656 or 665 at the end of the year. I think we are at a level which is very good now. I'm satisfied in that sense with our ability to retain employees. Even though I'm happy with the level of staff, I would be even happier if the turnover was slightly lower. We are suffering sometimes from having to train new employees. It takes a lot of time, not only before they can become productive, but it only also takes productivity away from our existing employees. From the experienced ones. Yeah. If we could get that down a bit, I think we would be helped. Of course turnover is unavoidable, and I think it's even good to have a certain level of turnover. It's healthy to have a certain level, yeah. Fred, Victoria 3, you were experimenting with new design elements, not always welcomed by the fans. A few months after the release, what is your opinion on the game's performance with the players? Well, yeah, Victoria 3 released to a bit of mixed reviews. It was a mix in between different things, some game design decisions, for example. Overall, I'm happy with the game's release. I think we're all happy here at Paradox. If you by happy mean totally satisfied and we're not gonna do any improvements in the game, that's not the case. We're constantly working to improve all our titles. I mean, basically, if you want to look at it very specifically, the release version of a game is always the worst version that a player is ever gonna see. From there, we're gonna make the game better. We're listening to the community, we're developing the things, according to certain guidelines that we think is gonna make the game better, and we're constantly improving on things that we think is gonna make the game better. We're happy now, we're gonna be even happier in a year, and it's gonna grow into a great, even greater product. That being said, I mean, Victoria is one of our more niche experiences in the grand strategy portfolio, meaning that the target audience historically has always been a bit smaller as well. It might be that some people were expecting a more open, like, or broader approach, while I think the core audience has been quite happy from the start. Maybe it's a stretch to say that, I dare to say it. We announced a month after release that we had sold half a million copies. Yes. If we look back to CK3, we did a similar announcement six, seven weeks after release when we had sold one million copies. Yeah. It has sold roughly half of CK3, and that is in line with what we expected before the release. Yes. Yeah. That's correct, yeah. Yeah, we knew that Victoria has a smaller target audience, and we knew that all along. Mm-hmm. Alex, can you talk about the investment that went into Age of Wonders 4? Are they comparable to Victoria 3, or are they smaller? Are they larger? What's the deal? What's the deal? I can say in general, our investments, both in our own games but also in our, in games developed by external studios, are constantly increasing. Yeah. They have been for the last five, six, seven, eight years. I think they will continue for some while to do so. Even though Victoria 3 was, you could say, a smaller game than CK3, it still cost a little bit more to do because it came two years later. Age of Wonders 4, developed by Triumph in the Netherlands, I would say one of our most cost-efficient studios. I expect the investments in Age of Wonders 4 to be slightly less than Victoria 3. Yeah. Yeah, yeah. Normally we don't disclose numbers. No. Just as a general rule of thumb. I just spoke to Lennart, actually, the from Triumph, and he said that we concluded that by the end of next week, I'm gonna start playing Age of Wonders 4 as well. Interesting. I always wait until the game is, like, almost on the finish line, so you don't have to experience too many bugs. Nice. It's great. Looking forward to that one. Fred, with the shorter timeframe between the announcement and release for Age of Wonders 4, can we expect a shorter announcement to release timeframes for future project as well? In general, I will say yes to that question. A shorter timeframe between announcement and release is the way we're gonna work in general. Age of Wonders 4 specifically, we think it will gain from a shorter marketing cycle. There might be some that have a bit of a longer marketing cycle, but in general, it's gonna be shorter than has been historically with Paradox, because we don't wanna announce anything and then having to postpone the game time after time. When we know the release quarter, we will announce the game. Sometimes we'll tell you what quarter we announce it in. Sometimes we'll tell you what date, like we did with Age of Wonders 4, which is May 2nd this year. Alex, are there gonna be any changes into Paradox monetization methods and models? I think we and the players are very happy with the current model, which is the DLC model, where we come out with new content and the players that want to play that content pays for it. We have also, since almost four years now, we've been exploring with subscriptions. Yeah. First, Game Pass, I think they launched in June 2019, on the PC version. We've been there from the start with several of our big games. We have also experimented with our own subscription models. We have, is it CK2, HOI4, and EU4 that we have a subscription offer where you pay $5 per month and you get all the DLCs. On Steam. Yeah, on Steam. This is something we do also to learn how the player behavior is. With monetization model, it goes as with anything. I think we want to make our games available to our players in the way they want to play them and consume them. Yeah. If they would, in the future, prefer a different way to pay for the content, I'm sure that we are happy to move towards that way, whatever that is. For now, I think we and the players are very happy with the DLC model. Yeah, I think so. Fred, how many games is Paradox Arc going to release in 2023? Are you providing upfront capital for these games? Two questions in one. How many games is Paradox Arc gonna release? I can promise you a handful. It's anything between three and six. I don't know. Somewhere around those numbers. We have a super interesting lineup of a wide variety of different games that we're working on at the moment. We normally take all the investments as direct costs as we go along, sometimes we offer upfront payment. Yes, sometimes the developers have already developed the game in such a way that we can publish it together. The model on how to finance is different from game to game and depends on developer to developer as well. I have a couple of favorites already in this portfolio, you know, I can't wait to tell you more about that. It's amazing. We have this little chat group on one of the games which goes wild every lunch hour. That's always a sign that something is brewing, right? More questions. Alex, should we expect the 30% dividend payout ratio to continue going forward, or could it be higher given the excess cash? It's. It will be a new decision each year. 30% payout ratio, I think it refers to that it's 30% of the after-tax profit that is being paid out. Yeah. That is what it is now. We are going to go through with 2 SEK as the board has proposed, and I think it's close to 30% last year as well, maybe it's a good level. It's not the only thing that the board and the shareholders will look at when deciding. Historic profit, of course, is kind of a limitation or setting the frame. We will also look at the current cash position and what we expect the cash flow needs and in-income cash as well, what it's going to be for the upcoming years. At this point, we think 30% or 2 SEK per share is a decent level. Next year, we'll see where we are at that point, I think. Yeah. More questions? Yes. What should we expect in terms of number of new game releases in 2023, and new game announcements? Yeah, this question keeps coming back. We can never provide like a fixed number of announcements that we make every year, but since I said we also tend to announce closer to the game release now. There should be a couple, right? Can we say that much? Should be. Should be a couple. Right. Hmm. Alex, you have 40% margins, decent, what is FCF? Free cash flow? Free cash flow, of course. Free cash flow. You have SEK 750 million of cash. Why are you only paying SEK 2 per share? If you're not going to use the cash, why not return it to the shareholders? Only SEK 2 per share. We just doubled it. We just doubled it. Yeah. What do you guys expect? Well, I think, as any company, at the end of the day, you should pay out everything. All the profit should go to the shareholders. We are keeping most of the profits because we think that we can capitalize on it, invest it with high returns. We have been in a growth situations, for a long time, and we will continue to be in a growth stage going forward as well. During those stages, the majority of the profit will be reinvested in the company. Yeah. Whether it's 2 SEK this year. I think, yeah, we'll see going forward. I think, and the board seems to think that 2 SEK is the right amount this year, and probably the shareholders think that as well. The short answer is, we are not giving out more because we think that we can use the cash better. Yes. Good, good answer. I like it. Good. No more questions? No more questions. That's it for this time, folks. If you have more questions, if we missed to answer anything, we will go through the email and try to answer them during the day or later in the week. If you come up with new questions, send them in. You have the mail address. Otherwise, see you in, I think it's end of April, where we will announce the Q1 results. Sounds wonderful. Sounds wonderful. Sounds great. Yeah. Until then, have a great time, and we'll see you soon. Thank you for looking. Take care. Cheers. Bye. Bye.