Hello, everyone, and welcome to the Paradox Q1 2023 quarterly report stream. I'm Alexander Bricca, I'm the CFO of the company, and I am today alone in the studio, but, with me nevertheless, I have Fred, our CEO. How are we doing, Fred? I'm doing really well. It's always great to be with you, even if it's on link. It's always great to present our reports, even if both you and I are in agreement that we probably can do better than this. The people should expect more. Let's go with what we have for this quarter. We can take the next slide. That's me. We see this as a warm-up to a very exciting and challenging year. We have already announced a range of titles, Lamplighters League, Life by You, and the Cities: Skylines II. They're gonna come later on this year. We have gotten really, really good reception of the games so far. A lot of people expect a lot from us, and we like that. We also have a strong lineup of upcoming DLCs. If you can see May, we have a really full May with releases almost every week, including a release from Paradox Arc there as well. If you summarize this quarter, you could say that we're somehow happy with the top line, but it's a very unexciting bottom line. It's due to normal release volatility, of course. I mean, we're comparing to a quarter that is fairly strong. We had last year, the first big DLC for Crusader Kings III released, Royal Court. This year we didn't have any big DLCs per se. Some amortizations and write-downs as well on projects that hasn't worked so well. We've been blessed to have no, almost no write-offs in the last 12 months, but we have in this quarter. It's obviously hitting the bottom line. The monthly active users for this period is very steadily at the upper 5 million-6 million range. We're really looking forward to when we can say that we in a stable way, have more than 6 million monthly active users. It's gonna happen sooner or later, but we'll see exactly when that happens. We'll move on to the next slide. Oh, there you go. As you can see here, not a lot of releases. You have Stellaris: First Contact and one console release for Stellaris as well, Overlord. We did a remaster of Cities: Skylines and a couple of minor DLCs. Rebirth for Surviving the Aftermath and Jungle Pack for Prison Architect was the major releases that we had in this quarter. A fairly soft release quarter for us, as I've said before. Paradox Arc released Surviving the Abyss and Knights of Pen & Paper, who unfortunately did not perform as well as we hoped. Maybe those were games that were in the portfolio a year and a half ago when we did a big kind of evaluation of all the titles and closed games for more than SEK 130 million, and maybe these games should have been closed as well at that time. With a new depreciation model as well, it hits very hard this quarter, and then it's basically done. We have a very clean balance sheet going forward. Across the Obelisk is doing really well. We announced and released the first DLC, Wolf Wars, and we're looking forward to having this game follow us for many years to come. Hopefully, in the coming 5 to 10 years period, we're gonna see a lot of releases for this franchise as well. Game announcements in the quarter. It's a bit more there. A couple of heavy hitters. We have Cities: Skylines II, which is obviously the sequel to our best-selling game of all time. Life by You, a life simulator developed by our development team in Berkeley, California. Age of Wonders 4, that is releasing on Tuesday next week. It's a brilliant game. I think you should all play it. If you don't like it, I'll make sure to refund you personally. I guarantee it. We have The Lamplighters League, developed by Harebrained Schemes in Seattle. Of course, we announced also Mechabellum from Paradox Arc, that you can see down there, and it's gonna release also in May. Like I said, May is gonna be busy, so don't book anything, don't plan anything. It's full of games and DLCs from Paradox. After the quarter, what has happened? We've been busy, actually, with Europa Universalis IV: Domination being released and quite well-received as well. We announced Stellaris: Galactic Paragons, which is gonna be released, you know it, in May. Victoria 3, Voice of the People announced as well. First DLC for Victoria 3. It's gonna be released in May. Crusader Kings III: Tours & Tournaments got a release date, and it's, like I said before, it's in May. The same goes also for Cities: Skylines: Hotels and Retreats, which we announced today, actually. May is looking super exciting, to be honest. Not only in a gaming perspective, because we're also gonna invite you to the first Paradox Deep Dive, as we call it, where we present the company. It's a capital event. It's taking place in Stockholm on May 23. I'm gonna be presenting. I think Alex is gonna be presenting, a couple of other people from Paradox, because you see me and Alex a lot, but you don't always see the people who actually make the games or make the games happen, and they're gonna be there as well. We're gonna present how we make games, how we see the future, and what you can expect from Paradox in the coming couple of years. It's gonna be real exciting to meet you all. Alex, are we gonna live stream the event? Yes, we are. Everyone is invited, existing shareholders. Perfect potential new shareholders, everyone else. Fantastic. We're gonna livestream the event like Alex said. Perfect. We're gonna send you a link well in beforehand. Which takes me to Alex. Your turn, Alex, just fire away. Thanks, Fred. Numbers. Fred already mentioned that we are rather pleased with the top line, it lands at SEK 483 million. It's almost the same as the Q1 of last year when we did SEK 476 million, it's actually 1% more. As always, what drives revenue for us is what we release in the quarter, also currency impact. Compared to Q1 last year, the currency movement has been beneficial for us. I think the dollar is up some 12%, euro 7%, and pound roughly 1%. We have some 97% of our revenues in other currency than SEK. When the foreign currency goes up, our revenue goes up as well, that has happened in Q1. More importantly than currency movement is what we release in the quarter. We have released quite a lot of DLCs in the quarter, I think. It hasn't been on our major core franchise, and that is where we make the revenue. We released Fred mentioned them, but what drove most revenue, I would say, are the smaller releases on Cities: Skylines, the content creator packs and radio packs and of course, the story pack that we released on Stellaris. We did several releases on Surviving the Aftermath, Stellaris Console, Prison Architect, and a small music pack for Victoria 3 as well. They tend to not drive that much revenue. Again, to repeat a bit what Fred said, Q1 last year was great because we released a proper DLC for Cities: Skylines and our first, I think, ever, $30 DLC or expansion for Crusader Kings III. Very strong sales and revenues one year ago. We have had less releases this quarter. Despite of that, I would say quite a lot of revenues. We had something called Steam Spring Sale this year. Previous years, we have had Steam Lunar Sales a month earlier, but both in Q1, so I think those are fairly equal to each other. Top five revenue contributors, I'm sure most of you can guess them. Cities: Skylines, Crusader Kings III, Stellaris, Hearts of Iron IV, and Victoria 3. Out of them, Cities: Skylines has been doing very well, it's not a coincidence. Cities: Skylines has released something in terms of content all of the last three quarters. That we always repeat and say that it's what we release in the quarter that drives the revenue. It's also what we released in the quarter before because coming out with the constant with constant releases keeps the player attention, the player activity, and the player spending up. Cities: Skylines is a clear example of that in this quarter. Our other bigger franchises, only Stellaris that came out with a DLC this quarter, I think in Q4, none of the grand strategy franchises came out with any content, except for the full release of Victoria 3, of course. As Fred showed, next quarter or this quarter, the Q2 of the year is considerably more busy in terms of grand strategy game releases, which we look very much forward to. Operating profits came in at SEK 156 million. That's a 25% decrease compared to the SEK 209 million we had last year. If revenues went up 1% and profit down 25%, obviously costs have increased, and we're gonna go through that shortly. Profit after financial items or profit before tax, SEK 157 million this Q1 compared to SEK 208 million Q1 of last year. Profit after tax came in at SEK 124 million compared to SEK 187 million one year ago. The profit margin is down from last year's 44% or last year's Q1 of 44% to 33% this year. Two main reasons to lower margin, we have released less content on our core franchises. Those are our high-margin products, so that is where we make high-margin revenues. We have also had a couple of items under cost of goods sold that are kind of one-offs coinciding in one quarter, which we'll shortly come back to. Equity to asset ratio increases to 75%. We have a very solid balance sheet. Number of employees end of March, 674 compared to 692 same quarter last year, or 656 end of year last year. During the Q1 of this year, we have increased staff with 18, and that is all in our Swedish studio. Our foreign studios and our publishing business has stayed flat, but we have increased in our development teams in Sweden. Let's move to the next slide and go through especially the costs of the quarter. This slide shows in green our revenue, where you can see that it fluctuates quite a lot between the quarters, even though it's an upward striving trend. We have our three main cost items in yellow, blue, and red, or perhaps it's more orange than yellow. Red and blue, administrative expenses and selling expenses, those you can see have been fairly flat from quarter- to- quarter, and administrative expenses should be, they are stable. Selling expenses, selling expense has actually gone up from SEK 42 million Q1 of last year to SEK 48 million Q1 this year. That has to do with us being more active in the selling with the selling activities. We have announced quite a lot of games in Q1 and started to market them, so paid marketing and different activities for not the least Age of Wonders that we are releasing next week, Age of Wonders 4. Let's move down to cost of goods sold, which is our largest cost item. This includes all our development costs regardless whether we take them, expense them directly or whether we capitalize them and amortize them. It includes royalties that we pay to external studios if we do that. It includes amortizations on acquired assets, and it includes tech staff that works in our publishing business as well. By far our largest cost item. All in all, SEK 263 million in Q1 this year compared to SEK 215 million in Q1 one year ago, so it's an increase of SEK 48 million. It doesn't say here, but if you watched our latest stream for Q4, then you might remember that in Q4, we had a cost of goods sold for SEK 253 million. We are up 10 million SEK compared to a quarter ago. Let's dig in a bit to where the movements lie. As Fred mentioned, we actually canceled a capitalized development project in Q1. It's the first time we do that since Q4 2021, first time in a little more than a year that we have a write-off. We used to have this, I would say three out of four quarters before, it used to be in a year, 6%, 7%, 8% of our capitalized development, that is what we used to write off due to cancellations every year. When Fred came back a year and a half ago, we did a major review of our ongoing projects and decided to terminate several projects where we deemed the risk-reward ratio be too low. That led to us writing off, I think it was SEK 135 million in Q3 2021. We cleaned up a lot, which has had a big impact with no write-offs in four quarters. We also changed approach to how we invest in high-risk projects. Where we invest much less money during the early high-risk phases and where we don't capitalize. Both those two reasons, or both those two facts are reasons why we have seen so much less write-offs. Once in a while I'm sure they will continue to come, so we had SEK 10 million this quarter. Also, under COGS, we have amortization of our game development or our developed games. We capitalize them during the development phase and then we amortize them over 18 months. SEK 110 million, it doesn't say here, but if you read our report, you will find the number, SEK 110 million of amortizations in Q1 compared to SEK 82 million of amortizations in Q1 last year, and SEK 119 million in amortizations in Q4 last year. Compared to Q4, we have decreased amortizations with SEK 9 million. Let's hang on to that a bit and figure out where the movements are. There are mainly three things that have moved compared to Q4. One is Victoria 3. Victoria 3 released in Q4, so it released in October, so with our degressive amortization method, we amortized and took as costs 46% of the capitalized development in Q4, quite a lot. In Q1, we are still in a fairly high amortization period, so we amortized some 20% of the development costs. Still quite a lot, but less than half of what we did in Q4. That brings down the amortizations. We released a new game. We released Surviving the Abyss. It was released under our publishing brand Arc. This is a game that we started some three- years ago, under our, at that point, only publishing business with our old development approach. That meant that we capitalized the game from the start. We used an external studio, and that has been going on for three- years. After three- years, it's not an insignificant amount of money spent on the project, and we released it in January. Applying our usual degressive amortization method means that in Q1, we took 46% of those development costs as cost in Q1. That increases the amortization in Q1 significantly. Then we had another kind of a special project. Perhaps you noticed that together with the two partners, we released Stellaris on VR. This is a collaboration we have with Oculus and Fast Travel Games. We think this is VR is not by any way our core platform, but we think this is a cost and resource-efficient way to test out our franchises on new platforms. Either we can find the new players perhaps, or we can add some value to our existing players. This ends up as an increased revenue on our side, because we have got funding for this project, but all that funding is passed through to the company, Fast Travel Games, developing the game. Even though the development has gone on for a while, the game was released this quarter, that meant that we recognized both the revenue and the costs this quarter, and the costs were recognized through an amortization. That also pushed up the amortization this quarter as a single event, you could call it. Yeah. We have seen it more as a branding event for the game with potential upside, if it brings in more royalties. Yes. That's right. With. Depending on what how the game sells, we are getting nice license royalties on that one. I've only noticed the game has quite good ratings on Oculus. If you're into VR, try it. More under COGS. We have SEK 22 million as amortizations for acquired businesses and assets. That's fairly much the same as last year. I think last year it was, I think it was exactly 22 million SEK as well. It means that we take almost SEK 90 million every year where we amortize the assets and the businesses that we have acquired over the years. It's Harebrained Schemes, it's World of Darkness, it's Playrion, it's Prison Architect, Triumph. Instead of keeping them on the balance sheet as at acquired value, we choose to amortize them over the years. It decreases our balance sheet, but it also has a decreasing effect on our profit for now. Then we have other amortizations during COGS for offices and with the IFRS 16, you know, where you put up the rent agreement as an asset and amortize it, that is also included in the cost of goods sold here, the part of the rent that refers to our studios, which is a majority. Then we have kind of the final item under COGS is royalties, tech costs in the publishing organization, and non-capitalized development cost. That adds up to SEK 113 million in Q1 this year compared to SEK 104 million of the same quarter of 2022. Royalties came in at SEK 29 million for Q1 this year, almost identical as one year ago. Royalties for us is mainly on Cities and Across the Obelisk. When we release stuff on Cities, we get high revenues on Cities and then also the royalties fairly comes up. Non-capitalized development cost and tech cost in the publishing came in at SEK 83 million compared to SEK 75 million one year ago and also SEK 73 million in Q4 of 2022. We have increased this kind of tech cost that we take as immediate cost with some SEK 10 million compared to Q4. Here, for example, are all the games that we develop that we deemed are too risky to capitalize. Everything that our new games team does is included here. I think we're done with this slide. No, we have a row at the bottom of the table to the right. Other income and expenses, that is most mainly FX movement during the quarter. It's positive, which means that the especially the dollar should have gone up during the quarter. It for sure did in Q1 last year. Q1 this year, it has been fairly flat, so it shouldn't go up this much, and it hasn't. The reason why the item is still at almost SEK 7 million is because there is another item that is included here, that is our share of the profit from our minority holding, Hardsuit Labs in Seattle. It's not only our share of the Q1 profit for this year, but it's actually a big chunk of last year's profit that studio did that ends up here. Now we can move on to the next slide. These are the same revenue and operating profits that you have seen, but showed over a larger time period. There you can see two things, I think. One is that both profit and revenues is over time trending upwards. The other thing that you can see is that the quarters are very volatile. If you look at single quarters, it can go up and go down. If you look at some certain isolated periods like Q1 to Q4 last year or even other years, it can look like there is a stability between the quarters and it was. That I would say to guide a bit for the future, which we always tend to say is that it's more likely that the future is gonna continue to be volatile than stable in terms. We aim to keep it growing. I think that shows a bit better on this chart. Here we have grouped four months together, and there the volatility between the quarters becomes less evident, and then the trend over time becomes more visible. Here it's quite clear that, we have a very nice and stable, up going trend in terms of both revenue and profit. It looks good, to be honest. Let's continue like that. What do you say, Fred? Let's keep it that way. Yeah. Yeah. Cash flow, very strong cash flow from our operating activities. SEK 245 million came in during the quarter. We invested SEK 869 of that into game development. If we look at the last four quarters, we have more than SEK 1 billion. SEK 1,094 million in positive cash flow from our operations, whereof we invested SEK 806 million in game development. We have been in a very high investment phase for quite some time, as you can see. It goes three, four years back with very high investments. We will continue to invest quite a lot, but as our announcement has shown, we're also now going into a period where we finally are gonna start releasing quite a lot of the games that we have been working on for quite some time. We are very excited about that. I think this is the final slide. Equity and non-current assets. Our equity is a little more than SEK 2.4 billion, and out of those SEK 2.4 billion, more than SEK 2.3 billion comes from our historical profits minus what we have paid in dividends. Pretty much everything of our equity comes through our own operations, which we are very proud of. I think that is what I had planned to go through. I know that we have already got in some questions. Yeah Let's see what we have. Let's see the questions. Yeah, that pops up. I have one for you, Fred, here, I think. Yeah, cool. In which way are you planning to use AI at Paradox? Are there any use cases at the moment, and how do you think AI will change game development? Very topical. Yeah, it's a very, very broad question. I mean, both broad and not. First and foremost, I've never seen a technology that is gonna change our industry so much as AI in general, and I'm talking about AI generating graphics, AI generating texts, and AI helping or even generating code in different aspects. I think it's gonna be very useful for us. People ask about if it's gonna be a job-cutting thing. I don't think so. I think that it's gonna help us be much more efficient. It's gonna help us do things faster and with higher quality. We see it more as a tool for efficiency internally and to be able to deliver things faster. We are working with AI in all our departments of Paradox, everything from marketing to the development studios, with the graphics, with the coders, with the game designers. Yes, we are hopefully in the forefront when it comes to using AI to help us get better as a game studio. Good. The next one is for you, Alex. How much of the amortization of capitalized development costs is related to new games? Right. Yes. We went through the cost of goods sold. I said that SEK 110 million of the cost of goods sold in Q1 came from amortizations. It's not we don't share or we don't split that up more in detail what it regards to, but I can say this much for this time then. Roughly half, roughly 50% of those SEK 110 million regards amortizations of new games in this quarter. That would be what I would call new games in this quarter would be still Victoria 3, where we have still a significant amortization in the quarter. Surviving the Abyss. Where we took 46% in the quarter. Also what ends up as a new game here is the Stellaris VR project, if, yeah. Roughly 50% this quarter, but it will swing back and forth depending on how much new games we release, of course. Yeah. Fred, how do you weigh and plan quality improvements of games already released in terms of free update, versus working on new content which will generate sales income? Well, this is pretty much up to partly each studio to decide, but also so that we can remain stable and profitable. Which we need to enable to in order to both grow and create better games and better services for our gamers. We're fairly happy at the moment with the mix we have in between free content and paid-for DLCs. What we would like to increase is the velocity of which we release content. We wanna release more free content and more paid-for content more often than before, if possible. I would say the answer is a little bit of everything, to be honest. Maybe a bad answer, but I can't give you a better answer than that at the moment. I hope it gives some direction at least. Alex, what will the impact be on the development of Stellaris due to the Swedish studio consolidation? They're thinking about Malmö and Umeå studios, I guess. For sure. Our Umeå studio Arctic has been helping our PDS Green, as we call the part of the Stockholm studio that is responsible for Stellaris. I believe in the long term, the reason why we have done this is to improve the productivity and efficiency of the game development. In the long run, I think this will increase our ability to deliver content. It should improve it. Here and now, the impact is very limited. The affected studio, PDS Green, have a very solid plan in place how to handle this short-term effect of the change. Yeah. Sounds good. Question to you, Fred. How do you decide on how frequent DLCs should be for a single game? Also, why do some have more smaller DLCs and some just one big DLC per year? It's a bit related to the former question, but you could say generally that it's part up to the development team, but it's also up to, like, the games. The games are a bit different in the player needs and what the development path is for the games. It depends a bit on that. It's also part of how old is the game, how much can we do for the game, et cetera, et cetera. That means that some games are better suited for smaller DLCs with a more limited scope, and others have a bigger scope with more, like, system changes. Depending, like I said before, like, what the player base likes as well. When it comes to release frequency specifically, we know, like I said before, that people want more, both large and small DLCs, we've done surveys on that, than we are able to deliver at the moment. That's why we're also focusing on getting the speed up in delivering more content. As I said before, both free content and paid-for content for our games. Alex, how do you view acquisitions, and how many potential acquisitions do you look at in a year? Is the idea acquiring within the management segment or a completely new vertical where you look at acquisitions or only recruiting talent in case of possible acquisition? That's a long question. I think. It's a long question. I think we get these M&A questions every quarterly stream. Evidently there is some request out there to perhaps acquire more. As we say, we have always been a company with an industrial view and focusing on organic growth. Looking historically, we have acquired what we call production resources. It has been either skilled new colleagues that can help us develop the games that we want to publish over the next years, or it has been intellectual properties that we can use to make new games. Looking forward, I think those are the most likely acquisitions that we could end up with. We're also being opportunistic. If something more game-changing comes up where we think it has a perfect strategic fit and it's a good price, we are looking at those acquisitions as well. Fred, with the proposed closure of Arctic and Thalassic, what's the thought process going ahead on any potential new studio openings? Well, these studios, we are looking to close to focus the development to Stockholm in Sweden due to efficiency reasons mainly. Both in Sweden and internationally, we will continue to act in a more opportunistic ways. If you see any opportunity arise, we might grab it. That's how we started, for example, Paradox Tectonic in Berkeley. Alex had a question about M&A, we're gonna look at that type of things as well. As always, we're not in a hurry, our task is first and foremost to make great games and serve those great games, which we do at the moment. Opportunities will arise, especially in a market like this. It's a more volatile market, even if we don't feel it too much. The new studio opening, sure, but it's not gonna be our primary focus. It might happen, but it's because you see it as the right fit for us at the moment. Okay, Alex, other revenue of SEK 17.7 million, can you describe what's included and why it's so volatile? Yeah, yeah. This other revenue, this must refer to one of the notes in our quarterly report, where we split our revenues between PC, console, mobile, and other, and other is suddenly significantly higher. What often is on other revenue is licensing and. Yeah ... it's so high this month is due to this collaboration regarding Stellaris VR I just mentioned. We have a collaboration with Oculus and Fast Travel Games. We ended up with a significant amount of revenue, but also with equal amount of amortizations. Fred. Hi. Yes. Financial question. "There is a significant tilt in Q1 from CapEx to OpEx. Is that random? Oh. What's the reason for that? I got a financial question. Let's see if we can do this. It's a fairly simple answer really, there is a tilt, yes. It's because we generally take project costs earlier on when we start it. We take it on an ongoing basis more than adding it to the balance sheet. Especially if you look at everything that the new games team is doing, it's operational, we take it directly as a cost rather than adding it as CapEx. That's the simple answer. Alex, "Where does the revenues from Epic go in the geographical distribution?" That's a very specific question, I like it. Yeah. Yes, it has a very specific answer, North America. Again, this refers to one of our notes in the quarterly report where we divide all the revenues- Yeah in geographies. Yeah ... you should be aware of there is, this is divided based on where the distributor is located. Yeah regardless of where the player sits, since the distributor, Epic, is located in the U.S., all the revenues that comes through Epic ends up as North American revenues. Fantastic. And that- That's it, right, for this time? Yeah. Done. No more questions. No more questions. What's coming up, you mentioned it, Fred, we have, May 23rd, we're gonna stream our Deep Dive in Paradox. Yes Our colleagues of course have many streams in between that, but then our next quarterly stream is in end of July. I think it's the of July 27th. Indeed it is. ... our second quarter. Our next big release is Age of Wonders 4 on Tuesday next week, and I already promised to what do you call it? To pay back if people aren't happy with it, to do that personally, so I have to stand behind that because it's a great game and I hope you all play it, so. That I got that said as well. Great. I think it's a great way to, yeah, that's a great way to finish this stream, and looking forward to see you again, when we present Q2. Yeah. Take care. Thank you very much for watching. Cheers. Take care. Bye.