Hello everyone, and welcome to the Paradox Interactive Q1 livestream with me, Fred. I'm Alex. Welcome everyone. We're going to take you through some of the things that have happened this quarter, and obviously the numbers of the quarter as well. We might just as well jump right into it, and that's my name right there. To summarize where the company is not only this quarter but in general, our core business has really good momentum. We can see that our underlying sales are really good. If you compare to Q1 last year, it was basically the same in terms of sales numbers, gross sales. But this year we didn't have any revenue from subscription services, for example, which accounted to at least some revenue last year. I don't remember how much. It's an undisclosed amount, but it was significant. It was a significant amount. We are also, as an industry, experiencing probably the most turbulent period that I've seen since I joined almost 21 years ago into this industry. We have a very good position with no debt, money in the bank, good cash flow, and really good delivery on our key IPs. A lot of opportunities will present itself in a market like this, and we hope to be able to take advantage of at least a few of those. Obviously, we have a clear area of improvement for the future, and it's increasing the quality of what we do in all delivery across the whole company. Quality, if we talk about that specifically... On On some of the recent releases, technical quality has been a bit below what we are to be expected. Our first rule here at the company is to give service to our gamers. It's the rule that we live by, and the first thing that people hear when they enter Paradox as well, as employees. We strive always to have a good and consistent quality in what we do. We failed a couple of times, as I mentioned recently, but we have a pretty good idea on how to get back on track. There's obviously no silver bullet, no one thing that we can do. But checking the game, how we check and work with quality control late in the projects is one of those key things we think are going to lift the quality level to where we can expect to be, and where we do expect to be, I would say. A couple of effects that this has had is the delay of Prison Architect 2, slated for early September release, and also a small postponement of Victoria 3's Sphere of Influence DLC that is now releasing in June instead of in May. If we move into... There's been a couple of questions about Cities: Skylines II, so I might just as well do a preemptive strike and take that right away upfront. When it released in October last year, it didn't live up to player expectations. We have started the journey with the game to take it to the level where it should be. Most notably, it has been on the performance side. Therefore, we have delayed the DLC Bridges & Ports to 2025 to ensure proper time to actually improve on the base game in the meanwhile. We have not yet committed to a console release window, so we want to ensure that we have the quality right before we actually set a date so the console players can enjoy a really great experience with the game. As we've said before, Cities: Skylines and Cities: Skylines 2 are both long-term engagements for us. It's an important franchise for Paradox, and we look forward to working with this game for a long time. Releases in the quarter: The 4X game Millennia was released, Trial of Allegiance for Hearts of Iron IV, Primal Fury for Age of Wonders 4, and the first DLC in Chapter 3 for Crusader Kings 3, namely Legends of the Dead, with more to come later on this year. Also, a smaller content creator pack called North African Attire. On the management side, we released Beach Properties that we later gave away for free to all gamers, considering as some sort of gift for the game not really living up to the expectations so far. Worth mentioning as well is the release of Across the Obelisk on Nintendo Switch, which marks our absolute first Nintendo Switch release from the company on the publishing side. We have had Cities: Skylines before on Switch, but it was through Nintendo, so it wasn't through our own publishing efforts. That's a small but not insignificant milestone for the company. After the quarter, what happened? Prison Architect 2 delayed, as I said, to September. Foundry is releasing Early Access now in May. It's just a couple of weeks from now. Life by You, releasing in Early Access in June. We really look forward to seeing that releasing. We also announced a couple of DLCs for our main games: Machine Age for Stellaris, Sphere of Influence for Victoria 3, and Winds of Change for Europa Universalis IV, all to be released within Q2. Exciting! A lot of releases coming up. Over to you, Alex. Let's go through the numbers. Let's look at them a bit more in detail. Revenues came in at almost the same level as last year's Q1. Last year we did SEK 483 million, this year we do SEK 482 million. Very similar. Also, the fundamentals of the business have been very similar between the quarters. Worth noting is that the currency is basically the same level as last year. The krona hasn't strengthened. It hasn't weakened since the Q1 last year, if I'm correctly informed. That's right. That normally affects us if you compare to quarter-to-quarter. But the US dollar has been flat towards the Swedish krona, the euro has been flat, the British pound moved a little bit. What else? Well, more importantly than FX and currency, of course, is what we release in the quarter. There the same goes. The quarters have been very similar in terms of releases. You just went through what we released this Q1. If you look at last year's Q1, it was very similar. We had the DLC on Stellaris, we had some CCP content creator packs and radio stations on Cities, we had something on Victoria 3, we had the console ports on Stellaris and so on. In sizes and numbers, very, very similar. Therefore, the revenue ends up being very similar. We always disclose the top five contributors of the quarter, and it's Cities: Skylines 1 and 2. Occupies two of the top five spots. Then CK3, HOI4, and Stellaris. No surprises there. As we said, we have no revenue this quarter from subscription services that has been paid, compared to last year. That's a small step forward. It is, for sure. Operating profit... The same goes there, almost the same. SEK 154 million this Q1 compared to SEK 156 million last year's Q1, so it's down 1%. Evidently, also, the costs are very similar to last year's Q1. We will, of course, go through them a bit more in detail. But then if you look at the next line there, we have some differences. Profit before the financial items. Last year it was very much the same as the operating profit, but this year it is SEK 10.5 million more than the operating profit. This has to do with our financial income, so interest on our quite massive cash position. Interests have been going up over the last years. If you have debt, it means additional cost. If you have cash, it means additional income. That's the case for us. Profit margin... Of course, if the profit is the same as last year and the revenue is the same as last year, the profit margin is going to be the same as last year, up 1% from 33%-34%. Worth mentioning, it looks very similar, but some of the fundamentals are different. You mentioned one thing. We got the extension on one of the major subscription services last year's Q1 that actually pushed up the revenue in Q1 2023 quite a lot. This year we haven't had that one. But nevertheless, we are reaching the same revenue. That says quite a lot about the strength in our underlying sales in our core franchises, which is very good to see, of course. Also, something that makes this quarter a bit more challenging than last year's Q1 is that we have had increased marketing costs this year. It's mainly two things that drive our marketing costs. One, what are we releasing in this very quarter? I just said the quarters have been very similar. The other thing is, what are we going to release next quarter? Now we're looking forward to Life by You, Foundry, and Prison Architect 2. Three games that drive marketing costs already now. Last year we pretty much only had Age of Wonders 4 as a new game in Q2, so we didn't have the same amount of early marketing costs last year as we have this. But still, we are managing to reach the same profit level. That's good. Equity-to-assets ratio steadily increasing from 75% last year to 78% this year. Average number of employees goes down from 665 last year's Q1 to 594 Q1 this year. We closed during the last 12 months Arctic, Thalassic, and Harebrained Schemes. Almost 100 FTEs. But then we have increased the number of FTEs here in Stockholm, a bit in Iceflake Studios, and in Berkeley for Tectonic. But all in all, less FTEs. Let's move on and go through the costs a bit more. This chart... If you have seen the streams before, you have seen this chart before. It shows the revenue over time on the green line. On the yellow, blue, and red line, you have our three main costs over time. The revenue we have been through already. But what is very clear here is how much our revenue and thus profit fluctuates over the quarters. Last quarter, Q4, was extreme. But even if you look a bit further, it swings quite a lot between the quarters. All has to do with what we release in the quarter. If you go five, six, seven quarters back, it's quite clear that we, for some reason, tend to group the releases to one quarter. Every second quarter we release quite a lot, and every second quarter we release quite a little. But a steady curve is pointing upwards over time. Over time, it's pointing upwards. I will show you another slide that makes it a bit easier to see. That's about the revenue. Let's discuss the costs a bit. Cost of goods sold, the biggest one in yellow. Massive swing up in Q4 and a similar massive swing down now in Q1. SEK 268 million Q1 compared to SEK 263 million Q1 last year. Compared to Q1 last year, very much the same. But in Q4 last year, it was SEK 712 million. Huge amount of that, the write-down of Lamplighters League, obviously. Yeah, Lamplighters was a big reason to this. What does this consist of? The cost of goods sold. Amortization is a big one, of course. We amortized SEK 120 million Q1 this year and SEK 110 million Q1 last year, so very similar. But Q4 last year, it was SEK 300 million. The amortization there, you mentioned it, Lamplighters, I think we amortized it SEK 150 million. Then we also released Cities 2 and Star Trek that also came with big amortization. Lamplighters is zero now because we wrote the rest off. Cities 2 and Star Trek have still some amortizations but less. I think that explains the whole decrease from 300 to 120 in just one quarter. We take another SEK 14 million as costs for amortizations of acquired businesses and assets. When we acquire IPs, studios, or games, like we have done with World of Darkness, Prison Architect, Playrion, Harebrained Schemes, in almost all cases, we allocate what we have paid for the asset to specific assets that we amortize over time. We have EUR 2 million as goodwill. EUR 2 million, that's all we have as goodwill. The rest has been either developed games or intellectual property in some way that we mostly depreciate over five years. This item used to be SEK 20 million, SEK 21 million, SEK 22 million per quarter. Now it's only 14 million SEK. The reason is that since last year, both Harbour Inn schemes and Prison Architect have been fully amortized. Prison Architect, we acquired it for a decent amount. Now we're coming out with Prison Architect 2. The acquired asset still has a very important value for us. But in the book, we have already taken all the costs. It's worth zero on the balance sheet. On the balance sheet, it's worth zero, but we know it's worth something for us. We think this is a prudent way to handle acquired assets. It pushes down the profit for us, but it also takes down the risk and builds for the future. What else is included in COGS? Other amortizations, SEK 9 million. That's especially the rent for all the studios that shows up as amortization since changes in accounting rules a few years back. Write-downs in the quarter, zero. Q1 last year, we had SEK 10 million on an unannounced project. Project Smurfs. Project Smurfs. Which doesn't say anything to anyone. It didn't have to do anything with the brand Smurfs. It was just an internal name. In Q4, of course, it was massive. There we had SEK 171 million on Lamplighters, in addition to the SEK 115 million amortizations, so significant. What else is in COGS? Royalties is sometimes, or quite often, a big one. SEK 40 million in Q1 this year, SEK 30 million in Q1 last year, and SEK 112 million in Q4 of last year. It was super high in Q4 because we released Cities: Skylines 2, which generated significant revenues and therefore significant royalties. Now, 40 is higher than 30 of last year because it used to be at 30 quite consistently. But now, the reason why it's up SEK 10 million is due to Age of Wonders 4. We mentioned this in Q2 last year when we had elevated royalty costs. When we acquired the studio Triumph that develops Age of Wonders 4, we agreed on an earn-out that is based on how especially Age of Wonders 4 performs, but also Planetfall. Since Age of Wonders 4 has been performing quite good, as long as it continues to do that, there will be an elevated royalty to expect. This will continue as long as the game continues to perform, but then there is a cutoff, a very last cutoff date in two years from now. I I think it's April 2026. It's written in the reports if you want to check it out. Then we have the last item in COGS, which we called non-capitalized development costs and tech costs for the publishing, you could say. The non-capitalized development costs, all of this amounted to SEK 86 million. It was SEK 83 million Q1 last year, so very much the same. It was SEK 100 million in Q4, so it's down against Q4. The reason also there was Lamplighters, actually, because after the release of Lamplighters, we took all the development we did in Q4 because we had committed to make at least one small DLC. All the development we took as cost. We didn't capitalize it, but we took it as cost. That is some SEK 15 million less in this Q1. SEK 86 million all in all. That amounts to COGS of SEK 268 million. Selling expenses, SEK 55 million compared to SEK 48 million. We touched a bit upon that, that it's slightly elevated compared to last year because we're preparing for... Big releases in Q2. Yeah, Life by You, Prison Architect 2. Now it's going to come... September. Yeah, but still we have had some marketing costs for it and also Foundry. Admin expenses normally stay very flat. It's SEK 26 million compared to SEK 23 million last year, so it's up a little bit. Most of this is due to temporary reasons. We got a couple of more invoices that accumulated and were sent to us in this quarter. That's why it's a bit higher this quarter. Then we have the rows other income, other expenses. Adds SEK 21 million to us this quarter, added SEK 7 million last year's Q1. This is almost everything is currency movements within the quarter. Between us sending the invoice and booking that to us getting the cash, the difference ends up at this row. We said compared to last year's Q1, the currencies didn't move much. That's right. But during Q1, it has moved. The dollar went up from almost 10 to 11 in one quarter. It's back up at high levels, or the Swedish krona is down, depending on how you want to look at it. Then also mentioned before, financial items, SEK 10.5 million. This is interest on our bank accounts and bonds and the ways we... Interest rates going up is not necessarily a bad thing for us. Not if you have money. All right, let's move on. Let's try to identify the trends a bit. Here we have grouped the revenues and profits into years, so 12 months rolling. Here you can see the trend that Fred was talking about. Especially for revenue, it's very, very clear. It has been year after year going up quite significantly. Profit is also trending upwards, but there it's being held down, especially now in Q4 and Q1, to a large extent, Lamplighters. It has had a negative impact. If you look at rolling 12 months, it's probably some SEK 300 million in negative impact. That will continue to show on that yellow line for... Another couple of quarters. Another couple of quarters. We will be reminded about that project, which might be good for us. All right, cash flow. Now, this might need some explanations, but the explanations are quite simple. Cash flow from operating activities amounted to SEK 134 million. Q1 of last year was SEK 245 million. SEK 110 million better cash flow from operating activities last year compared to this Q1. How come? If the operating profit was almost identical, how come? Well, this is also just due to timing. It turns out that this year's Q1, a fairly significant amount or share of the revenues came in March. We had good sales in March. The cash flow from those sales doesn't show up in Q1 this year. Last year, for some reason, we had revenues, or for some reason, it was due to when we released games and DLCs. We had significant revenues in January and February, also more in the month before. December 2022 was significant revenues. That's why it looks, or that's why the cash flow is lower in Q1 this year. But if you look at it over further some time, it shouldn't be any difference. Cash flow from investing activities, SEK 48 million. That looks very low, and it looks like we have stopped investing. We haven't. We invested SEK 178 million in game development. That's even SEK 9 million more than Q1 last year when it was SEK 169 million. The reason why it nets at only SEK 48 million is that, let's say, last summer, we decided to invest SEK 200 million in different bonds short term. They paid back now, and instead of reinvesting it in bonds, we placed them on bank accounts that actually yield better interest. Therefore, it looks like the total investment decreases because the money we got back from the bonds takes down the net. That's also why it was extra high in Q3, as you can see. That's when we invested some SEK 200 million. It goes the other way now. Equity, non-current asset. Total equity amounts to SEK 2.8 billion. This is mainly our profit after tax throughout the years, minus what we have paid in dividends. This is what we have accumulated, you could say, over the years. Yeah, and the assets on our balance sheet there, namely game development projects. Yes. That's been going down. You've mentioned Lamplighters League, for example, was a chunk of that. We have a couple of internal games there. We have the vampire game, Bloodlines 2 there. We have Life by You and a couple of other games. Yeah, a few ones that, of course, we haven't mentioned. I think we have; it says in the report, 10, I think we have 10 games in the pipeline. Those add up to the larger extent of it. But then, of course, also the DLCs on the live games we have. Until we release them, they are on the balance sheet. Capitalized development is the biggest part. I think it's SEK 1.8 billion. The rest is, no, sorry, the total non-current asset is SEK 1.8 billion, and the capitalized development is SEK 1.5 billion. The rest is acquired IPs that we haven't yet amortized, and also the right of use assets. You know the way that we account for the rent agreements since a few years back. That was all we had planned to go through. I know that we have already got some questions. Should we dig into them? We'll go straight in. Okay. This one is for you, Fred. What does Paradox Interactive's outlook on its current business strategy? Are there plans for adjustments to ensure long-term success? Good question. It's a good question. The fact is, long-term success requires long-term thinking. That's the first thing. Therefore, we panned out and explained our strategy last year. Was it in May? Yes. On our Paradox Deep Dive Day that we had. We summarized it into dig in, stock up, and breakout, the ways we work with our current games, our sequels and similar games, and the games that are totally new to us. They're totally new IPs, totally new type of games. That hasn't changed, so we're continuously working on that and working and trying to grow in every area of those. But obviously, there are other ways we need to focus as well. I mentioned quality as a big, important part on how we're going to grow because gamers today expect more than gamers did 5 or 10 years ago. But all in all, we stay true to our strategy, and we believe a lot that this is going to bear fruit, hopefully soon. We've always been long-term, so it's more about creating value for our gamers is going to be the key to the Paradox long-term success as well. That was a long answer as well. Good one. Alex, how has Paradox Interactive managed costs in light of recent financial pressures? What initiatives are in place to ensure operational efficiency? Also, relevant question. Financial pressure, that's nothing that we experience. We have very solid revenue, as we could see. We have seen it quarter after quarter. I know that the markets, before we have been presenting the quarters for the last, I think, like 5, 6 quarters now, have been worried about what are you experiencing in terms of market economics. We have quarter after quarter not experienced much, not on a full level because the difference we see is that our big franchises, they continue to deliver and sell as ever before. We see challenges with new and especially smaller franchises, and that seems to be an industry trend. We are extremely happy to have at least five super strong franchises. Indeed, yeah. Thanks to top line, not much financial pressures. We have very good margins, as always, 35% or 34% Q1 this year. I think we can do better. Cash position, very strong. It's above SEK 1 billion, and we have zero debt on the balance sheet. But having said that, we are always, of course, prudent about costs. We launched several initiatives when you came back, Fred, two and a half, almost three years ago now, where we did a lot of some cost efficiency measures. We ended up closing down three studios last year. This is, of course, related to costs. In PDX, our publishing business, I think we took it down two years ago from 250 to 170 FTEs. I think we were doing a lot of stuff early on that is paying off now. Also, there are other things like the implementation of NGT and how we approach high-risk projects. That's also a very efficient way to decrease costs on high-risk projects. I think I've answered it pretty much. Yeah, one way is that we've changed also the way we activate costs because we don't anymore on new projects that we're only experimenting with, which is a good way to avoid the sunk cost fallacy, which is very strong in projects in the games industry in general. I think that has kind of changed a lot of how we operate and the kind of awareness of how costs work in projects. That's been very good for us. We hope to see the result of that in the coming year or two years. Yeah, and in terms of our more proven projects, there we do capitalize from the start. But there we have also adjusted a bit how we invest between the stages and invest lesser in the early stages and more in the later stages because that also enables us to adjust the direction without losing too much cost or money or time. Indeed. Do we have more questions? Yes. Fred, will your pricing policy change? Well, we adjust our pricing policy a bit all the time to reflect a couple of different things. One of them is obviously fairness over how a game is priced in different parts of the world. Another is purchasing power. But we harmonize our prices on an annual basis and adjust a bit prices on new DLCs depending on how much time and money we spend on it internally and the value we believe it holds. We're not going to experiment too much, obviously, but there are going to be some adjustments here and there going forward as well, for sure. Okay, cool. Alex, what criteria does Paradox Interactive use to determine when to cease updating a game? How do sales performance or sequel releases factor into these decisions? It's a good one. Yeah, there are several reasons or several things we take into consideration. One is, of course, we have limited resources. Cash is not an issue for now, but staff resources especially, especially in certain skill sets. Then it comes down to where do we allocate these resources and get the most out of it. That is often the reason why we don't continue to develop DLCs on certain games because we think that we can get better yield investing those resources elsewhere. But then another way to see it is that we want to, of course, we continue to make DLCs as long as there is a will among enough amount of players that is willing to buy more content. If they want to buy more content, we are happy to continue to develop more content. When we release a game, we normally have committed already to make one or two DLCs, sometimes more, and that we always deliver on. But then we look at what is the market and players saying? Do they want more, or are they happy with the content they have got and don't want more? That's the main input to our decision-making for that. There's a range of factors that play into if we stop supporting a game. We want to support all our games forever, if given the possibility. It just has to make some sort of financial sense as well. It always pretty much makes financial sense if there are enough players that are willing to buy game additions. Was that the last question? No? There are more? Fred, what was the idea behind the Stellaris expansion subscription? Do you think it's a good value or just an experiment? I'm curious how this model is working out. Well, subscription is something we're still kind of experimenting with. We started with Hearts of Iron IV and Europa Universalis IV. It's panned out fairly well, from what I understand. It's a good way for gamers to get access to the full game and try out the full game without having to buy all the DLCs for the game at one go. Stellaris has built up a strong catalog of expansions, so it is a good way to kind of get over the threshold of a DLC value. We believe that it creates a lot of good value for the gamers. We are also, in general, interested in finding new ways for people to access our games and enjoy our games. It's one way, but at the moment, it's been an experiment. So far, I think people are happy about it. Yeah. One more for you, Fred. All right. How far do you feel you have come in improving the release cadence for DLC? Right, that's a good one. That's the never-ending story, right? Yes. It's an ongoing work. I always say it's an ongoing work as well. Most things are. We continue working with things, obviously, behind the scenes. But we have different ways to improve this. One is that you have parallel teams on the same team. You have teams that in parallel work. For example, the Hearts of Iron team works that way, the Hearts of Iron 4 team. We can use external teams from time to time. Stellaris, for example, has used an external team to help us, for example, release Astral Planes in Q1. We're also working together with content creators, like we did North African Attire for CK3, but we've also worked a lot with content creators on Cities: Skylines. Those are three main examples on how to release DLCs with a higher cadence and hopefully with a lot of value to our gamers as well. Good. Alex, the refund of Cities: Skylines 2 Beach Properties, did that hit Q1 or will it come in Q2? Right. As we mentioned, we will refund the standalone sales on Beach Properties. Those will show up in Q2. Unfortunately, it was a quite small amount because not many acquired it. We're not doing any refunds on the Ultimate Edition. There, instead, we are making sure that the players are getting happy by giving them some more stuff. They're getting a couple of CC content creator packs and radio stations instead. There will be a small refund impact in Q2, but it will not be noticeable, I would say. No, probably not. Like you said, it's very important that we compensate everyone about the Ultimate Edition as well because they are the core and the most important of our players as well. That's it for this quarter. Thank you, Alex. Thank you. As always, it's been great to present to you. Please stay in touch on Twitter or X or whatever you call it. If you have any questions, you can always send it into the IR@paradoxinteractive.com. See you next Q2 presentation. It's in July, I think July 26th or something like that. End of July when summer has come to Stockholm. We look forward to that as well. In the meanwhile, take care and see you next time. Thank you for watching. Bye. Bye.