Hello, and welcome to the Q3 Report 2024 for Paradox Interactive with me, Fred, and... I'm Alex, the CFO. Welcome. Welcome. So we're going to take you through the numbers and the releases of this quarter. A bit of an uneventful story this time. Like Q3 earnings for us. It is because we kind of have a tendency not to release much in August because it's kind of vacation month, etc. So we only normally have two months to release stuff. So that's me. So it's a calm period, but like I say in the headline here, it's not relaxed by any means. So like I said, a bit uneventful, but EBIT is almost according to what we expected. But it doesn't mean we didn't do anything. So we released a couple of things and also a lot of focus on improvements. We improved the quality and the standard of our games. We have strengthened our publishing part by moving third-party into the new games team. We have one team only, Paradox Arc, and new games to work with all our third party studios, which also means that our first party studios get more focused as well in what they do. We also decided to delay the game Prison Architect 2 to ensure the quality of the game. It's going to release when it's ready. We're continuing to polish on the title going forward. We did have a couple of releases in this quarter. Most notable is the Roads to Power for Crusader Kings lll, also Cosmic Storms for Stellaris. Console release that was Friends Foes for Crusader Kings III, and we did Millennia: Ancient Worlds. Also, the game Mechabellum went into 1.0 after having just over a year of early access release. So, final release of that game that is going to see a lot of updates in the coming year, we hope. And that's it for me. So that was short and sweet. So I'll leave over to you, Alex. It was, thanks Fred. So let's dig into the numbers. Right, so revenues came in at SEK 434 million. Very close to last year's Q3 when we did SEK 426 million, so it's up 2%. And as Fred went through showing the releases, it's as it often is in Q3, not our most active quarters in terms of releases, and that has its direct impact on revenues and profits as well. But we did release slightly more than last year's Q3. That's why we see an increase in revenue. Revenues increase would have been even higher if it wasn't for FX this year. So as pretty much any exporting company, we are very dependent on what the Swedish krona does, performs in comparison with the external currencies. And this, if we compare Q3 this year compared to Q3 last year, the dollar is down some 4%, euro 3%, and pound 1% roughly. Historically, we have been favored by the weakened krona over the years, but this year it has gone in the opposite direction, so minus 3%-4% revenues due to that, but all in all up 2%. Top five revenue contributors in the quarter, Cities: Skylines 1 and Cities: Skylines II, both on the top five list, and then we have Crusader Kings 3, Hearts of Iron 4, and Stellaris. Of course, very encouraging to see both Cities 1 and 2 being on the list, despite us not having up until Q3, we hadn't released much paid content for a year, so that's very good. Let's move to operating profit, SEK 143 million Q3 this year, SEK 85 million last year, so even though revenues was fairly identical as last year, we are doing much better profit. Last year's Q3's profit was held down a bit due to marketing events. We had a lot of marketing activities in Q3 last year for games that we hadn't released. So we were doing campaigns for Cities: Skylines II that came up in Q4, Lamplighters League, Life by You, Bloodlines 2. And in this year's Q3, we have not had that much activity. What else? Profit of the financial items, 151 million SEK, so it's up eight million SEK compared to the operating profit. And this is due to our positive financial items. So we have. Interest rate. Interest rates on our. We're more than 1 billion SEK. I think it's close to 1.2 billion SEK on the bank accounts, and that yields an interest. So it's a very favorable situation to be in these days. Profit after tax: 120 million SEK this year's Q3 compared to 69 million last year's Q3. We have a profit of the financial items margin of 35% compared to 21%. It's not bad, but we think we can do better than 35%. Yeah, we should be over a cycle, hopefully 40%. We've been sliding down to even at 21% last year, but going for the new model in which we operate, we think and hope that margins will be back in the at least 35-40% range. Yes, employees, average number of employees during Q3 this year, 584. That's 50 FTEs less than last year's Q3 when we were 634. And this is mainly the closing down of the Harebrained Schemes studio and the Paradox Tectonic studio that has happened during the last 12 months. That has led to a slightly bigger increase than 50, but then we have increased staff in the studio here in Stockholm and the studio in Tampere. We can move into the other slide. So here we show you quarter by quarter revenue on the green line and then our top three or main three cost categories: COGS, selling expenses, and admin expenses. Green line, we have already discussed the quarter's revenue, but what we can mention here is what you see. It's a very big fluctuation from quarter to quarter. Those of you that have followed us over the quarters notice, the quarterly revenue varies quite a lot with what we release, and it's very clear here. If you go back to two and a half years, it's also clear that we seem to have entered into an every quarter situation, every second quarter situation. Every second quarter, we release a lot of things and we have high revenues, and every second quarter, it's fairly slow. So it's Q1 and Q3 that have ended up being fairly slow and Q2 and Q4 quite hectic. So let's hope it continues like this for at least Q4, and then it would be good if it could smoothen out a bit, but I think it's going to continue to fluctuate like this for quite some time. Especially when it comes to full releases, which kind of drives revenue in the short term as well. Yeah, for sure. And you can see that very clearly Q4 last year when we had Cities: Skylines II and Lamplighters and so on, when we did almost 1 billion SEK in one quarter. But let's move on and talk a bit about the cost items. So our biggest cost item is cost of goods sold. So this is where we group all our costs that we deem necessary to make our games. So it's the cost for all our internal studios, our external development studios, royalties to them as well, amortizations on acquired assets like studios and acquired games and IPs. Also the cost for our internal tech team that is not part of the studios, but is part of the publishing business. So let's split. So the COGS came in at 217 million SEK compared to 255 million SEK last year. Let's split it up a bit and go through the main items. So the biggest item is amortizations. So we capitalize the development costs of most of our games, and then we amortize it when we release over 18 months. So amortization is in Q3 this year, SEK 96 million compared to SEK 115 million Q3 of last year. And this is very much driven by what we have released in the actual quarter, but also the quarters that have come close by. So what's the main difference between this Q3 and last year's Q3? It's not that big deviation, but it's Victoria 3 and Age of Wonders 4, because Age of Wonders 4 released Q2 last year and had substantial amortizations also Q3. We didn't see that this year. So that's amortization. Another item is we mentioned it when we acquire businesses, studios, or assets. In almost all cases, we choose to amortize those assets over often five years, sometimes ten, but that's rare. In most times, five years. But it's only been World of Darkness that has a 10-year period, right? So that's basically out of the books by the end of this year, or maybe it's already zero. Yes, you're right. So World of Darkness, when we acquired that, was it eight years ago? It was before my time. 2015, I think. So nine years. Nine years ago. Yeah, so one more year of that, then that's out of our books, and this is, I think it's a prudent, not say aggressive way to handle it, because I think it's a very good example where the asset has increased in value, we pretty much believe, but we have treated it as all the value has gone away in 10 years. Right. Yeah, yeah. We took it as cost already. So that's, of course, pushes down our cost, sorry, pushes down our result, but it helps us be very prudent and healthy for the future. Yeah, a more lean balance sheet. More leaner balance sheet for sure. So the amortizations in Q3 were SEK 14 million. So the result was pushed down SEK 14 million. Last year, it was SEK 20 million. And the reason why it's lower this Q3 compared to last year's Q3 is that some of the assets we acquired have just moved out of the five-year period and been fully amortized. One was Harebrained Schemes, and the other is Prison Architect. So we acquired Prison Architect in December 2018. So a year ago, it was still in its fifth year, so we took an amortization then, but now it's gone. So therefore, it's less, SEK 14 million. Then we have amortizations, other amortizations, which is SEK 7 million, which is the way we account for rent. So rent, the rental contract, is considered an asset that we amortize on as well. So it ends up as amortizations. Sometimes we have a cost item here in the terms of write-downs. In Q2, we had a big one. This year's Q3 is zero. The same last year's Q3. So no deviation there. So zero write-downs in this quarter. Then we have royalties. 20 million SEK in Q3 this year compared to 24 last year. Royalties is mainly driven by the sales on Cities: Skylines 1 and 2, because we pay the external studio royalties on those sales. So that means that Cities: Skylines is, as we said at the beginning of the stream, both Cities: Skylines 1 and 2 is in the top five list, but it's good, but it's not as good as it was one year ago. So slightly less royalties coming out of that. Then we have, as the last item, we have non-capitalized development or last sub-item within COGS, non-capitalized development costs and the cost for our tech development in our publishing business. So that's SEK 80 million compared to SEK 86 million last year. So we are going downwards a bit, not much, but this item has increased over the last two years, because three years ago, we implemented this new system or method where when we develop high-risk games, we take it as cost immediately. So therefore, this item has increased over the years, but now I think it has stabilized a bit at a decent level. So that's about COGS. Selling expenses, SEK 44 million compared to SEK 66 million last year's Q3. We mentioned it at the beginning of the stream as well. We had increased costs last year because we were preparing for the release of Cities 2 and Lamplighters, but also Life by You and Bloodlines 2. Admin expenses tend to be very flat year over year, SEK 22 million this year compared to SEK 23 million last year. So admin expenses is everything else except selling and development, you could say. Other income or expenses, that is the vast majority, this is driven by currency during the quarter. So it's the dollar development during the quarter. If the dollar goes down, it gives us less money in SEK from our distributors, and that ends up here on other expenses. So minus SEK 8 million this Q3 compared to plus SEK 2 million last year's Q3. Financial items we touched upon a bit. It's the interest rate on our bank accounts, SEK 8 million this year compared to SEK 3 million last year. So that's where. Next slide. Yes, let's go to the next slide. So this is just an aggregation of revenues and operating profit, but grouped together for the quarters. Rolling. Yeah, so rolling 12 months in order to make the trend clearer. And if you look at the revenue, there is a very clear and strong, healthy trend of upwards going. We have increased, I think if we start to measure from 2014, it's a yearly growth of 35% or 36% in average year after year. It doesn't happen every quarter. We're going to sit in next quarter and present Q4. Then it's going to go down, of course, because. It's a tough comparison quarter to last year, obviously. It's an extreme comparison quarter. If we look at the yellow line here, the rolling 12 months of operating profit, it's also hampered a lot by big write-downs and other things that have been in high-risk projects, basically, that we are either changing completely the way we operate, like so we operate at a smaller scale to begin with to take less risk early in the project before we scale up, or in some cases, we stopped working with things that are too far outside of our own core business, so hopefully, the yellow line there is going to go up as well together with the green tabs that we see, so that's the plan. That's the plan. And so the yellow line, if you look at Q3 2024, it's the last 12 months profit, and we have two big write-downs, Life by You and Lamplighters. So it's projects with almost 500 million SEK in losses. So if you would not have those, it's clear to see where we would be. As we always emphasize as well, we're not leveraged at all, so we have no loans, money on the balance sheet instead. The badly spent money was at least our own. Yes. It's a sad sort of comfort, but still, we didn't take a loan to make any high-risk projects. Agreed. Let's have a look at the cash flow. Right, so cash flow from operating activities in green compared to cash flow from investing activities in yellow. Let's start to look at the operating activities. As you can see, it fluctuates a lot from quarter to quarter. One reason is that the profit fluctuates between quarter to quarter, but then you have other impacts here as well. So if you compare Q3 this year to Q3 last year, you can see that we are actually having less cash flow this year compared to last year. However, when we went through the income statement and looked at the operating profit, the operating profit is higher this year's Q3 compared to last year's. And this has to do with different things. This quarter is a bit particular because we generated a lot of profit from the CK3 expansion. So that helped profit a lot. But payments for that expansion, to a large extent, we received already earlier quarters when we released Expansion Pass. Yeah, the Chapter 3 Expansion Pass. Expansion Pass is something that we see is very popular among our players. When we start a new chapter of expansions and DLCs, we offer the players to buy all the next three or four upcoming DLCs and expansions for a discounted price. We see that a lot of the players choose to buy this one. We get the money in early on, but we don't recognize the revenue or the profit until we actually release the content that is included in this Expansion Pass. That's happened now in Q3. We released the big expansion. We recognized the revenue. It helped our profit, but it doesn't impact cash because the cash we had already received. Right. Also, Q3 is often low in operating cash flow a bit compared to operating profit, because when we and our colleagues go on vacation, we get salary, but we get that from a kind of a salary vacation reserve that sits on the balance sheet. So it doesn't impact the P&L, but it impacts the cash flow. So that's the main reasons why we see variances between operating profit and operating cash flow from operating activities. Let's move on to cash flow from investing activities. So that came in at SEK 115 million. If you roll back four quarters and look at Q3 2023, it's much, much more. It's SEK 359 million. That was extra high because we invested SEK 198 million of our cash into bonds. That was, at that point, the best way to get interest without risking the money. Now, this year, we get better interest if we just place the money on certain bank accounts, which we have done. So we haven't reinvested that in bonds. Therefore, we have SEK 198 million less of investment this year. If we just look at the investments in game development, that's also down a bit compared to last year. And that has to do with especially Lamplighters League and Life by You. Last year's Q3, we spent significant money investing in those two projects. This year, zero. So that's why it's down. I think we have one more final slide before we can take a question. Yeah, so this is our total equity in green. So this is pretty much our accumulated profits over the years, less paid-out dividends. That is increasing. It has increased a lot over the years. Our plan is to continue. Yeah, that's the plan. And for the yellow bar there, which is total non-current assets, basically games on the balance sheet, it's going to continue to go down with the policy that we have on how we start and how we capitalize our projects, if I'm correct. You're completely correct. I think that's the slides that we had prepared. So let's see if we have any questions from the community. From the audience. Yes. The first couple of questions. Yes, this one is for you, I think, Fred. Paradox has seen strong success with its first-party titles, but results on the publishing sides have been mixed. What strategic adjustments, if any, are being considered to strengthen the publishing portfolio? Yeah, yeah, first and foremost, I would probably separate core, what we already know and feel certain about. It typically has a higher level of success than when we take risks outside of the core that we feel certain about. But in this quarter, we have taken measures, as I mentioned early on in the presentation, to separate out everything that has to do with third parties. We have everything follows the same process, and we follow the same procedures and processes in general. So we have a dedicated team now that only works on third party. And we will start more projects, and we will kill more projects. That's how it's going to be. So the funnel is going to be bigger, and we're going to evaluate more games. We're going to, earlier on, hopefully be able to evaluate which games to work with and then lead that game into a successful launch eventually. So I think that this is going to help us in many ways, also that it's not going to hit so hard on the results of the company every quarter because we take all the costs upfront as well. So there's a lot of different advantages of working this way. So that's only one of them. But hopefully, we'll see the results of this in the coming year, in 2025, and the releases that are out then. Right, Alex, for you, the big negative working capital outflow effect in the quarter, where does it come from, and is it structural or random? That's a good question, very specific. Probably from one of the finest persons in the audience. Big negative working capital outflow, yeah. It's a bit what I touched upon already when we discussed cash flow from operating activities. We have, if you go to the cash flow statement, there is a change in current liabilities. That's an item called change in current liabilities that is minus SEK 81 million this quarter. This is the big thing here is the expansion pass setup that impacts Stellaris and Crusader Kings 3. All right. So we have sold a lot of expansion passes for Stellaris and CK3 in previous periods. We have received the money, and we have put that we haven't recognized that as a revenue, but we have put it as a debt on the balance sheet. Now, when we have released part of that content that the players have paid for, then we recognize it as a revenue that impacts profit, but it doesn't impact cash, the current liability. Since we consider this as a liability towards the player to deliver this expansion, that goes down. So the liability decreases. So once we release it, the liability goes down. Exactly, exactly. So that's the main thing. Then we have, and this is very popular, as we have said, the expansion passes. So we're going to see more movements like this going forward. On the working capital side. Yeah, exactly, where we will have a difference between operating profit and cash flow from operating activities between the quarters, thanks to this. So this will continue to show up. Then we have another impact in Q3, and that's, we already mentioned it, it's the vacation salaries. So that, again, it comes from, it's part of these current liabilities. It's an accrued expense. But it's typically a Q3 item. It's always in Q3 because most people go on vacation in July and August. Right. Then another Q3 item is we have the profit share system in Paradox, where we share 5% of the profit with all the staff. That is paid out in June, often, as it was last year's June. So that means that we have to pay social contributions and taxes on that now in Q3. So we had a hefty tax payment coming up. And that is the same in all Q3. So those are the main drivers. Long answer to short question. Let's go back to you, Fred. Do you think we can see more than one core title release in 2025 to 2026? The thing is that I've made a lot of, not promises, but kind of forecasts, and they always turn out wrong. So I'm not sure how to answer this question, but the aim is, we need to launch games when they're ready, right? So we can't really start pushing them into quarters or years anymore. But of course, I mean, our aim is to produce more and better games all the time. So the answer is no promises, but we'll do our best. That's a terrible answer. I don't know. I can't say much more. But I think we have, what we see in the pipeline, I think we have a strong pipeline, and I think we're heading in the right direction. It's just, again, if you look at, I mean, people want to have new games, right? And we want to make new games. Everyone in the finance market wants us to make new games. If you look at the trend timeline with the revenues over time, you go back to 2016, you see that if you believe that we can continue that trend, I think this is the company for you. If you believe we're already finished and we're on our way down, probably the company is not for you. I'm not on that side. I'm on the optimistic forward-leaning side, right? Very good. Another terrible answer. But we'll continue. Right. So Alex, this is a fun one. You've made significant development CapEx reductions year to date. Yeah, good. So we have. That's good. That's good news. Yeah. So is there a question as well? Or is it just a question? Yeah, how much of that? Sorry, I missed out on the second part. How much of that is driven by the shift towards not capitalizing certain titles on the balance sheet? And how much comes from not continuing development on, say, The Lamplighters League? Yeah, good question. Yeah, so for sure. So when we went through the cash flow from the investing activities, I mentioned it's lower in Q3 now compared to Q3 last year. And as we said, then not continuing development on Lamplighters League is a major impact on that, of course. Then we also have not continuing development on Life by You. Yeah, of course. Now, we are continuing to place bets on high-risk projects, as these two projects were. But as Fred described, we are doing it in a different way, and we are investing. I think the most important thing is that we invest much or spend much less money, especially during the early high-risk phases on the development phase, but the other thing is that during those high-risk development stages, we don't capitalize it. So it doesn't show up as an investment at all. We take them as cost directly. Yeah. And I know the trend. Some of the trends in the industry has been that people say we're going to make fewer but bigger titles. And I say we're kind of in the opposite corner. I mean, we're going to make more but smaller titles, but kill off probably a majority of them before anyone ever sees them, and also avoiding bumps in the revenue sheet. But how much further room for improvement do you see in your development CapEx levels? Just a follow-up to this one, I guess. We will see one big change or one major adjustment coming up, and that is once we have released Bloodlines 2, because we are still developing on that game, and it's a game that has had high CapEx, so once we are completed with the development, you will see the CapEx go down to a new low level, then I think that we are at a good level. From there, I expect us to increase it slightly over the years because we are investing more in our core games. The core games are becoming slightly more expensive for every release, so we're going to, step one, we're going to come down, and then we're going to, from there, increase slowly. You can say the CapEx compared to revenues is going to be a smaller portion of the total revenues every year, and it's not going to grow as fast, hopefully, as the revenues. That's another thing. That's the plan. All right, Fred. How does the pipeline, talking about pipeline, how does it look for Paradox Arc? It looks good. We're a bit secretive about the things we're doing at Paradox Arc. We've released some bigger and some smaller titles. I mentioned Mechabellum releasing in the quarter in 1.0. We're releasing a smaller game today called an Aztec city builder called Tlatoani, and we have a couple of others, like Escape the Mad Empire and Starminer, that have been getting some traction recently, and we haven't given any release dates for those titles. We've just said that this is what we're working on at the moment, but we're looking at new games all the time, and we're adding games to the portfolio, and we're hoping to get at least a couple of them out in the coming year or year and a half, so hang in there, and you'll see more exciting stuff coming from Paradox Arc. We're really finding a good way to work there. It might be worth repeating, but we state in all our quarterly reports how many games we have in the pipeline. And I think this quarterly report says eight. Those are games excluding Arc pipeline. Yeah, Paradox Arc doesn't count because the kill ratio of the games is so high that it's hard to predict exactly what's coming out and not. So Starminer, Escape the Mad Empire are not calculated into the eight main pipeline games, if you want to call it that. So Alex, Cities 1 and 2 were both among top five revenue contributors. How do you view this in the light of recent challenges? And that's also for the future when you will release paid content for, I guess, it's Cities 2 mostly. Yeah, so we have been working a lot during the last year with Cities 2. It's in a much better position now compared to a year ago, but we are still improving on the game. We have started to add content in form of region packs, but we have chosen so far to not charge for it because we want to increase the player experience for Cities: Skylines 2. Meanwhile, for Cities: Skylines 1, in October, we came out with some content creator packs because we have still a lot of players on Cities: Skylines 1, and they want more content. Yeah, and also it's a good way to make something happen on console for the people who can't play Cities 2 on console. At least you get some new fresh updates for Cities 1, so you can play around with that. Maybe a small comfort, but still, it's something. So how should we think about growth for full year 2025 and full year 2026? Given recent challenges, has your thinking about potential growth over the next couple of years changed? Do you want to start? Please. I think I'm more bullish than you are, so you start. Should I give our forecasted revenues for 2025 and 2026? No, we never do. No, we never do. That's the point. We never share our forward-looking statements. And as you have already said, we don't give promises about what we're going to release. And one of the reasons is that it's very uncertain. Our ambition is to grow quite a lot always. But we also know that our plans are important to make, but we never stick with them exactly because we need to change and adapt as we go along and see how projects develop. Absolutely. But no, I think we're looking, like I said, I think we have a very strong pipeline. I think we never had a stronger pipeline in the history of the company. So I tend to be a bit bullish. I'm not going to promise you anything. It's just that it feels very good. Third-party, we've had some bumps in the road there. I'm the first one to admit it. I think we're on the right path at the moment when it comes to quality and how we control the projects. But overall, I'm optimistic. Good. Yeah, maybe we should start doing forecasts openly. That would change things for sure. Okay, Alex, could you explain how you recognize the revenue streams and the dynamics in the expansion pass two for Age of Wonders 4? Herald of Glory and Ways of War is announced to be expected in Q4. Giant Kings in Q2 2025, and Archon Prophecy in Q3 2025. Yeah. That was a super specific question, but this goes for all our expansion passes. So it's just as valid for Crusader Kings or Hearts of Iron. Yeah. So we have been very close to this topic already in the stream. But so when we sell the expansion pass, let's say it includes four expansions and DLCs. And let's assume that the value or the price point of those separate is $80. And then maybe we sell the expansion pass for $70 or $60, depending on how much discount we want to make. So then we sell it. We get all the money into the company, let's say it's $60. Cash flow happens early? It happens directly at the sales point. But revenue comes in different. Yes, and then we take the $60 and allocate that proportionally to the four DLCs and expansions based on their percentage price point of the total package, right? Right. So let's assume we have an expansion that represents 40% of the value. Then when we release that expansion, we release 40% of the $60, recognize that as a revenue. And the rest we release and recognize once those DLCs are delivered. So cash flow has already come in for those sales, but the revenue is going to come up when we release Herald of Glory, the Ways of War, and so on. That's it. I just started a new session, actually, Age of Wonders 4. Cool. So yeah, yeah, feels good. Do we have more questions? No. No more questions? It seems like, like we said, uneventful quarter. We'll see what happens in Q4, but I think we've announced everything that we're going out with already. So you know what to expect. And it's going to be an interesting quarter, as always. And we'll see what we have lined up for you in 25 as well, but that's for another story. Yeah. And if we didn't answer your question, we will go through the email again and see if there's anything left. And we will answer you directly via email. If you come up with questions that you haven't sent yet, continue to send them, and we will answer you separately. If you're lucky, we even answer on Twitter or X, as it's called these days. Sometimes I even answer questions there. We'll see. Do you have a Twitter account? I do, but I'm not very active. Okay. So. To present the Q4 results. Yep. Looking forward to that. And see you then. See you then. Thank you for watching. Take care.