Hello everyone and welcome to the very first business review webcast of Remedy Entertainment. My name is Laura Harvester and I'm the Investor Relations Manager here at Remedy. Today, I'm joined by our CEO, Tera Vertala and CFO, Gerri Kauppi. They will give you an overview of the Q1 and also at the end of the presentation answer your questions from the audience. You can type in your questions already during the presentation by using the Q and A tool in the Zoom interface.
More detailed instructions for the questions will follow at the beginning of the Q and A session. But now without further ado, please welcome Mr. Terov Yarpala.
All right. So good morning also, my behalf, and welcome, everyone. Let's jump straight into our Q1. Summary, the main points. Our revenues for the 1st 3 months €9,000,000 being approximately 10% of our revenue.
The significant events that happened Control Ultimate Edition released on the new generation of consoles, PlayStation 5, Xbox Series, XMS, In a very high quality form, and we are really happy with these launches, a bit more on those later. And then also we successfully raised €41,500,000 with the directed offering. Then overall, when we look at our development during the 1st 3 months' time, Of course, the big thing is that we have been building Remedi to be a long term growth company. And for that, we have been strengthening and developing many fronts. Our game development projects continue to Cres as planned.
But what we have been doing behind these game projects all the time is to strengthen our production and development We already, in our Capital Markets Day in December, said that during 2020, we already worked on 5 main games, 15 different projects out of these 5 main games to deliver games to 10 different platforms. At the end of 2020, we had 274 Remedi talents we were already using during 2020, over 370 external talents to help us with our game development projects. Now during the 1st 3 month period, we have been increasing our headcount, so recruiting more people. We have been very happy that In spite of the COVID situation, our recruitment and ability to attract world class talent has continued. We have kept on developing further our production capabilities, the underlying Northlight technology, our team working capabilities and overall ways of working.
And we have also been developing new ways to attract and recruit good talent, And this will serve us longer term into the future. But in addition, the games we are working now, They are the same games that we have been working previously, Control with 505 games, Crossfire Games with Smilegate, 2 unannounced projects with Epic Games, our free to play game Vanguard. But during this 3 month period, We have also started a new project, so an additional project that is in line with our multi project strategy that we have been following for a long time. We don't yet have anything new, additional to tell on this new project. But on the other games, Control was launched in August 2019.
It's already over one and a half years, and we are happy to say, as we have said earlier, that control keeps on selling We are really happy with that. The only number that we have so far revealed was the over 2,000,000 units that the game had sold by the end of 2020. The sales have continued on a good level, we are happy with that. And an important part of our control expansion has been to take the game to new platforms and new services. An example of these new platforms, as was mentioned, was Control Ultimate Edition taken to PlayStation 5 and Xbox Series X and S.
And We are happy with these launches. The Metacritic score that tells, in a way, the aggregate opinion of The game previewers on the quality of the game is really strong. And now when we look at the Next generation platforms, they are in the very early phases of their life cycle. Control clearly is one of the High quality games out there, many of the technology advances like the ray tracing clearly represents a benchmark for any games. So overall, we can say that Control is really well set for the future, also in the next generation of consoles.
An additional thing, we have been taking control to new subscription and streaming services, and we are reaching quite big audiences from there. And that's of course then also building up the brand awareness for control, that's also going to serve our advances with control in long Then on Crossfire, we have said it already earlier that there are 2 Crossfire games with which we have been And both of these games are now planned to launch in 2021. There is Crossfire HD, which is a collaboration with Smilegate Tencent and that game is now launching first in the Chinese market this year and includes Remedy's single player campaign. The other game is CrossfireX, a collaboration between Smilegate and Microsoft game that is launching this year in Box 1, Xbox Series, XMS and also includes Remedy's single player operation. So overall, we can definitely say that this is a significant year for Crossfire, and we are a key part of that partnership and will support these launches.
In relation to our projects with Epic, Nothing more to share there. In a way, the AAA game that we have in development, that's soon moving into full production mode, And the 2nd smaller scale project, which we have already said is in full production, continues to progress well in that full production mode. I won't now repeat the business terms in a way. Those have been public already for a long time. It's a good deal.
It's a very balanced relationship that we have with EPIC Publishing, and the collaboration proceeds well. In relation to Vanguard, our free to play game, cooperative multiplayer service focused game. We are step by step developing it further. The good thing is that the development now progresses, I would say at a very good pace. The internal playtesting that's important for this type of iterative service based game, That has already been ongoing for a while, and we continue it as one key part of the ongoing iterative development.
And we are now starting the next phase of closed external gameplays with external players. Short look at the global gaming market. Of course, nothing major has changed in 3 months' It's just good to remind that, yes, it is a global market for Remedi. It's a giant market that keeps on growing Fast across all the platforms, across all the geographies. Our focus, it's It's been the same for a long time, that's one of the backbones of our strategy and where we know that as a company we can excel, Big Screen Games for gamers, console species, core gamers.
PlayStation 4, Xbox 1, The new generation PlayStation 5, Xbox Series X and S, Nintendo Switch has grown to be a significant one. PC Cloud Subscription Services are complementing that in an important way. And to have a bit deeper look at the gaming console market, the previous generation, PlayStation 4, over 100,000,000 installed base. Xbox 1, approximately 50,000,000 Nintendo Switch, which has grown to already over €80,000,000 a really strong generation. Now PlayStation 5, Xbox Series X and S, They have just recently been launched and are now starting to pick up.
And all the signs are showing that this is going to be a really Strong generation of consoles. What we are at the same time seeing that supply for these new consoles, it's still limited. So that's limiting the early phase growth. It's also very good for the consumers that this new generation is backwards compatible, So the gamers with their portfolio of games in PlayStation 4 and Xbox 1 can play these games also in the new generation, But in a sense, that's also making a situation where gamers are not in a hurry to change their consoles. And at the moment, when this is a long term game clearly for the console manufacturers, there are still at this point Very few new generation exclusive games, those platform sellers that will come at some point and will then boost also the next generation.
Overall, we can say that the long term outlook for this new generation of consoles is really good, But the growth will take time. And for that, the previous generation is most likely staying relevant for a longer time as well. Then when we look at the PC market, especially the Western PC market, It has the 2 strong marketplaces that are both growing. Valve with Steam, which has been the dominant player, a really important for
all the console for
all the PC developers traditionally, has 120,000,000 active monthly users. And in addition to the active monthly user base, also the games sold have been Growing year by year. Epic Games Store, the newcomer, really impressive entry into the market. 2020 had over 50,000,000 active monthly users already. The number of games has been growing.
It's almost 500, so it's been more selective portfolio of games. And as we can see from Epic strategy, which applies quite well to many new platforms, many new services. In a way, High quality games are one key component of the user acquisition for these new platforms and services. And as an example, All Epic was offering over 100 weekly free games. And these type of opportunities are good for the gamers, and they are new opportunities also for the IP holders and game developers like us.
Then An additional thing, which is at the same time changing, but also growing the gaming market, is the evolution and development of subscription and streaming services. And there are many of those. We can't yet say Which model, which service is going to be the dominant one? When we look at the console gaming market, you have on the Xbox You have Xbox Live, Xbox K, PaaS, Project X Cloud. Sony with PlayStation has their services.
They are all, in a way, parts of the offerings. They provide different type of in a way packages for the consumers. It's good that there is variety, but it's also telling that in a way these services, what they will be in the long term, they are Still in some sort of a development phase, but what's clear is that these subscription services, streaming services, they are coming. And they are going to be an important part of our industry as well, most likely not the only way, But one part which is changing and developing our industry further, and then in addition to these, We have services from Nintendo, Google Stadia, Amazon, Luna, NVIDIA, C4s And many other services that are at the moment in the piloting or in development phase, and these are going to offer Then Another viewpoint is that the underlying market is growing. There is growing consumer demand for high quality content.
There are new services that will need good quality content, also for the strategic purposes of building their user bases To differentiate from the competition, and in a sense, they don't only need the content, but Also the developers behind these contents. But there are fewer and fewer available studios like us. When we look at the overall market, there are approximately 150 AAA capable, High quality AAA capable studios in the world. And we have seen that even though the market has been growing Rapidly for the past 5 to 10 years' time, building new AAA studios is slow. It normally requires a 100 people, typically 100 people representing 15 different disciplines, working well as a Team having experience, mastering the underlying technologies, and even for the big publishers, building this type of new studios has been really slow.
The amount, despite of the market growing, hasn't changed much during the past 3 years' time. And most of these studios are already owned by publishers and platform holders. At the moment, out of these 150 AAA studios, about 35 are independent studios like Remedy. And when we look at the underlying market that the demand for games is growing, demand for good developers is growing, It's a really good position to be at the moment. So we can definitely say that as a Freddie, the way that we have always been In that we have the unique capabilities to create immersive worlds, interesting stories, high quality action game That clearly interest the gamers.
And at the same time, We have now been able to transform the company into a multi project model where we can develop this type of high quality games, Many of them in parallel, we can definitely say that we have a very strong basis to build on. And now looking at the market, market which is growing, market which has strong demand, both from the consumer side, but Also from the B2B side, so from platform holders, game publishers, service providers, And the amount of developers available to collaborate with them, that would be independent. That's quite limited, about 35 at the moment. So we definitely can say that the market has developed favorably from our point of view. And because of that, as we have said earlier, at Remedy, We are aiming for these bigger opportunities.
What it means for us is that We outlined this in the Capital Market Day presentation in December. We are aiming for much bigger The aim is that by the end of 2025, we have created several successful games and at least one major IT game, a game that can read the global top selling charts and stay there. With these games, we will own and have created at least 3 expanding game brands, and all of these brands We also will have capabilities To select the right commercial model that fits for each game. The model that's best for value generation For that game, and which also then creates excellent value for Remedy, and it will mean that for some of our future We will go towards self financing and self publishing. People continue to be at the core of Remedi, And we will be we aim to be the most attractive employer in Europe for the gaming industry professionals.
And at To account our people, our games and also our business, to have really this long term profitable growth company that always also manages its risks well. In order to support The execution of this next phase of our growth, we did a share issue in February 2021, So raised an additional €41,500,000 and this does give us the possibility to, 1st of all, And many of the capabilities that we will need for the future Remedy on the production site, technology site in relation to new games, in relation to new people, partners that we will need commercial capabilities that we need to build as well, but also to self finance and self publish some of our future games. And at the moment, We have already started this next phase and are already in the middle of this next phase that we have We are a category defining creative super developer, ability to create world class brands. Out of these plans to make distinctive benchmark setting games, we are a professional multi project developer, so basically can Create in parallel number of these high quality games, which is quite distinctive in comparison to most of the other independent Developers out there.
And we will have the ability to self publish some of our games and at the same time partner with Some world class publishers as well. That's, in a way, the short business review from my part. And now, I'll hand over to our CFO, Terje Kauppi.
Thank you, Tero, and good morning for everyone. So the financials. Let's start with the key figures. There seems to be slight delay now for me I'm changing slides. Yes, now it's working.
So we had a slight 3% increase in revenue. Our sales mix remained the same against the comparison period. So there was a slight increase both from the royalties and the development fees. Our operating cash flow was strong, €4,000,000 and €4,400,000 more than in previous years' quarter 1. Timing of incoming payments was more favorable for us this year.
And as a result of The share offering of SEK 41,500,000 and strong operating cash flow, our net cash position increased year on year By SEK 48,400,000, reaching the level of over SEK 62,000,000. Our EBIT was 10.5 percent of revenue versus 13.7% previous year, So decreasing a bit. So yes, there's a delay. Sorry about We have gotten to profitable growth track. Mira has been growing our revenue steadily, And we have been about reaching the 10 times more revenue level in 10 years with sustained profitability.
2020 was a record year for us and now the Q1 2021 revenue pillar is about the same size as in 2020. Our aim is to change or at least to even out the historical profitability pattern linked to game launches by taking advantage of We have been able to increase our headcount despite the pandemic situation From 266 to 281 persons year on year. So by 6%. It actually affects personal expenses level. But the largest difference In cost base came from a technical change of bonus approval method.
Now we accrue Full year bonuses quarterly based on time elapsed. And this affected our EBIT By 500,000 negatively compared to the old method. And if we would have continued with the old model, our EBIT would have increased by 26%. We also continued to expand our utilization of external development. And we still invest in future and that shows in increased CapEx, increased by 36%.
And the majority of our CapEx is product development capitalization. So as a reminder, it's essential for video game developer And also like Dero mentioned, to ensure on portfolio level, smart partnering structures. For self publishing, There is no need to share the revenue with the publisher, but the risk is higher. And on the other side is subcontracting, which involves lower risk, The return is also limited. It's still good business.
And in between these two models, there is this on IP partner publishing model, where we currently have projects with 505 Games and Epic. And in those, the IP is owned by Remedi and we share the investment and returns with the publisher. And partnering terms affect our growth and profitability in a significant manner for years to come. In this illustration, you can see as I'm clicking through How different game and partnering models build up growth and EBIT. And this describes one realistic future scenario for us.
And with a Big hit game, this picture is even prettier. So we do have a lot of future potential, especially now when we have an excellent cash position to finance the growth. Thank you very much. And now back to Derr.
All right. Thank you. So just to conclude the presentation part After this small delay, yes. So the outlook Hasn't changed. So we continue according to our long term plans, and the aim is to launch at least one game or game mentioned annually.
We are expecting that CrossfireX and Crossfire HD will be released by Smilegate, Tencent and Microsoft during 2021. And overall, at Remedi, we are expecting 2021 to be a good year, our revenue and EBIT to Cro. It's still good to say that this has now been the 1st 3 month period, and we are Expecting that the majority of the 2021 growth will happen in the second half of this here. But that's it from the presentation part. And next, I see that we have some questions.
Thank you, Terje and Terje. So some instructions for the questions. So the speakers will now take questions from Those analysts and media representatives. If you have joined the session from the Zoom web interface. You can type in your questions by using that Q and A tool or You can request a speaking turn by clicking the raise hand button in the zoom controls.
If you have dialed in and have a question, please dial asterisk 9 to request a speaking turn. But now let's take a deep dive into the questions. The first one is, What was the main driver for the strong operative cash flow considering that EBITDA was slightly down?
I can take this. So in short, the The reason for the more positive operative cash flow compared to the last year was the timing of The payments overall. So there is a big variance, especially from quarter to quarter in When do we actually then receive the payments? There's also a smaller effect Due to the fact that, as I mentioned, we accrued so we booked more bonuses To our costs than in the previous period, which affected then the EBIT. But we did not pay the bonuses in a different way.
We just
Thank you, Terri. Then the next question, can you open the employee split between different game projects?
We cannot open it up in detail, but it's now Clear what we have said also, that the projects with EPIC, the bigger one is soon proceeding into Production phase, the smaller one is already in full production phase. So the headcount on those projects altogether is high. Then we have continued the collaboration with our partner, Smilegate. And When we look at the 1st 3 months' time, of course, when the focus has been especially On the upcoming launches, we haven't needed the full production personnel in those projects. So Innovate, there have been people, but it's not in comparison to the Epic projects.
Control has been on the phase where There hasn't been major new development into the game. It's rather been supporting the launches in the new platforms. And with Control, we can also use more external development. And as we now have said, most of the People that have been working on control have now already moved on. Then when we look at the other ones, Vanguard has been progressing steadily, but it's been over 25 people during these first 3 months' time that we have said already earlier.
And then we have the one new Game project which has been mentioned that has now been started, but as that is very early phase, it's Still a, I would say, a small headcount that we have in that.
Okay. And then the next question, How much were the costs of the direct share issue?
The costs will be then disclosed in our first half year report. So with these business reviews, we are not disclosing that detail level of finances.
Okay. Then what platforms are there still left for Control to expand on?
I can't say exactly what those are because, of course, We want to utilize those as marketing bids with our partners once they will be announced. But as I said in my presentation, the market is changing and growing all the time. And there are selected especially streaming and subscription services that have been developing. So overall, when we look into the future, we believe that this type If I, in a way, go Deep Deeper, they are, of course, long term investments in a sense that at first the user base will be most Likely fairly limited. They do provide certain sales opportunities still.
But one of the things also is that case by case, We are evaluating the business cases. Control, for example, is a high quality game. Many of these service providers Are not only eyeing control for the sake that how much could it sell, but they do need high quality Content in order to attract users. And for them, potential early phase peak value is on the marketing Value is on the user acquisition, and that then for us provides an opportunity for different type of licensing deals, The business deals, which of course are kind of like welcomed, but it's a different model than We normally thought, and then the other thing is that there are also services that might provide, in a way, limited time Free offers, and those, of course, then normally will include certain licensing and one time fees. They might include also longer term innovate business to business revenue possibilities, but there is also the additional part That with bigger user bases, the awareness on control keeps on growing, the vivality among gamers keeps on strengthening, And despite reality, when your friends are playing and talking positively, also indirectly, then supports the sales of the game also in other platforms.
Okay. Then, question for Terje. In what quarter were the bonuses paid earlier? That is, what quarter should see a positive effect from the changed payment timing?
Yes. Well, the payments have not changed. So We have been paying the bonuses of either once or twice a year and that's then visible in the cash flow and Not in the EBIT. So this change is related to accruing the costs and then affecting the EBIT. And with this new method, they are more evenly out Sweet throughout the year, so throughout the quarters.
And in previous method, they were more pushed Against those periods where then we were also gaining the profits. So that is, in a nutshell, the change.
Okay. Then what is the typical model for free to play, should it be EBIT breakeven in year 1?
Well, the market is changing. There are different type of channels. So partly, this also always It depends on the platform where one is going. So there isn't, in a way, black and white answer What's the typical launch model and when should the Business cases for long term services and free to play games like Vanguard, they have a much longer life span that we are thinking about. So normally for AAA games or products, The expectation is that the breakevens would happen faster.
So there is in a sense, typically in free to play games, a longer time Then another thing that makes it It's hard to say exactly when is a breakeven expected, because for many free to play games, it's even difficult to say that when is the So a launch happening. Typically, these games go to a closed beta phase, open beta phase, then to potential early access phase, then they stay there for a long time. The monetization mechanics are not always included in the very early phases, but they can So overall, the games also start being available for the public in different phases, And the monetization systems are activated in different phases. Having said that, The good thing is that typically when a game launches, when this type of service based game launches, In a way, of course, if it's not yet opened to a big audience, also some of the live operation costs In the early phases are not yet that high, so that needs to be put into equation. And then, of course, if everything is good and Game is really attractive, often with this multiplayer service based games.
The user base may start to build quite fast. When we look this from our point of view, we know that we have something unique in the making. It's now showing good progress. We are really happy with the progress. It's still early phase.
So as I said, in a way, we have been steadily growing the team. It's bit over 25 people. We are progressing, But we are not yet in the production phase with Vanguard. We have said it earlier that we still consider it to be in the early phase. But when we continue with this progress, of course, we know that the game can have good potential.
And in that sense, in our internal business cases, we know that a successful game should, in a way, be Profitable rather sooner than later. And in that sense, yes, we need to put in a bit more time than we normally put for our AAA games, but the time cannot be too long.
Then a question regarding the release schedule. Show. So are there 2021 releases you referred to including both Crossfire projects or should we expect Any other releases, for example, the smaller Epic project?
We have only communicated so far that The Crossfire projects are planned to launch. Overall, when the time is right For the other games and when the potential launches will come, those will be agreed with our partners. And Hopefully, once we one day inform those, it's going to be a big marketing splash. So in a sense, even though I know that it would be a very valuable and interesting information also for investors, We are still operating in a very noisy and crowded marketplace where consumers have so many alternatives where they can put their Time and money. And typically, when we start announcing something new, that marks The start of a bigger marketing campaign, which is planned to lead into the launch.
And once we start it, we need To be able to keep the momentum up. And that is one of the reasons why all this type of interesting pieces of Information also for the gamers are saved for the start of the marketing campaign. So when will those happen? In a way, I hope that you will notice those in the media once it happens.
Okay. And then the final question, do you see Vanguard as a project where Remedy potentially has the needed a capabilities to publish the title without a partner.
Well, We have said it In our new strategy and which we also strengthened with the capital raise is to move towards self financing and self publishing. But we have also said that it's not going to be a black Can White change that we would change with all of our projects from the current model to this model with all the games? No, with selected ones of our games, We will continue working with world class partners. With some others, we will go towards self financing and self publishing. Now, of course, internally, we have a certain idea what these games could be.
But at the same time, the idea is not To only go towards self publishing and self financing, the idea is to find The optimum ways how we can maximize, how we can create excellent games, keep the motivation of our people And create the maximum long term value for the company. And that then requires that we Consider game by game that what is the right model for that game for the long term value creation. And then we need to consider that what type Business deals, would there be available? What type of game are we talking about? What type Competencies are missing who are the partner candidates, what could they bring into the table.
So that's also then one part which we are all the Time having that we have excellent relationships to all the kind of like relevant potential partner candidates, even though we wouldn't have a game to present to We are keeping a constant connection with these parties, understanding what might be the strategic priorities for them, Having doors open to discuss on our upcoming games, to understand what would be the partnership options, and then Not just compare these options, but compare these options with the potential to self publish some of our games. And this is a long term play For us, in a way, we are building a long term profitable growth company. We are not in a hurry to decide which is exactly Game that we should self fund and self publish. We now know that we have the possibilities to do that basically with any game that we have, but we are all the time evaluating the options and seeing what is the right game, what is the right model for the value creation for that Gabe, and in that sense, in a way, Vanguard is one potential candidate, but we also know that there are going to Be good partnership options for Vanguard.
So in that sense, in a way, I would say, as I said earlier, that we are in a really good position That we can choose what we will do, and we are not in a hurry, but we will then later inform What the decisions are when we have done all the evaluations also for Vanguard.
Thank you and thank you for watching this webcast. Thank you, Tara and Terje for presenting and answering the questions. I hope you all have a very lovely springtime and summer. Thank you.