Thank you, Oscar, and good morning, everyone. I'm really happy to have another stable quarter. Sales was in total down 1% due to the performance in the partner publishing, but what I'm really excited about is the performance of the games business segment that grew 117% to SEK 816 million in revenues. Furthermore, we increased our profits, operational EBIT as defined with 143% to SEK 241 million in the quarter. Actually, I realized that we actually made over SEK 1 billion in profit the past 12 months when doing the reporting last night. That's an achievement for us. Cash flow was also stable with SEK 285 million from the operating activities. Commenting on the quarter, the quarter was driven by a strong release of "Wreckfest" on console that has been performing and continue to perform well. Along with that, we had a number of other key revenue drivers.
Overall, the back catalog, led by the "Metro" franchise performance in the quarter. The back catalog was almost entirely driven by the digital performance. The increased share of digital sales drove the profitability in the quarter. We also had a high share of sales from our own IPs that are supporting the margins. For example, "Wreckfest," the exclusive license of "Metro," and many others. Commenting on the investments, the quarter had SEK 343 million in games investments into games development. That is 47% higher than the same period last year. In total, we're ending the quarter with 86 projects in the pipeline, whereof 49 of them are not announced. I'm restating that we have at least two AAA projects coming out the next financial year.
I'm also commenting that we have not only triple A, but we have a strong portfolio of other titles for the next financial year. Also restating that quality is number one. We are taking the time to make the best games possible and continue polish the games. In the quarter, as announced the last quarterly result, we had a number of acquisitions, including the leading two-wheel racing developer Milestone that released "MXGP" a few weeks after acquisition, and the workflows through the Gunfire Games, the makers of "Darksiders" that released "Remnant" just a week after the acquisition, that also performed well and brought in royalty into the quarter. I will leave next slide over to Johan.
Thank you. Okay, if we take a look at some key P&L metrics, we can conclude that the net sales were a bit down in the quarter, 1%, mainly due to the decrease that we had in our partner publishing business area. This has further increased the share of games revenue in our P&L, which has a positive margin effect on our profitability. You can see that our EBITDA and operational EBIT are growing significantly in the period, reaching a 19% operational EBIT margin for the quarter. Adjusted earnings per share amounts to SEK 0.65. This has been adjusted for the 3-to-1 split that was decided on the AGM in September.
As said, here we can see that we are beating the SEK 1 billion barrier in terms of operational EBIT on the trailing 12 months basis, showing 12 months net sales of SEK 5.4 billion, and an operational EBIT margin of 19%. Here we have a bridge over our profitability. We go from EBITDA to our operational EBIT and arriving at the reported EBIT. We have operational amortizations and depreciations. The key part of that one is, of course, the depreciations that we do on our released and completed games, SEK 144 million. The acquisition-related D&A is driven by acquisitions made, and it's foremost related to IP rights and goodwill depreciations. Having a look at our cash flow for the quarter, we can see that we are generating SEK 364 million in operative cash flow before changes in working capital. Compared to last year, it's a 60% increase.
We should also note that we, during the quarter, have had cash tax cost of about SEK 53 million. The year-to-date amount for taxes paid is SEK 125 million. Change in working capital amounts to about SEK 80 million. It's mainly related to increased trade receivables due to strong sales performance in the last month of the quarter. Looking at investing activities, it totals SEK 1.2 billion in the quarter. SEK 800 million, approximately, of those is related to acquisitions made. It's the net cash effect of acquisitions completed in the period. Another SEK 392 million is related to investments into intangible assets. We will show at a later slide how that's divided. We had a positive cash flow from financing activities in the period, approximately SEK 600 million, which is explained by a higher utilization of available credit facilities in Koch Media.
There was no effect from forfaiting in the quarter, so it was zero in the beginning of the quarter and also zero at the end of the quarter. Last year, we had a significant change in working capital in the same time period, but that also included a SEK 189 million payback of forfaiting. I can also mention that the forfaiting as a means of financing, and the cost for that is about 0.4%. Of course, it's an attractive level of interest from a cost perspective. It's also related to the low credit risk that we have in our trade receivables portfolio, thanks to the insurance that we have on trade receivables.
0.4% in interest.
Yeah.
A yearly interest.
Investments. We had SEK 392 million in intangible asset investments in the quarter. The majority of this is related to investments into our ongoing game development. It's SEK 343 million. The other large part is other intangibles, which is SEK 43 million, and that's mainly related to our film business. Also, during the quarter, we finalized and completed game developments with an acquisition value of about SEK 100 million. Main drivers to these completed games are, of course, the released Wreckfest that we mentioned in the beginning, and also the release of MXGP. Looking at our investments over a time period, we can see that we are growing it year-over-year. It's 47% up against the same period last year. It's a bit down compared to last quarter, but that's mainly related to holiday seasonal variances. Our balance sheet. Total assets, around SEK 10.7 billion.
A bit more than half is intangible assets. As we normally do, we take a closer look at what sums up to the intangible assets. Finished completed games is SEK 393 million at the end of the quarter. Ongoing game development projects is close to SEK 1.6 billion. That's a large amount, of course, investments that we make in order to be able to generate future cash flows. Other intangible assets, SEK 283 million, mainly related to our film business or our partner publishing business area. IP rights, SEK 2 billion. Then surplus value, film partner publishing, SEK 208 million. Goodwill, SEK 983 million. Comparing this to the beginning of the quarter, we see an increase in intangible assets. The large explanation for the increase is related to the acquisitions that we completed. Bringing these acquisitions into our balance sheet increases IP rights and goodwill, which is growing in the quarter.
Also, you can see that we have a growth. Okay, thank you. Looking at provisions, they increased with roughly SEK 600 million in the quarter. This is also related to the acquisitions made in the period. This is where you will find provision for earn-outs, for example, and also deferred tax liabilities on IP rights recognized. Strong net cash position at the end of the quarter. Net cash of SEK 1.1 billion. Available liquidity, including credit facilities, of SEK 3.6 billion. Lars?
Thank you, Johan.
Thank you.
Well done.
Thank you.
Looking at the performance within the Games business area. First, looking at the net sales. On a trailing 12 months basis, we are above SEK 3 billion, and in the quarter, SEK 816 million. Looking at the digital share, it continues to perform well. On a trailing 12 months basis, the digital shares of the sales is 63%, and in the quarter it's 74%. Owned titles, owned IPs, is, on a trailing 12 months basis, 79%. Looking at the share of sales of new releases in the quarter, meaning Wreckfest, MXGP 20, and others, are 32%. The rest is product not released in the quarter. Going into each business area, Deep Silver had a notably strong year-over-year growth in the quarter, 75%. Again, driven by the strong back catalog where Metro franchise contributed the most.
Also the performance of Kingdom Come: Deliverance, Outward, and others including the series of Dead Island and Saints Row, contribute well into the catalog sales. Milestone acquired August 14, contributed with SEK 42 million in the quarter, mainly relating to the release of MXGP 2019. Looking ahead, we have a strong pipeline within Deep Silver. Notable upcoming projects or releases are Dead Island 2, Shenmue 3, that is due very soon. Iron Harvest for next financial year. We have the top secret next projects from our friends at, and colleagues at Warhorse in Prague and 4A Games. As mentioned last quarterly report, we have a new Saints Row game in development at our own studio, Volition. Milestone were acquired, as stated in the quarter, and they have a sizable lineup of upcoming projects. Next to do is Monster Energy Supercross 3, coming in February 2020.
Our colleagues and friends at THQ Nordic also had a stable performance with a growth of 165% year-over-year to SEK 330 million in the quarter. Key releases were Wreckfest, obviously, from our colleagues and friends at Bugbear in Helsinki, the studio that we acquired in November. Also in the quarter, we had a number of releases, smaller releases, including Red Faction: Guerrilla and Darksiders II: Deathinitive Edition on Switch. In total, we had 12 releases. THQ Nordic are very busy. They have a very full pipeline of products. Mainly unannounced, but announced projects include Biomutant, that I'm stating in my wording in the report that they are polishing and finalizing and are having very high ambitions about what they should achieve. That release date will be communicated when they are ready.
I really state, everyone, please make your games really good and polish them. Then we could communicate to the financial markets at last, first to the gamers. We have Pillars of Eternity II that they are working on. It's in the final stage, coming soon on console. We have Desperados III, that there is a lot of excitement for next financial year. We have Destroy All Humans!, the remake, for next financial year. Here in the quarter, currently quarter, ending in December, we have Darksiders Genesis. Early December, that is coming on the new platform Stadia, Google Stadia, on PC, and in the fourth quarter, it's expected to do on consoles, such as PS4 and Xbox One and Switch. In the next financial year, we have SpongeBob coming for most formats.
During the quarter, as stated, we acquired Gunfire Games, and they had a title releasing a week after the acquisition that exceeded our expectations at the date of acquisition. That title is published by another publisher. However, we did get some royalties in the quarter. Finally, in the games business area, our friends and colleagues at Coffee Stain, they had a quarter without any releases. However, they still had SEK 45 million in revenues driven by continued performance of Satisfactory, Goat Simulator, and Deep Rock Galactic. They had no major promotions on Epic Games Store. Going forward, we are expect to get promotions. Most importantly, they are working to bring more content to the game. They're working very hard in Skövde, so please stay tuned.
The guys are working very hard at Coffee Stain with, I would say, a sizable amount of products comparing to the size of the publishing and the teams. During the next financial years, we are expecting a number of projects. At the quarter end, Coffee Stain are continuing doing their business model of taking minority stakes in interesting new development studios. Most recent now, one in U.K. Looking ahead, they have the team here in Stockholm, Coffee Stain North, working on a top secret project. We have from our colleagues and friends in Gothenburg at Lavapotion working on one title, and then one title from Moss and Sky that were announced at E3, Midnight Ghost Hunt. Also, last quarterly, we acquired Goodbye Kansas Game Invest, and they are also working a lot.
Very active. I'm happy to announce we have our first investments made in Norway, in Stavanger. They are a great small team doing fishing simulator products. Here you can see Fishing: Barents Sea. We are interested, obviously, in finding new great teams that are engaged in the simulation markets. That is a very strong market on PC. Furthermore, Goodbye Kansas Game Invest enabled us to set up a new studio around a senior development team that are departing from a larger AAA developer. More details will be announced in the future. Finally, the fourth business segment, partner publishing film, did a great job in the quarter. It's hard to beat last year's revenues if not having any significant AAA releases in the quarter. As all of you long-term shareholders remember, last quarter we had two very big releases go out.
The decrease of 51% year-over-year are fully explained by the lack of these two titles. However, we had a number of titles performing in the quarter, such as "F1 2019" from our friends at Codemasters. We had "Ghostbusters: The Video Game" from our friends at Solutions 2 Go and Saber Interactive. We had "GreedFall," a fantastic product from our friends at Focus Home Interactive. We had "Catherine: Full Body" from Atlus. In some territories in Europe, we distributed "Monster Hunter World: Iceborne" from Capcom. Looking into the current quarter ending in December, we have a number of releases. However, we do not have any notable AAA releases in December quarter. Worth mentioning in the quarter is, for example, the SEGA Mega Drive Mini from SEGA, "Grid" from Codemasters, "Terminator" from our friends at Reef Entertainment.
We have "Football Manager 2020" physical still performing well in territories in Europe from SEGA, "Life Is Strange 2" from Square Enix, "Sniper Ghost Warrior Contracts" from CI Games in Poland, "Super Monkey Ball: Banana Blitz HD" from Atlus SEGA, and finally, from our friends here in Stockholm at Paradox City Skies, "Cities: Skylines - Parklife" edition. Looking a bit further ahead, we expect a few significant AAA releases in the calendar H1 2020. There's a lot of questions from everyone and shareholders about the physical market. It's part of our DNA and background. We are well into this market and understand it fairly well. However, we are digging deeper into it, how the future will look. We see the market share are decreasing because the rest of the market are increasing.
The actual dollar amounts we see over the three to four years period are fairly stable globally on the physical market, driven by continued performance of the current generation, but obviously also the next generation of consoles. Embracer strategy. I would like to restate a bit our growth strategy for all shareholders to understand. Looking at the financial model, we are continuing to having a very diverse portfolio to reduce our operational risk. That is one key. We are running on a strong balance sheet, not using too debt for acquisitions that reduces the financial risk. We should continue having a strong cash conversion from our EBITDA. As much projects as we could find, we are reinvesting the cash flow from our operations into further development in order to generate future organic growth.
Looking at the M&A and how we are structured as a group, I would like to restate that we empower people, and we are putting the decisions out into the divisions and to the subsidiaries. Centrally in Karlstad or here in Stockholm in the future, we are not deciding about how a game will look or how to make their daily life. We are empowering people, and we are trusting people. It's a very decentralized organization, which I really firmly believe in that structure. We will not create a huge headquarter somewhere in Sweden to decide everything. Looking at M&A, we are acquiring great companies, mainly or only directly from entrepreneurs running their businesses. This is not a roll-up. We are acquiring businesses and investing into them. For example, as you can see within Deep Silver and Koch Media, we are investing into the businesses.
This is very important to understand. Under each operating division, we are further doing M&A. For example, what we've done with Warhorse, with Deep Silver relations, what we have done with Bugbear from THQ Nordic. Overall in the group, we are do find synergies, but we are not acquiring companies to do the synergies. There is cooperation across the group within marketing and distribution and sharing of intelligence and so on. Again, we are investing for a long-term organic growth. We are expanding our IP portfolio, including projects on dormant IPs. We are developing and expanding our internal studios. As you now was hearing from what we did with the Goodbye Kansas, we are establishing new studios with top talent. We are allocating capital to development projects with great external studios.
We got 49 external studios working currently, along the 18 we have in-house. We are not investing any CapEx into the partner publishing business, but we do have the ambition to be the leading part in consolidating that market, mainly by adding new contracts and content. We are sharing a bit of deeper financial information for you today to understand the business. We are here looking at the slide, you can see that we are investing for growth. Most of our operation cash flow has been invested into games development, of which significant part has been growth investments. Looking at the EBITDA since the IPO, where it's close to SEK 2.7 billion, and we invested close to SEK 2.2 billion in games development. Looking at the trailing 12 months basis, investments are currently about two times the optimizations level.
I'm not defining that exactly as growth CapEx, but I'm indicating that is a potential growth CapEx. These are to continue building our pipeline. Looking at the three most recent quarters of the capitalized game development and ongoing release games versus the ongoing games development are increasing. We have four times the amount of ongoing games development in the balance sheet as we have on completed games. Again, SEK 400 completed, SEK 1.6 billion in ongoing games development that will generate cash flow in the future. Only the released games, the SEK 400 million, are generating cash flow. The rest is non-cash flow until they are released, obviously. Looking at the development projects, I know this is not a perfect KPI because this includes small projects, mid-size, and triple A projects. Overall, you can see the number of projects has been increasing.
Looking from Q4 2017 with 36 projects increasing up until 86 projects as of end of September. We have a sizable pipeline of projects. I've been talking a bit of them today, and for sure I will talk a lot about the pipeline the coming quarters. However, the communications about new titles and release dates will always be done through the publishers, not from me. M&A, as you noticed this morning, we did not have any M&A. We don't have to have M&A to grow the business. M&A is however part of the strategy in our DNA. We are working a lot on M&A. I'm spending a lot of my time, unless something else shows up on the daily. I really like to spend a lot of time meeting new companies, and I have a long list of companies we are talking to.
I think over the last quarter, we have been engaging and talking to over 50 companies, just to give you a sense of companies we're talking to. It's not only me. We have a great team, both at the parent company and a lot of engaged people around the world, in the games industry supporting us in this. It's supported by the management of the operating groups and the business developers. Don't expect us to rush into any M&A. It's all about finding the right companies with the right culture, with the right products, and the right ambition to, within Embracer Group, to build something together. We have a handful of sizable companies we are discussing with that potentially could form a fourth division or a fifth division. Most discussions are for smaller mid-size companies, developers and publishers.
Not only the culture and the company, we also need to find what I call a reasonable price for something, which is always sometimes a discussion. A bit further deep dive, Johan.
Thank you. Yes. We had a look at our gross profits over the last, or basically since mid-2018-2019, for the games business area. What we did is we calculated a gross profit to amortization ratio for that time period. That's the yellow line we can see here. It ranges during the time period between 3.5-3.8 times the trailing 12 months Amortization of released games. Of course, if you would compare it to the net sales in the business area games, the ratio will be higher. There we are between 4.9 and 5.6 during that time period. We see it as a rough indication of gross profit return in relation to investments in the games business area. We should also remember that we have a quite aggressive amortization policy for games. Over two years it will be fully depreciated.
of course, there are games that generate cash flows and earnings for a longer time period than two years, which will be a part, of course, of the gross profit in here. in terms of backlog profit contribution.
I think it's important to state here that don't expect this to be for everything going forward. We are stating the historical numbers. There is a difference of doing, for example, AAA games in terms of investment and the return of that. Comparing if our fantastic friends in Skövde, for example, doing a Goat Simulator, that is a bit smaller investment, but could have a fantastic, especially in percentage, return of investment. This is the average.
Of course, this is gross profit, so you don't have marketing expenses in there. That will be in operating expenses.
Yeah. Here we're showing net sales per business unit, the trailing 12 months net sales. I'm getting asked from investors what's our organic growth, and I'm not saying this is the organic growth. I'm just saying this is the net sales performance trailing 12 months. Just to give you some understanding of this, the growth rates from Q4, for example, at THQ Nordic until this quarter is 48% within THQ Nordic. This includes the acquisitions we made within THQ Nordic. There is a bit of smaller acquisitions if we acquire an IP like Alone in the Dark, there is a small contribution, obviously. For example, when we acquire a company like Bugbear, there is no contribution to the top line because it's already a product we are publishing. On a top-line level, it's not contributing.
The acquisitions we're making of developers are really contributing to the gross margin if they are successful. It's important to understand this for some shareholders. Looking at Deep Silver, they had an annualized growth rate of 63% in the same period. Obviously, we acquired Deep Silver February 14, 2018. What would contribute to that number, and little bit in this quarter here is obviously Milestone that we did not publish before. However, we had a bit of partner publishing revenues from them before. You can also see here that Koch Media partner publishing business has been fairly stable over the past two years with a 1% growth. However, this quarter again has been a bit down.
Oh, purchase price allocation. When an acquisition is made and it's completed, there is a preliminary purchase price analysis being made. This considers the total estimated consideration for the purchased shares. It will be the value of cash at closing, shares at closing, as well as any other conditional purchase price, if it's in cash or in shares. This total consideration for the shares purchased is compared with the fair value of the net assets in the acquired company. If the total consideration is higher than the fair value of the net assets acquired, there will be a surplus value, which will be recognized. This surplus value will then be allocated between goodwill, IP rights, and possibly also business area surplus values. Under our Swedish GAAP, this is amortized over a five-year period. The book value of ongoing game development is taken over from the target company.
When the games are released, amortizations start. Also, when Embracer Group acquire a company, we need to implement the same accounting principles that we have in our global accounts. Of course, that means that we capitalize investments into our games portfolio during the project phase. Once the game is completed and released, amortization starts, and the asset is depreciated over two years aggressively, with the third during the first quarter, the second third during the three following quarters, and the last third during the second year.
I think it's important to understand this because there is as many amortization principles that there is almost game companies in the world. I'm seeing a lot of models, everything from running service businesses that there is straight cost or like in mobile games industry, to most companies are capitalizing in the premium games market, all development costs until release. after release, there is everything from a straight five years period to a three years period to more a black box IFRS model according to budgets, to our model that we are having, to what we had, for example, at Milestone, where they at release were-
They were expensing. Also, they recorded their intangible assets or the investments into game development as work in progress, recorded it within inventory.
Yeah.
Obviously, when we acquire Milestone, we will have it where it should be according to our principles, which is within the intangible assets. We need to apply our amortization policy on that acquisition for that target.
For example, Warhorse, they had a three years period. Whatever company we are acquiring, we need to implement our accounting principles.
Speaking about accounting principles, the board has decided to conduct a pre-study for an IFRS conversion. The project to do that will start as of today. I think it will take time. You need to do such a conversion in a good way. You need to allocate the necessary resources to do a good project, basically. I think also you need to realize that requirements, the main differences or big differences is related to disclosures, and both in interim reports and for annual reports. Big differences is that goodwill is not amortized within IFRS. We also need to, as we said, there are different models for amortizing game development. Of course, during this project, it will need to be revisited. Not saying that it has to change, but needs to be revisited. Okay. We also have a slide looking at our working capital. </edited_transcript
We showed a similar slide at the AGM. This is just rolling another quarter ahead. At the end of September, our net working capital was SEK 369 million, which is about 6% in relation to our trailing 12 months sales, if you also adjust for the acquired entities. The increase versus the last quarter is from SEK 141 to SEK 369. Here we should take into account that the majority of the increase is related to working capital already in the acquired companies. The actual increase in working capital is the SEK 80 million that we saw in the cash flow analysis earlier during the period. As mentioned earlier, credit risks in trade receivables are kept low through insurances with insurance companies like Coface, and we ensure the vast majority of the nominal value of trade receivables. Here we also have a look at cash flow on a quarterly basis.
The columns for the dark staples, that's our EBITDA, and then we look at what kind of operative cash flow we get before changes in working capital. That's the red line, and also after changes in working capital. That's the gray line. In here, we have removed effects of any forfaiting historically. As you can see, for example, you noticed earlier when we looked at the cash flow, we had quite a large increase in net working capital this period a year ago. You can also see that by the cash conversion. Since then, net working capital has been reduced on a quarterly basis. However, in this quarter, we have an increase. It's SEK 80 million, mainly related to trade receivables, and that the timing of revenue, especially in the publishing area, was more in the last month of the second quarter. Yes. Sustainability update. We are moving on with sustainability.
We first presented our sustainability framework and the initial work we did in our annual report, and then we had a more thorough presentation at our annual general meeting in September. This is an ongoing process, so we are continuing to work with sustainability, and I think critical or important things or actions that we have done since the first quarter is that we have added Karin Jedner coordinating sustainability initiatives globally to the group. Also, sustainability framework within Embracer is labeled Smarter Business. We are rolling that out to the global organization. One way, or our take of doing that is to create a team of local ambassadors globally, and that will be crucial to get this message out to everyone in our organization. We have adopted a compliance code during this time period.
The thing that also important is that there is a lot of great initiatives already being made in the group in this area. I think one important thing is to gather these initiatives and be proud of them and communicate them. Some of these initiatives, just mention a couple, is collaboration with universities. We are having initiatives enhancing work-life balance, also support startups, sponsor initiatives focusing on gender equality. To mention some, of course, also, we're in the business where emissions as such is not at the same level if you are industrial company, but it's still important. We look at the way we are traveling, and we look at ways to be more efficient.
Thank you, Johan. I would like to finally just send a very big thanks to all colleagues and business partners across the globe. Thank you for your hard work and for your business. Here you can see an example of one small group of people in Karlstad, Värmland, actually, doing their first game from Värmland, "Little Big Workshop" that we're releasing on Steam a few weeks ago. That's taking a few by surprise. It's a fantastic simulation game. Over to Q&A.
Yes. Let's do a Q&A, and I'll start with some questions from myself, then we'll go to the floor for questions, also to the telephone conference. Let's start with some operational questions. Very strong sales growth for several segments this quarter. Let's start with THQ Nordic, which performed very strongly, I would say, with 165% year-over-year sales growth. Obviously, "Wreckfest" being a strong driver. What can you say about "Wreckfest?" What platforms has it sold best, and what do you expect for the future?
I think "Wreckfest" did perform on both PS4 and Xbox very well. We had great support, especially from Microsoft in the beginning, with visibility on the platforms, but we now have great visibility on both platforms, and we can see gamers logging in for quite a few hours playing the game, and they're coming back to the game every day or every week. The team are working with a lot of content updates. We're bringing out new tracks and cars and private lobbies to play with friends and so on. They are really working on the game, and we can see the engagement numbers are still very strong. Obviously, the sales are dropping from the first days or weeks of release, but still performing well. It will be a nice contributor for many years to come, I'm sure.
You mentioned in the report, I think, that you will start releasing DLCs with extra equipment and so on.
How well suited you think it is for a DLC strategy? </edited_transcript
Well, we sold both a standard edition and a deluxe edition that included all the planned upcoming content, and a separate season pass if you decided to buy the standard edition. I think it's quite well-suited, but we are not in the games of free to play. We are not monetizing the gamers that hard. However, over time, we need to get paid for somehow the content we are creating. The bulk of the business are still the sales of the full game. That's the main business. I think this business is a game that you can spend a lot of hours in, like the same with the "MX" and you're coming back to. There is a need, demand for new content. We will continue with that.
Yeah. also a quick word on "Remnant: From the Ashes," which I think is important. It overperformed your expectations this quarter, and despite being from an external publisher, Perfect World, it contributed this quarter. Obviously, then it will continue to contribute in the coming quarters? what is the gross margin on this kind of revenue?
Well, now again, it's external publishers, so I'm a bit in the back seat of the publishing and the commercial business of it. I can't disclose too much details, but obviously the game performed very well as most could notice the first weeks and month especially on Steam, but also partly on console. I'm sure they will continue working on it. As I stated last quarterly result, don't expect too much too soon.
Okay. Since we're a little bit short on time, let's move on to Deep Silver quickly. "Metro" continues to perform. </edited_transcript
Is this driven by continuous strong sales, or is the effect from Epic kicking in where you have made a deal with them?
Yeah, there is a mixture of revenue streams on the "Metro" IP, I would say. There is the new DLC but there is a mixture. It's a strong performer equally on PC and the console formats. I'm just very happy to have the "Metro" franchise on board.
Yep. "Biomutant," my very positive interpretation is that a release announcement is close. Is that correct? </edited_transcript
That's your understanding. I've stated they will communicate when they're done. All games, please make the games with top quality and polish it. Whether that is being very soon or just soon or a bit later, I don't know actually. I know the expectations would that be in Q4. I don't know.
Okay, fair enough. Can you talk a little bit more about Coffee Stain's upcoming pipeline? I notice we have Anton in the house here as well. Is it a mix of internal and publishing titles?
Yeah, there's a nice mix.
Okay, great. Yeah, I guess we'll have to stay tuned for that one. a short word on "Shenmue III," because that is the upcoming title now during next week. </edited_transcript
Yes.
What are the expectations for that? What have you invested? What do you expect from the title?
We have a mid-size investment into that project that been going on for Tokyo with Ys Net for a number of years. There is a lot of external business partners into that, the developers, Sony, Sega. We are the global publisher on PlayStation and PC. well, I will let the market to evaluate the product when it's released. Obviously, we have some expectations, it's a mid-size investment for us. I hope the real hardcore gamers of "Shenmue" will enjoy the product. I think that is the number one to start with. "Shenmue," as you know, is a really niche hardcore kind of game from the past, but now coming out with a new game is. There is lots of love for it. I remember selling the exclusive "Shenmue 2" in the Nordics 20 years ago, so. Ish.
All right. Let's head over to some questions on cash flow, which is a very relevant topic these days. The company is investing a lot in new game projects that have not been released yet. When is it reasonable to expect that free cash flow will start approaching operating profits?
We are still in the growth phase. We are a small player in a very big industry, 0.5% of the global market. I think there's a space for us to continue to grow. There is a need for our services across our publishing divisions and the industry. We will continue investing as much as we can find great teams to handle them and great development teams to make the games. It's a very hard question to answer. The bottleneck is obviously finding great enough people to manage everything. That's more the bottleneck of this. I don't know if we will have a runaway great success one day. Perhaps we'll have more cash flow than we actually could invest, and then we will have a dividend paid. We are in a growth phase, and I want to continue building this company in the future.
we are continuing to reinvest in the cash flow. If the situation changes on the market and demands, we will change. We could adjust the business, but we are not adjusting the business currently. We are continue performing our strategy.
Looking at the relation between amortization and development costs, development investments. It's still below 50%, the finalized part of development costs. Can we expect that to increase next year and the D&A to be closer to the development costs as you have two triple A titles releasing, for example?
Yeah. I think it's hard to give guidance on that. Obviously, when releasing big products, you will have a lot of completed games. I'm sure that KPI will change, but it's hard to give a forecast on it.
All right. Speaking of these two triple A releases, obviously being very important for cash flow, can you talk a little bit about what steps you and Klemens at Koch have taken to ensure that quality is high for these titles, and of course, comparing to the releases before the acquisition?
We are working very hard with all our development teams, including the teams Koch Media had at the time of acquisitions. As you know, one of the team had a major title releasing half year before the acquisition that did not commercially perform. We have been working a lot to bring the teams together to add, if needed any, outside resources to it. I feel more confident today than I were at the time of acquisitions about the future of the products and the teams.
Yep. On the same topic there, given the new platforms and platform deals that you were able to make, how much is it possible to financially secure in advance with Epic, Google Stadia, and so on?
As stated in the report, we signed further in new contracts with platforms during the quarter. it's hard to give a specific number, but it makes me sleep more well at night in Karlstad knowing that you actually have a notable revenue when the games are coming out.
Okay. I think I'll leave over to questions for now. Any questions in the room? Yep. Lars Roland.
Yeah, I can continue where Oscar left off. About the signed deals, can you say which game it concerns, the deals you have signed during this quarter?
Well, no, that is across quite a few titles, I would say. That is not announced, and a few that are announced, but not announced for various things.
We're used to that answer.
We're running a bit over time here.
Yeah. A final one. On Deep Silver, it was super strong. I guess it's not just Metro Exodus, but also a very strong back catalog. Have you seen similar effect to the Saints Row franchise as you announced the new project in connection to the last report that it was really strong back catalog sales for the franchise?
Fairly, we just announced that we're making a new Saints Row game. We didn't announce the actual game. I think there is a lot to be done with the franchise and the games whenever they're deciding to announce something. I'm sure we'll see a pickup in sales as we do with the other franchises. There is a plan for all major franchises, I would say. I need to watch my mouth here.
All right. Do we have the time for one question from the telephone conference as well?
Yeah.
Okay. If you're on the phones and you have a question, please press zero and then one on your phone keypad now. There are currently no questions from the phones.
Okay. Since I'm trying to be on time almost today, I think I'll leave it at that and let you finish off, Lars.
Thank you very much for coming here and see you next quarter.