Hello, everyone. I'm happy to be here to report another stable quarter for THQ Nordic. During the quarter, we had a net sales increase of 9% compared to last year, Q3. Net sales was up to SEK 84.7 million, as well as improved gross margin up from 53% to 65%. The EBITDA level increased from 33% to 41% during the quarter. Most importantly, we made EBIT of SEK 24 million compared to SEK 16 million last year. That's an EBIT margin of 28%. That's a 50% increase over last year. The reason for the improved EBIT margin is mainly driven by higher net sales of own products, as long as improved margins. I have to note that the comparable quarter last year had a publishing title with a lower margin and only on physical distribution.
This quarter we had a few releases, one of them being "Sine Mora," which in the end of the quarter did fairly well on Nintendo Switch. Looking at the interim period, the first three quarters of the year, we almost doubled the EBIT from SEK 44 million up to SEK 86.2 million. That is the EBIT margin of 34%. Looking at the breakdown of the business, we, as stated, improved the net sales of own products. Compared to the second quarter of the year, the net sales of own products increased from SEK 13.7 million up to SEK 32.7 million, as well as the digital share of the total revenue were up 5% compared to the same period last year. I have to note, though, that even though we had a good share being digital, we did not have any major ESD promotion, meaning digital sales promotions during the quarter.
Especially compared to the second quarter, if you remember, we had a Humble Bundle, Steam Summer Sale, Publisher Weekend, as well as the "Darksiders" back catalog promotions with the announcement of "Darksiders III." Looking at the investments and depreciation during the quarter, we had a stable depreciation of IP being SEK 3.5 million. I would like to remind you that we depreciate all our IPs straight over five years, so that's 20% per year. During next year, all our THQ assets will be fully amortized. Game development depreciation were SEK 6.5 million, that's because of most of the new releases were released during the end of September or during September. Our depreciation levels will significantly increase during Q4, where we have a lot of new releases as well as the Q3 releases coming into full effect.
During the quarter, we completed the development that were put into the balance sheet of "Battle Chasers." However, that title will be started depreciated or amortized during the release month of October. That's the reason there is SEK 39.8 million in completed development. Capitalized internal development, that's the amount of money basically we spend on all our internal game development studios. Compared to last year, it's almost doubled from SEK 10.2 million up to SEK 19.2 million. Historically, our game development has been about one-third being internal and two-thirds being external studios. Because of the acquisitions now in August with Black Forest Games and Pieces, that ratio will most likely increase. The internal ratio will most likely increase in the future. The total game development and royalty advances for future products were SEK 78.1 million.
That's more than doubled the last year number of SEK 35.1 million, and that is mainly you can see it as an investment for the future pipeline for the coming periods and years. Finally, the IP acquisitions during the quarter were SEK 3.8 million. That's mainly being the IP acquisitions from Black Forest Games, the three titles we put onto balance sheet. We have also started a depreciation of The Guild 3 early access because we started having revenues. However, the full game release will happen in the future. Looking at the releases made during the third quarter, we had Sine Mora EX that we released on PlayStation 4, Xbox One, and PC during August. Most importantly, we released it in America in September on Nintendo Switch, and in Europe it were released in October. We had the title Baja: Edge of Control that were IP we acquired from THQ Inc.
Off-road racing game. It has been placed at the mainly mass market retailers in North America. So far the sell-through has been okay. We hope this will be a slow but steady seller over the next years. We had theHunter: Call of the Wild publishing title from our friends here in Stockholm at Avalanche Studios and Expansive Worlds at Söder. We are handling the physical distribution for North America, Australia, New Zealand. So far the title has been having satisfying numbers on sell-through at mass market retailers. The 26th of September, we released The Guild 3, the medieval economic simulator on early access. The game has been under development for more than three years at GolemLabs and external studio in Canada.
To be honest, myself, I were a bit surprised of all the bugs and the technical issues. Also that is the reason we decided to launch it in early access. The good thing with the game is the fans, they could really see there is a Guild game there, but we significantly needs to improve the quality of the product until the game could be in final shape for release sometime in the future. Finally, we released Snipers vs Thieves, our first major mobile title. The publishing were made by a third-party publisher in the U.K. The game has been under soft launch since November last year. It went into global launch in August. I would say the download numbers or installs are excellent. More than 13 million downloads by end of the quarter.
By far, this is our most played product on a daily basis and in the total download numbers. However, as you know, in mobile gaming, that is not proof for success. The title needs to significantly improve the monetization, meaning the amounts of monies the players are spending in the game in order to have a long-term visibility or track record to continue the development. They are working very hard to improve the monetization in the game. Also, during the quarter, we made two major game announcements. We had a big presence at Gamescom in Cologne in August, where we showed mainly our Q4 lineup, as well as we announced the coming title, Biomutant. However, when we signed Biomutant, we know it was a great team with the great experience. We really believe in the product. However, the reception at the trade show was fantastic.
It was one of the most talked about titles at Gamescom. We had amazing feedback from all major games press. There were hours of lines in queue to play the game. The game is fully playable at trade shows since then. We expect Biomutant to be one of our key titles for the future. In September, we also announced MX vs. ATV All Out. That is the first, and I'm very happy to make this announcement, that it's our first new MX game ever, and it's the first game for seven years since MX vs. ATV Alive released in 2011. The game is being developed in our own internal studio, Rainbow Studios in Phoenix, Arizona. They have been working for a long period of time making this into the next generation of MX game.
They are working in the Unreal Engine. We will very soon start increasing the PR and marketing activities. During the quarter, we acquired two studios, one being Black Forest Games based in Offenburg in Germany, close to the French border. I went there visiting myself, and I really met a great team, and quite a few of them have been working together since the '90s. They are 55 headcounts currently. They have a major pipeline project that is not announced, but that will be announced and released in a fairly short period of time. As well as Pieces Interactive, we acquired one week later. They are based in Skövde in Sweden. They were 13 headcounts. They will be increasing that headcount a bit during the coming periods.
They have also worked on an unannounced pipelined project that also will be released fairly soon. The total THQ Nordic headcount was 469 as of end of the quarter, compared to 432 end of second quarter. I have to note that Black Forest Games is now our biggest internal studio, and they will have the capacity to make sequels on our major IPs as well as smaller as a care project at the same time. They have a full capacity in-house. That is very valuable for us going forward. Financing activities. We raised, in the end of the quarter, SEK 598 million in the new share issue offering before transaction cost. I'm very happy to welcome quite a few new institutions as shareholders. Those cash will mainly be used or will be used for acquisitions of IP studios or potentially new, bigger game development projects.
After the quarter end, we also increased the working capital facility with Danske Bank from SEK 100 million up to SEK 250 million. Pipeline. We are now in the middle of Q4. We have released quite a few titles already in Q4. We have released Battle Chasers on PlayStation 4, Xbox One, and PC. We have released the second major mobile title, The Muscle Hustle. We have released another installation of We Sing Pop! for Xbox One and PlayStation 4. We have released our biggest project so far called ELEX on PlayStation 4, Xbox One, and PC. We have digitally released This Is the Police on Nintendo Switch. A few days ago, we released a minor as a care project called Sphinx and the Cursed Mummy on Steam. Coming up in Q4, we have quite a few titles still to be released. Stay tuned.
For the coming year and periods, we have quite a few titles that I will come back in the coming reports to talk more about. During the quarter, we have also signed on a few new major projects that will be in the future pipeline for 2019 and onwards. In the end of the quarter, we had 29 game development projects, where all 13 were announced and 16 were unannounced. As long as we are releasing products, we need to sign on new projects. I'm really looking forward for our most exciting year so far. That will be 2018. That were my quarterly report. I'm very happy to welcome you, Lars-Ola.
Thank you, Lars. We will not speak so much about the report today on the actual numbers. Just only one question. The games that were released and the products that was out in the market, what surprised you most on the upside games that actually was performing a bit better than expected?
Well, I think overall, we had a very stable quarter. The Sine Mora Switch release, that was our first release on Nintendo Switch, and we were not sure how well Nintendo Switch will perform as a platform. I would say those numbers, especially compared to the PlayStation 4 and Xbox One and PC numbers, were kind of surprising me.
You also announced the sequel of MX, and you had the bundling offer in September. Was it affecting in a positive way as well?
No, that bundling offer was kind of a disappointment because it just disappeared in the wrong side of the ESD stores. We will for sure have more promotions coming up.
I also noticed This Is the Police has continued to perform really well on all formats. Now you have released it at Switch in October.
Yeah.
Is it performing on that format as well?
There is a few SEK coming in.
There's a few dollars coming in.
It's not a major release, it's a quite, in development terms, cheap product to develop.
It's a steady seller on Steam. I think it works quite well on Switch, yeah.
Looking into the fourth quarter, which is going to be the most important this year and also 2018, you have now released Battle Chasers, really good reviews.
It seems to be selling really well. ELEX seems to work out nicely as well. Are we in line with your internal expectations for the games released, or?
I say collectively we are in line with the management expectations of all releases until today. I'm not saying that it's the financial expectations, I'm saying it's all overall expectations of the title. Some are performing a bit less, some are performing a bit better. I'm happy to have my first major baby out, ELEX. It's the first new IP as well. It's a damn hard game. It doesn't appeal everyone. You need to spend quite a few hours in the game actually until you can start playing the game in the normal sense. The diehard fans, they love it.
Mm-hmm. I read some reviews that it's a bit buggy, how fast can it be fixed, you have a live team operating on that, or?
I don't know. There is a question, is the game buggy or it's just too hard? I think quite a few journalists review the game without actually either playing the game or just played 30 minutes. You need to spend 50 hours in the game.
It's hard to have a job then.
We have players that spent a few hundred hours in ELEX, yeah.
Yeah. Also, The Guild, it was released end of September.
Yeah. As early access.
Yeah, early access. How much work do you think it's left to do, and when can we expect?
There is a lot of work left.
H1 next year, full scale release?
I would say, I'm a bit conservative, pessimistic. I could see a lot of work. However, I would say The Guild 3 has a huge fan base. It's a title if you do it well, it could sell for a number of years. We can bring out a lot of more content, that's why I'm very keen on investing into this title and to put out the code that are really working well that you can build on. I was not really super happy with the current build. Commercially, it's okay.
Okay. Going on to the next title that is going to be released, not Black Mirror, but SpellForce 3. Age of Empires will be delayed until early 2018. It was slated for release mid October.
Yeah.
Can it be positive for SpellForce 3, or?
SpellForce 3 is a major investment in our internal studio. I have quite high expectations internally of the title, both in terms commercially, but also in terms of quality. I hope they are able to pull it off, yeah. I trust in my guys, but there's a few weeks to go, yeah.
Do you think that the game can attract some of the player that was waiting for Age of Empires, that they will play that game first?
Obviously, it's the same audience, yeah for sure. Yeah.
It can be a potential upside too.
Yeah, it's hard to say, if the delays of Age will be good or I don't know. We haven't thought about it. We are really focused on delivering a really good product.
Mm-hmm. Yeah. You kind of hinted here that we will see some announcement for the fourth quarter as well. What's the reasoning to delaying the announcement and not making promotions for it?
I didn't phrase the quarter that I will announce it in the quarter, but that's your phrasing. The reason being, you can have different strategies of doing PR and marketing. One strategy could be that you do a same day approach, and grabbing the attention you're getting in the media and releasing a product the same day. You can do the same thing, but perhaps a week earlier. Doing the whole Darksiders III thing, traveling the world with trade shows and all the PR and marketing for a year, it's a substantial effort, and sometimes you make it too early, so the fans get tired waiting for a product. People, they want to play at once, yeah.
Mm-hmm. Okay. Also, when we were at Gamescom and you announced the Black Forest acquisition, you said that they will release the new game and what they do is soon. I just wonder what your definition of soon is?
It's a good question, analyst and a CEO.
You see it
Soon is soon. Yeah.
Yeah, it's soon. Going on to 2018, we have "MX" slated for release then, and I just realized a couple of weeks ago that "Mad Skills Motocross" is also targeting a sequel in 2019.
Yeah, you mean the MXGP game by Milestone, yeah.
Yeah. Can you compare these titles?
Yeah. Well, it's a similar audience. They have been very good doing the European Motocross. What I understand they're now doing a American Supercross.
Yeah.
I think our games is very different. However, they are made in the same engine. I'm confident we have the fan base. I think we are focusing on delivering it to that audience, rather than speaking about the competition, yeah.
Okay. About the SEK 600 million, we have talked about earlier that you get a lot of propositions for publishing deals.
Yeah.
Out of 100 projects you see, how many is worth evaluating?
It's hard to say. We daily have, I would say a few, a handful opportunities. Over a year, that becomes a lot. We are evaluating quite a lot. However, obviously we are focusing in on our own IPs and our own studios even more and more. The publishing titles we will pick up for the future will most likely be bigger and bigger.
That they need to be worth doing.
Could you even consider now invest SEK 150 million-SEK 200 million in a single project?
No, I think that's over our reach at the moment.
On the top that you guided at the IPO process, SEK 125 million?
Something like that. Concerning IP acquisition, a larger IP acquisition-
What's the main obstacle there? Is it the price expectations of the seller?
No, it's the slowness of the seller. It's big organizations, and there are people who are afraid of making decisions, yeah. That's the big obstacle.
Mm-hmm. You have some ongoing discussions, I guess?
I have a lot of ongoing discussions, yeah. That's my work, yeah. I have a great team executing on that, so I'm sure we will see some very nice deals in the future. However, we'll be waiting on the right terms.
As always. Questions from the audience?
Hi, Lars. You mentioned the new projects for 2019. Are those mainly your own IPs, or are you already looking for publishing deals? If you can comment something.
Those we signed during the quarter, I would say, are our own IPs, yeah.
Okay. Mostly new or follow-ups, or?
There is always a mixture.
Yeah.
They happen to be our own IPs during this quarter, but obviously I can't comment more on that.
Yeah. Okay. Yeah. Thank you.
Stay tuned.
Thank you for taking my question. My question pertains to Darksiders. Unfortunately, I'm not sure if I'm going to get an answer to this, but I'll try. Will you have multiplayer apart from what you have in previous games, and are you thinking about Overwatch and Destiny?
Yeah. Well, I think to start with the Darksiders multiplayer and co-op, I think obviously one day it will be a day after Darksiders III release. What are we doing when Darksiders is done? Obviously we are evaluating various things, and one thing that being in demand are obviously multiplayer and co-op. Darksiders being one of our main IPs, God knows what we have in our.
Pipeline, yeah?
Okay. Thank you.
Having so many studios and so many games, You need to have a certain independency on the studios, but at the same time have perhaps a rather tight leash on them. How do you go about to organize this within your company?
I think first of all, we are acquiring studios that have an established setup, culture. They have the systems and financial in place already. I think the management of our internal studios are fairly easy. They don't have any external customers, they don't have any external interest, They really become internal development capacity. I think we treat them in the same way as we treat external studios, in terms of management the product. Because that's the most important thing. What are they delivering? Are they delivering what they're telling us? If not, we're making the changes as we're doing with the external studios as well. Financially, obviously we have a reporting package and all that in place. We have some controlling functions.
I don't believe in having too much control and too much management overlay because this industry has clearly proven that if you add too much corporate bullshit into studios, they fail. People leave and, quite often, the big studios or the big publishers' internal studios sometimes collapse. They just close it. I think we have a different approach to that. Believing in people, believing in what they are good of doing, and we are supporting that. Far it has worked very well. All right.
Is there any questions from the telephone conference?
Ladies and gentlemen on the phones, if you wish to ask a question, please dial 01 on your telephone keypads now. We have one question for you so far. The first is from [Stefan] [inaudible ]. Please go ahead. Your line is open.
Hello, Lars. Thanks for taking my question. It's regarding ELEX. Can you give any guidance on where you expect the sales split on the title?
No. Well, I think traditionally Piranha Bytes games, the major format has been PC. This time, we do have quite a lot of expectations on PlayStation 4 and Xbox One. I can't really give you a percentage split on that, obviously there will be a good revenue from all platforms.
Okay, that's fair enough. Another question is, based on your digital sales, how much, roughly, is from Steam?
Historically, Steam has been about one third, up to 40%, of our digital sales on a regular basis. The rest has been promotions on the various PlayStation stores and Xbox stores, as well as the all other minor PC ESD channels such as GOG.com and the other 35 or so we're having, as well as a bit on the mobile income.
Okay, let's rephrase my question. How much of the PC digital sales are from Steam, roughly?
That's depending. I understand where you're trying to come at. Historically, I would say our Steam percentage is about 80%-85% on our products.
Okay. That's fair enough. Thank you for taking my questions.
Thank you.
Thank you. Once again, if there are any further questions on the phones, please dial 01 now.
All right, Lars-Ola, do you have any final questions?
Yeah. I can go back to the 2019 pipeline, should we interpret that it's own IPs that is in the unannounced project that is for 2019? It's no publishing deal?
No, no. I was saying the title we signed during this quarter for 2019 and onwards happened to be our own IPs. We are signing title every quarter. It's not only 2019, there is also the coming years.
Can you say something about Snipers vs Thieves, how much it contributed in terms of revenue?
What I said before is my expectation financially on Sniper is that we make the money back, and we learn something. Currently it's on that level. Obviously it's depending how it continues now. It's not a commercial success. It's a success in number of installs, and people really enjoy playing it. The problem is people are playing for a day or a week, and they leave it. Yeah. We have a few players, if they stay more than two weeks, they start spending a lot. That's quite interesting, yeah? Unfortunately, it's not enough players doing that.
The Muscle Hustle that is released now is? How is it?
Yeah, I think you can look in Google Play yourself, and Android or Apple App Store. I think the reviews has been so far really good. Yeah. People are really enjoying the game. That's why I want to say this. I will update you more next quarter.
Okay. Thank you. Any more questions? No?
All right. Thank you very much, everyone. See you next quarter.