Hello everyone, and welcome to the Paradox Interactive quarter 3 of 2025 livestream with me. My name is Fred, and...
I'm Alex, I'm the CFO. Welcome, everyone.
Great. As you can see, I'm not in the office today, so I'm on the road, but we will get this going anyways, and I hope you'll enjoy what you see. Let's start with the first slide. I can control the slides. That's my name, so you know who I am, or to direct the questions. It's been an intense period at Paradox . A lot of the Q3 has been actually focused on preparing for Q4, which is the most intense and busy quarter in the history of Paradox Interactive, with two new base game releases, one remaster of Surviving Mars. We have seven DLCs, four ports, and seven content creator packs. As you can imagine, our release team is put to the test as we speak.
Q3, speaking of that, is a bit of a slower quarter as we've come to see them, fewer releases, and also you can see that the stronger Krona has worked in our disadvantage to a certain extent, which was expected because previously we've seen a historically high dollar. Also, some temporary cost increases stemming from different sources of more of a one-time nature. On a positive note, we can see that Age of Wonders 4 and Victoria 3 both have shown very positive player numbers, very positive retention numbers, and very positive sales numbers when it comes to DLCs and attachment rate on the DLCs. They continue what we call their path to endlessness, so we can continue to develop on these games for many years to come.
We continue to build capability in the management game segment with a couple of games coming out already next year, as you know. Very busy over here, or maybe not where I am right now, but at least in the Paradox Interactive office. A couple of small releases in the quarter. You see on the strategy games, we had some releases for Stellaris, Age of Wonders 4, Victoria 3, and Crusader Kings III as well. In the management game segment, it was a couple of smaller releases, content creator packs for Cities: Skylines. Overall, quite calm, good reception on what was released, but no big dents in any curve to be had right here. You've all been waiting for and wondering about Vampire: The Masquerade – Bloodlines 2. It's a long-awaited game, and we're super happy to release it.
Those who play the game are really happy with what they see, and that's great. We're not going to comment on anything more than that because it's only been 48 hours since release. We focus currently on giving as good post-launch support as we can. We're going to comment more on this game before year's end, is at least our promise to you guys. A couple of the releases, I said it was like 16 or 17 releases I counted on the previous slide. The big one obviously being Europa Universalis 5, followed by Surviving Mars Remastered, and then big expansion packs and DLCs for basically all our key franchises, starting with Cities: Skylines II, Crusader Kings III, Hearts of Iron IV, Age of Wonders 4, and Stellaris. You have a lot to look forward to, those who play our games.
It's a fantastic quarter to be a Paradox Interactive gamer. With that, I think I'm leaving the word to Alex, who's going to lead us through the numbers as per usual.
Thank you very much, Fred. Let's do exactly that. Let's go through the numbers a bit more in detail. Revenues in the third quarter came in at SEK 395 million. Last year, same quarter was SEK 434 million, so it's a decrease by 9%. As often for Paradox Interactive, there are two main drivers of our revenue development: what we release and how the currency is moving. If we compare the big currencies for us, which are dollars and then euros, compared to the same quarter last year, I think the dollar is down 9% and the euro is down 3%. That in combination lowers our revenue. Looking at the releases, Q3 tends to be a slow quarter for us at Paradox Interactive, two summer months, July and August, where we don't normally release much. Same this quarter and the same last year's Q3.
Similar amounts of releases, slightly higher last year because then we had a big release on Crusader Kings III, Roads to Power, which we didn't have this year. That also explains why we are slightly down in revenues compared to last year. Top revenue contributors, no surprises there. It's Cities: Skylines, Cities: Skylines II, Crusader Kings III, Hearts of Iron IV, Stellaris, Victoria 3, and Age of Wonders 4. Very good to see that Age of Wonders and Victoria is up there, and yet another quarter where they show that they have established themselves as long-term providers of substantial revenues and strong profit margins. That is very good to see. Operating profits came in at SEK 112 million this year's Q3 compared to SEK 143 million Q3 of last year. Revenues is the main difference, and that flows through the entire P&L.
Profit after financial items, SEK 116 million this year compared to SEK 151 million last year, and profit after tax SEK 93 million this year compared to SEK 120 million last year. Profit after financial items, margin 29% this year compared to 35% last year. If we look at the last 12 months combined, we are at a profit margin of 40%. Equity through asset ratio has come down a little bit from 80%- 78%. That has to do with the fact that I think on the very last day of the quarter or the day before, we prolonged our office lease contract here for the headquarter in Stockholm. We added five years to the contract, which means that the contractual value of those five years comes up on the balance sheet both as an asset and as a debt.
Therefore, the equity through asset ratio goes down a little bit, but still very strong and solid. Employees, average number of employees during the quarter was 654 this year compared to 584 last year. We have increased some 70 colleagues. The main reason is the addition of Haemimont Games that we were happy to see in Q1 this year. I think that added some 55-60 colleagues to us. On top of that, it's mainly the studios abroad from Swedish terms spoken that have increased. We have Tinto in Barcelona that has increased a little bit, and Triumph and Iceflake. Let's move on and look at the costs. Revenues we've already discussed, but what this chart shows is that the revenues are very volatile with the releases.
The ones of you that have followed us during the last quarters know that in Q2 and Q1 as well, we haven't released that much. This is a very Q4 heavy year for us. We tend to be more spread out with every second quarter. Q2 tends to be big for us, but this year we have a lot of concentration into Q4. Fredrik Wester mentioned two new games, two and a half new games with Surviving Mars 1.5, and content releases, DLCs, and expansions on pretty much all the big franchises for us. Q3 was slow, therefore you see the green line dipping down in Q3. Cost-wise, biggest cost as always is cost of goods sold. SEK 204 million this Q3 compared to SEK 217 million last year. It's built up of a few different items, so let's go through the main of them.
Amortizations of capitalized game development is a big one. SEK 71 million in Q3 this year compared to SEK 96 million in Q3 last year. The amortization level has to do with correlating with what we are releasing in the quarter especially, but also the quarters leading up to the quarter we are in. Last year we released a big expansion for CK III, which we didn't this year. That explains a big reason why amortizations has gone from SEK 96 million Q3 last year to SEK 71 million this year. Also, a year ago we had released Millenia. I think we did it in March or April, but that also came with significant amortizations in the third quarter last year, which it didn't this year. Let's move on to the second kind of sub-row within COGS write-downs.
Zero write-downs this Q3 and zero write-downs last year's Q3, so no difference there. We have amortizations of acquired businesses and assets. We have SEK 9 million there today for Q3 this year, which is down from SEK 14 million last year. Amortizations of acquired businesses and assets is exactly that. When we acquire companies or games or IPs, we put them on a balance sheet and we tend to depreciate them over five years. It's a bit different, but in general you could say we do it over five years. It went up, you might remember, in Q2 from Q1 because in Q1 we added Haemimont Games, which increases our depreciations, and in Q2 we added Stranded: Alien Dawn, the game, which we also amortized over five years. That also pushed up the depreciation.
It is down compared to last year, and that's because Playrion, the mobile studio that we acquired a little more than five years ago, has been fully depreciated in our books. We have taken the full acquisition value, we have taken that as cost over five years. Now that is done, in our consolidated accounts, the book value is zero, and therefore we don't have any more depreciations. Therefore, Q3 has come down. We have other amortizations as well in the COGS line, which is mainly SEK 7 million. That's no change. It was SEK 7 million in Q3 last year as well. That's mainly how the rent for our studios is accounted for. Royalty is another main item in COGS. SEK 23 million Q3 this year compared to SEK 20 million Q3 last year, so very similar.
The main change difference is that we released an expansion on Age of Wonders 4 this year's Q3, which added to the revenues, and therefore it also added to the royalty costs. Non-capitalized development and tech costs in our publishing business went up from SEK 80 million last year's Q3 to SEK 93 million this year. Two things have changed. One is development costs for games that are in early stages or high-risk stages have gone up a little bit. That fluctuates from quarter to quarter, but that is one of the explanations. The other is that back in Q4 last year, we did a reorganization here in Stockholm, where we changed or moved some functions that were within the Stockholm-based studio organization to our publishing-based tech organization, still at the very same offices, but the difference is that it's not capitalized anymore, but it's taken as cost directly.
I think that pushed up the direct cost and decreased the capitalizations with some SEK 6 million per quarter, so we see the effect in this year's Q3 if we compare it to last year's Q3. That is it about COGS. Selling expenses went up from SEK 44 million- SEK 50 million. Similar expense costs for games that have been live during the quarter, but the main difference is that this year's Q3, we started to have costs for games that are being released in Q4. It's Europa Nostralis 5 and Vampire: The Masquerade – Bloodlines 2. Therefore, you see increased costs for selling expenses. Administrative expenses stay normally flat, and they are often around SEK 22 million- SEK 23 million. This year's Q3, it went up to SEK 29 million. We have had a few different cost items of one-time nature.
One was that we gathered the whole 600 staff plus here in Stockholm for a very nice staff conference. We don't expect that one to be at SEK 29 million going forward. We have other income and other expenses. There you have movement in currencies. It's movement within the quarter, especially of the dollar. It hasn't moved that much this year. Last year's Q3, it had much more negative movement. It's - SEK 1 million this year compared to -SEK 8 million last year if you add income and expenses together. Financial items below that is mainly the interest we get from the banks on our excess cash holdings. That has gone down from SEK 8 million- SEK 4.5 million, mainly because the interest has gone down, but also because we have slightly less excess cash on our bank accounts compared to last year. All right.
This chart shows the four quarters grouped together to show a bit more of a trend line. You can see that it goes up and down, but the trend both for revenues in the green bars and the profit in the yellow line drives upwards, which we like to see. All right. Let's talk about cash flow. We had positive SEK 195 million positive cash flow from our operating activities in Q3. It fluctuates a bit. It's, of course, mainly driven by our operating profit, but then it can shift between quarters a bit. If you compare it to last year's Q3, we are actually up. It was SEK 154 million then, now it's SEK 195 million, even though we had better profit last year.
One of the reasons is timing on, I think it was a large VAT, a tax payment we did this or last year's Q3 that we didn't have this year. Cash flow from investing activities, SEK 182 million compared to SEK 115 million last year's Q3. This is game development, investments in game development, live games that we do expansions and DLCs for, but also new games. This has gone up quite significantly compared to Q1 and Q2. The main reason is that we got a substantial invoice for Vampire: The Masquerade – Bloodlines 2 in Q3 this year. We had almost no invoices earlier this year, so pretty much everything came now when the game was completed by our partners at The Chinese Room. Finally, I think of the slides. No, that's it. Those were all the slides.
That's it.
Very good.
That's very quick and efficient and to the point. I think we'll have more to talk about in the quarter that is coming, that is more busy as well. We'll move over to the Q&A, I guess then.
Yes.
We'll do it per usual, that one of us will read the question and the other one will try to answer as good as they can, right?
Yes. I'm not sure whether you can see the questions. Fred, I can read all the questions and we can answer every second one.
Sure.
So.
Sure, yeah, we can do it that way.
I'll do the first one. That goes to you, Fredrik. What effect do mods have on the success of your games?
That's a very good question. I would say that mods are an integral part of our gaming ecosystem, and it plays a big role in keeping the games up and running, keeping the retention high, and the creativity among our gamers helping other gamers as well to come into our universe. I would say modding is absolutely an important and integral part of what we do with our games. We also try to support our modders as much as we can by making the file structure to our games quite accessible. We'll see, maybe we'll develop more tools to make it even easier to mod in the future because it is important. That's right.
Good. All right. I'll take the next question then. Which quarters or sales seasons have historically been the most or least successful for Paradox , and how does that inform future release planning? I mentioned it a bit. We tend to have very strong Q2s and Q4s. Q3, as you could see this year and last year, is normally slower because we have July and August, so two months with a lot of vacations in them. Games, game releases tend to be pushed either earlier to be released in Q2 or later to be released in Q4 for that reason. We also have more marketing activities in the second and fourth quarters. We tend to have our Steam Publisher Weekend in Q2. At least the last four or five years, I think it has been in the second quarter.
We also have the start of the summer sale in the second quarter. Similar for Q4, we have the autumn sale with Steam, and the winter sale starts in Q4 as well. Quite often it can be good to release not only new games, but DLCs and expansions in relation at the same time as we have these quarterly marketing activities. That is a reason why we tend to release more in Q2 and Q4. It's not always optimal for how we plan and how we do the publishing, but the focus is to release the games when they are done and when we have a good marketing beat to accompany them. All right. Question to you, Fred. Will Paradox 's future strategy place greater focus on internal development through Paradox Development Studio, or will publishing external titles remain a key pillar of the business?
Good question again. We perceive that the majority of our projects and development work will be done by fully owned studios within the Paradox Group. We are taking steps to ensure that we have a strong capability within both strategy and management games. Recently, the acquisition of Haemimont Games on the management games side. We feel that we want to own and control most of the things that we do. We do not totally walk away from publishing third-party either, but we will do it in kind of a different way than we previously have done, placing smaller bets and scaling up when we see that the concept works. We will do both, but I would say the vast majority of the revenue or the costs will come from our internal studios.
Cool. Okay, I can take the next one. How do you judge the success of Victoria 3 as of right now? From the outside, it looked like the 1.9 update and Charters of Commerce was quite a success. Is this true from your perspective as well, and do you think that this success will have a longer-lasting effect on Victoria 3's success as a whole? Yeah, we are very happy with what Victoria 3 has turned out to be. Charters of Commerce was a milestone for sure, but also in this third quarter, we released content that was appreciated by the players, and we can see the player activity is high. There was also quite a lot of work going into the base game before Charters of Commerce as well, which we think has had a very positive impact on the game.
Victoria 3 is a project that if you look at the whole project up until now, it has had kind of poor financial performance, everything accumulated or aggregated. As of now, the financial performance is quite strong. It has been quite a long investment for us that we are now finally seeing the benefits from. It feels very good, and I think Victoria 3 will continue to be successful for us for many years. I don't think Charters of Commerce has helped us to take it to a certain level, but if it's going to continue to be successful, we need to continuously come out with qualitative content that the players want and with a good pace as well. I'm confident that the team will be able to do that.
Yeah, I mean, the Victoria 3 team has done a tremendous job in turning the tide on the game. From all perspectives, I mean, quality-wise, gameplay-wise, retention, if you look at it from who are playing the game and how much. We're super happy with the trajectory of the game at the moment for sure.
Yeah. One more question to you, Fred. What are Paradox plans for Paradox Arc? The label's announced schedule is currently limited. Should we expect adjustments to its release cadence or portfolio approach?
Right. Arc is working in a bit of a different way, which means that they start more projects, but they also kill off more projects along the way. If it's one thing that we learned at Paradox Interactive, sometimes the hard way, it's not to announce any projects too early. We will announce the Arc projects when they're ready to be announced. They have a really promising catalog of new games, but we will not announce any of them until we are 100% sure it's going to reach the market at the quality level we expect on release as well. Expect more, but we're not trying to hype anything. It's a lot of experiments, and some of them look really promising. We'll see.
Great. Are there more questions? Yes, this is one, I think, for me, maybe. What is the historical correlation between Steam wishlist numbers and actual sales for your major franchises? Have you ever considered communicating to the market an expected conversion range from wishlist to sales, as some indie publishers do? No, we don't, because our experience is that the correlation is quite spread out. It's very difficult for us, at least, and probably for you too, to use Steam wishlist numbers for projecting sales. That's a reason we don't provide forecasts at all, and this is the main reason. It's very uncertain. Projecting or releasing forecasts on projected sales is something that we avoid. For Vampire: The Masquerade – Bloodlines 2, for example, I think we have had record high wishlist numbers for a Paradox Interactive game.
Taking that as an example, I think the wishlist opened back in 2019. That means that wishlist is very old. That also makes it very difficult to compare one wishlist to another. Do we have more questions? Here's one for you, Fred. Is Paradox exploring opportunities to expand its games into physical formats or other types of consumer experiences?
I'm unsure what you mean by physical formats, but I guess it means different media formats. Sorry about that. Different media formats, like television series, movies, or other forms of entertainment and licensing. Of course, we have explored for many of our brands where I would say that the World of Darkness portfolio is the one that lends itself the best to external licensing. We're doing smaller licensing deals right now, and we're exploring opportunities all the time. It's a great way to strengthen our brands. It's financially safe and sound. The upside is limited, but it's a great way to expand in small steps with a low risk. We're currently working with a small-scale licensing operation, and we'll see if we scale that up over time. Nothing that we have is worth mentioning at the moment, but something might pop up in the future.
All right. Thanks, Fred. Was that the last one? No, we have one more. Yeah, we have a few ones. How should we view selling expenses in Q4? Have most of the marketing costs for new games and expansion releases been recognized in this quarter? I can take this one. No, we have most of the selling expenses we have in the quarter when we release the games. For Vampire: The Masquerade – Bloodlines 2, for Europa Universalis 5, we have had costs in Q3, but they will most likely be bigger in Q4. Especially for the live games where we have expansions and DLCs, the kind of allocation of expenses to the release quarter is much higher. Q4 should be a big spending quarter in terms of marketing costs. Fred, what is your confidence on the pipeline beyond Q4?
Oh, that's a good question. Beyond Q4, we're so into Q4 operationally right now, it's hard to, sometimes hard to think beyond it. If I put it this way, without banging our own drum too much, I think we are one of the best positioned gaming companies in the world right now. We have a strong cash flow, we have money in the bank, we have very strong games within certain niches that we're dominating. I think we have a strong customer base. I think there are very few companies that have the huge opportunities that we have right now. What it's all about is taking advantage of these opportunities.
If you speak about the pipeline specifically, I think we have a strong pipeline with a healthy mix of smaller, more experimental titles through Arc, with some games like Prison Architect 2 that is fully developed externally, to some super heavy hitters that come from the internal teams. I say 2026, just bring it on. We're ready. That's going to be great.
Sounds good. I think that those were all the questions that we have got so far. If we haven't answered, if we have missed a question, we will make sure to find them in the emails and in the forum posts and answer them separately. If you come up with questions after this stream, feel free to contact us and we will try to answer them. That's it for this stream. We have the next one coming up. That will be for the fourth quarter, a much more action-filled quarter compared to this third quarter for sure. I think it's at the very beginning of February next year, so quite some time until then.
Up until then, it will be even colder and more unhospitable than ever. We look forward to it anyways. Thank you very much for watching, and I hope to see you next time as well.
Thank you for watching.