Paradox Interactive AB (publ) (STO:PDX)
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Earnings Call: Q2 2020

Aug 11, 2020

Ebba Ljungerud
CEO, Paradox Interactive

Hi, everyone. Welcome to the Q2 2020 report with me, Ebba Ljungerud. I'm the CEO of the company.

Alexander Bricca
CFO, Paradox Interactive

I'm Alexander Bricca, I'm the CFO. Welcome.

Ebba Ljungerud
CEO, Paradox Interactive

I think we have a lot of listeners today. There's been huge interest and loads of questions.

We're going to run through our report, and then there will be time for questions afterwards. If you haven't already asked, you can ask in the Twitch chat as well.

Alexander Bricca
CFO, Paradox Interactive

Yeah.

Ebba Ljungerud
CEO, Paradox Interactive

How are you?

Alexander Bricca
CFO, Paradox Interactive

I'm good.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah. Holidays?

Alexander Bricca
CFO, Paradox Interactive

Yes. Had holidays in July. I would have preferred slightly warmer.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah.

Alexander Bricca
CFO, Paradox Interactive

Still good to be away.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah.

Alexander Bricca
CFO, Paradox Interactive

Also very good to be back.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah.

Alexander Bricca
CFO, Paradox Interactive

How about you?

Ebba Ljungerud
CEO, Paradox Interactive

Same. Sweden, which has been very nice. No travel abroad-

Alexander Bricca
CFO, Paradox Interactive

No. Me neither

Ebba Ljungerud
CEO, Paradox Interactive

-this time, but maybe later in the fall. I would love to go visit our new studios as well, of course. Shall we hit it off? We are incredibly proud and happy to present our most successful quarter ever. Revenue increases of 20% compared to the same quarter last year, and profit before tax up actually 29%. We're hugely thankful to our staff and our fans for this result. We can switch to the next slide.

Alexander Bricca
CFO, Paradox Interactive

Yeah.

Ebba Ljungerud
CEO, Paradox Interactive

I can talk a little bit about. We have launched four expansions, Invasions for Planetfall, Emperor for EU4, Island Bound for Prison Architect, and Apocalypse for Stellaris: Console Edition. The biggest one here is definitely Emperor for EU4.

Alexander Bricca
CFO, Paradox Interactive

Yeah.

Ebba Ljungerud
CEO, Paradox Interactive

Which it was a while ago since we had an expansion on that game. It was great to see the reception and sales from that. We have also released Stellaris: Galaxy Command, which is our mobile game in hard launch, so that means it's available all over the world. We have had two Steam sales. The first one was the Paradox Publisher Weekend, which was in May 14th-18th, and then we had the Steam Summer Sale, which was end of Q2, beginning of Q3. Especially the Publisher Week, and I can talk about, we saw all-time high numbers on Steam in general, and we also saw actually our best publisher sale ever. That was very exciting for us. We have 4 million monthly active users, and we have 14 million registered accounts. Growing numbers there.

The quarter's been very much about building for the future. We announced that we are opening a studio in Barcelona called Paradox Tinto. The studio will be led by Johan Andersson, who has been working on Europa Universalis and other games as well for a very long time. That will be the focus of the studio going forward as well. We've seen loads of applications. The business is kicking off there now when the fall starts to happen. Very exciting. This means, together with the other additions to the group, that we now have studios and offices in nine places.

We're definitely growing. It's Barcelona, as I mentioned, Paris, Tampere in Finland, Delft in Netherlands, Seattle, and San Francisco, or Berkeley really, in the U.S. In Sweden, we have three locations, Malmö, Umeå, and Stockholm. Six countries altogether. Very exciting. At the end of the quarter, 534 employees, and we have signed a collective bargaining agreement for our staff in Sweden.

Alexander Bricca
CFO, Paradox Interactive

Yep.

Ebba Ljungerud
CEO, Paradox Interactive

That actually, technically is also Q3 because I think it starts on the 1st of July. Still. Two very big things that we've been working on during the quarter is to buy two studios. Both of them actually happened in July, so Q3, but since the work was a big part of Q2, we want to talk about it now. First, we have Playrion, which is a mobile studio in Paris. They have a game called Airline Manager, a very cool management game on mobile, similar to other Paradox games in a lot of ways, and it really helps us take our next step in the mobile platform. Then we have Iceflake Studios in Tampere in Finland. Iceflake are working on Surviving the Aftermath, which is in early access on Epic.

We're also releasing it on early access on Steam in the fall, and then the full release will be in the spring next year. That cooperation has gone super well, and we really like working with each other. It was very nice to see them join the family. When we look at M&As, we look at a couple of different things. I would say that first of all, we look at IPs. Do they fit with our portfolio? We look at things like, do we maybe want to expand the talent in a certain area, or do we want to add to skills that we don't know super well?

You could say that Iceflake is an example of the adding to things we know, and Playrion is a bit more helping us expand and grow in an area that's more new to us at least, adjacent, we usually say. Very cool, and welcome to all of you. We are very excited to have you-

Alexander Bricca
CFO, Paradox Interactive

Yeah.

Ebba Ljungerud
CEO, Paradox Interactive

-in the group. COVID-19, of course, a very big part of the quarter for not just us, for I think for everyone in the entire world. All of our employees in the different offices are still encouraged to work from home. We will follow what governments say. Recommendations might be slightly different from country to country. In general, we believe that we will be working from home at least most of the fall.

I'm personally very impressed by how well our teams have adapted to working from home. I think it happened really fast and the transition has been smooth, but it is a long time to be at home. We're now trying to find ways to engage with each other a bit more naturally, all the time really, and hope to continue to do that during the fall. The sales, as you see in the numbers, we have seen a bump from people being at home and playing a lot of games. We see a slight, shall we say, not really a drop, more back to normal levels. No w in July. We'll see how it continues here in the fall. Part of the very good Q2 is definitely because of this.

Long term, we're starting to see some impact on productivity. This is a very creative industry where a lot of the work is about meeting each other and being creative together and finding solutions together, and it is taking a little bit of a toll on this not being able to meet up. We don't have any exact numbers or anything, but we do see that we are looking at small-ish delays on some of our unannounced projects so far. You will for sure hear more about that later in the upcoming quarterly reports. Looking at what's happening going forward, I think what we here in all of our offices are currently extremely excited about is the Crusader Kings release.

Crusader Kings III, I should say, release on the 1st of September. We haven't disclosed any numbers or anything yet, but we are doing a lot of streams on Twitch that you can follow. You can see a lot of gameplay there. If you're interested, make sure you check it out. We're also working on studio integrations with the new studios. It's a very fine balance between letting studios have their creative freedom, but also making sure that they have help with things like legal and HR and finance and all of those things. COVID-19, as I said, continues to be a big theme. As we also announced this morning, we have decided to push the release of Bloodlines 2 to 2021, and this is partly due to COVID, that we haven't been able to work as closely together as we would have liked.

The game isn't exactly where we want it to be to release. That's why we decided to push it. We do this all the time, but we know that it's a very longed-for game, so of course, we look forward to being able to release it later. I think that's it from me right now.

Alexander Bricca
CFO, Paradox Interactive

Yep.

Ebba Ljungerud
CEO, Paradox Interactive

Yep. Over to you, Alex.

Alexander Bricca
CFO, Paradox Interactive

Let's dig into the numbers. As Ebba mentioned, and as we have written in the report, we have had a record quarter revenue-wise, SEK 465 million in Q2 compared to SEK 387 million Q2 of 2019, so that is a 20% year-on-year increase. We saw the revenues coming from four of the usual suspect games.

Cities: Skylines, Stellaris, Europa Universalis IV, and Hearts of Iron, of course. Then on fifth place, or included in five, Planetfall, AoW's Planetfall.

Ebba Ljungerud
CEO, Paradox Interactive

Which is really cool to see.

Alexander Bricca
CFO, Paradox Interactive

It's very good to see that, but you can also add that several of our other games, like Surviving Mars, Surviving the Aftermath, Prison Architect and so on, they were kind of close to the fifth place. We're starting to see a nice spread between the games in terms of generating the revenues. That's very good. We often point out that it's not always relevant to compare quarter to quarter, or if you're going to do it, you need to dig in a bit more to see, especially what has been released in terms of games. If we compare Q2 of this year and last year, in terms of expansions, they have been very similar. We have had one full expansion on one of our bigger games, both this quarter and last year's quarter. It's EU4 this quarter.

It was Cities: Skylines last year. We have had two full expansions on two of our other games, BattleTech last year and Surviving Mars last year. This year it was Planetfall and Prison Architect, and kind of similar sized games.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah.

Alexander Bricca
CFO, Paradox Interactive

Also, we had the releases of expansions on console-

Ebba Ljungerud
CEO, Paradox Interactive

Last year as well.

Alexander Bricca
CFO, Paradox Interactive

-last year as well. In that terms, very similar quarter. The main difference is the following. Last year we had actually a new game, completely new game that released, so that was Imperator: Rome, and that of course pushed up the revenues quite a lot.

Ebba Ljungerud
CEO, Paradox Interactive

That game did really well in the initial sales.

Alexander Bricca
CFO, Paradox Interactive

It did. Then it's of course impressive that we still beat the last year's quarter this year. A couple of things that has been in our favor, one is the COVID situation, of course. Then we have had, as you mentioned, Paradox Publisher Weekend on Steam. We had this in May this year. Last year, we had it in October together with PDXCON. We didn't have it in Q2 last year, therefore that pushes up revenues this year. We get quite substantial revenues from our partnerships with Microsoft and Epic. We started the Microsoft collaboration last year in June, but at that point only with three games and only for a little less than a month. This year we'll have it for the full quarter.

Ebba Ljungerud
CEO, Paradox Interactive

It's very exciting. We're actually releasing CK3 on Game Pass from release.

Alexander Bricca
CFO, Paradox Interactive

Yes.

Ebba Ljungerud
CEO, Paradox Interactive

That will be exciting for us, of course-

Alexander Bricca
CFO, Paradox Interactive

That is exciting.

Ebba Ljungerud
CEO, Paradox Interactive

-to see how that works.

Alexander Bricca
CFO, Paradox Interactive

Yeah. Good revenues and good profit as well, SEK 199 million in operating profit compared to SEK 154 million last year, that's a 29% increase. Similar differences if you look at profit after financial items, SEK 198 million this year compared to SEK 154 last. Profit after tax, SEK 155 million this year compared to SEK 120 million last year. With high revenues normally comes higher operating margin. That's happened this quarter as well.

Ebba Ljungerud
CEO, Paradox Interactive

Yes.

Alexander Bricca
CFO, Paradox Interactive

43%, very strong margins. Very happy with that. Of course, the profit margins follows along. Equity over asset ratio has gone down. That is due to the new accounting standards that were implemented last year, which means that we have our office lease agreements taken on the balance sheet as a debt and as an asset. That pushes down this ratio.

Ebba Ljungerud
CEO, Paradox Interactive

Mm-hmm. That goes for all companies pretty much, right?

Alexander Bricca
CFO, Paradox Interactive

Yes.

Ebba Ljungerud
CEO, Paradox Interactive

So it's not-

Alexander Bricca
CFO, Paradox Interactive

It has big impact on us because last year we moved into new offices in Seattle, in Delft, and not the least here in Stockholm with the big office for a long term, of course. As you mentioned, 534 employees at the end of the period, and the acquisitions of Playrion and Iceflake were closed just after. Our colleagues in Tampere and in Paris are not included in 534. We are looking at roughly 50 more colleagues.

Ebba Ljungerud
CEO, Paradox Interactive

Mm-hmm. Maybe 600 end of Q3 then. We'll see.

Alexander Bricca
CFO, Paradox Interactive

Yeah. I've seen a lot of activities.

Ebba Ljungerud
CEO, Paradox Interactive

We're growing.

Alexander Bricca
CFO, Paradox Interactive

Last week, many new faces.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah, that's true.

Alexander Bricca
CFO, Paradox Interactive

We are very close to 600.

Ebba Ljungerud
CEO, Paradox Interactive

Lots of new colleagues after the summer. That's great.

Alexander Bricca
CFO, Paradox Interactive

Yes. Our charts, green line shows revenue, and the other three lines shows our main expenses or our main costs. If you compare it to Q2 last year, nice and healthy growth, especially for revenue. Especially the last three quarters have been an increase. That is a bit unusual for us. Normally our revenues fluctuate more from quarter to quarter. Now we've had the positive trend for three quarters. I shouldn't take that as a trend, the fact that we will not continuing to see the fluctuations. I think that will go on for many, many years. If you look at it at a longer time, then there is a trend that I hope will continue for many, many years, and that is an upcoming trend for the revenues. Of course, cost also increases. If we compare to last year, it has gone up.

If we put all the costs together, it's up 7% compared to the 20% of revenues. That is, of course, the way we want it to be. We're very happy to increase our expenses as long as it comes with more revenues. Doesn't always happen in the same quarter, but over time, that is how we want it to be. Let's continue. The charts, revenue and operating profit per quarter. Just as I mentioned, it has been a steady growth during the last three quarters. Also if you look a bit over a longer period of time, which you can see on the next chart-

Ebba Ljungerud
CEO, Paradox Interactive

I think it's worth pointing out that the beginning of this slide is more normal for us than the end of this slide.

Alexander Bricca
CFO, Paradox Interactive

That is more normal. Hopefully in the long run, where our portfolio is even bigger than it is today, it will smoothen out but at the same time, we keep making bigger and bigger games. I think we're going to see this choppy growth for many, many years. I'm happy with that as long it's growth, and especially if this continues to grow. This is the rolling 12-month revenue and rolling 12 months operating profit. That is, of course, a much smoother increase. Cash flow, equally important as the revenue and as a profit, and not to say perhaps more important. Another financial record for the quarter, the cash flow from our operating activities, it reached, no, sorry, SEK 279 million in the quarter. That's a new record.

Investing activities, we tend to see new records there from quarter to quarter because we increase our investment into new games, which that is mainly. This quarter, we didn't. We invested slightly less compared to Q1, but I wouldn't assume that to be in trend. On the opposite, I think that we were going to continue to see the trend we have seen previous quarters where we continuously increase our investment into games.

Ebba Ljungerud
CEO, Paradox Interactive

That's how we've done it for many years. We grow continuously and we invest. Most of what we make we invest into new games.

Alexander Bricca
CFO, Paradox Interactive

Exactly. I think, of course, in Q3 it's going to look a bit different because then we have invested into new studios as well.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah. That you can see, for instance, in Q4 2018.

Alexander Bricca
CFO, Paradox Interactive

Yes.

Ebba Ljungerud
CEO, Paradox Interactive

That was-

Alexander Bricca
CFO, Paradox Interactive

That was the acquisition of Prison Architect, the game.

Ebba Ljungerud
CEO, Paradox Interactive

Prison Architect was that, yeah.

Alexander Bricca
CFO, Paradox Interactive

Yeah. That's why that was up. Balance sheet. Very strong balance sheet. This shows our total equity in green and our total non-current assets. All our non-current assets, that's mainly capitalized development and licenses and brands that we acquired. Now since 2019, it also includes these lease agreements as an asset. You can see a big jump in the ratio between equity and non-current assets from Q3 to Q4, and that has to do with the fact that we moved into our new premises, especially in Stockholm. That pushed up the non-current assets but didn't affect equity. Therefore, as you might remember on an earlier slide, the asset per equity ratio has increased, or the equity per asset ratio has decreased. That's due to this. Yeah. Those were the slides I had planned to show.

Ebba Ljungerud
CEO, Paradox Interactive

We have loads of questions.

Alexander Bricca
CFO, Paradox Interactive

Yes.

Ebba Ljungerud
CEO, Paradox Interactive

That's good.

Alexander Bricca
CFO, Paradox Interactive

Please do.

Ebba Ljungerud
CEO, Paradox Interactive

You can write in the chat as well, of course. We're trying to keep track of all of them. Hope to catch all of them. We start out with two Crusader Kings questions that we'll try to answer a little bit more general. What are the pre-sales numbers like for CK3? As I said, we don't disclose that. It's also not necessarily such a great indicator on how something is going to sell. Of course, we have targets, but we try to really see what happens. What really is relevant is what happens when the game goes live. What I can say is we're incredibly excited. I think the whole team is very excited about it.

Alexander Bricca
CFO, Paradox Interactive

Yeah.

Ebba Ljungerud
CEO, Paradox Interactive

We're really looking forward to the launch. You should check out the stream for sure. We have, maybe a little bit more for you, but it's, How big is the CK3 launch in terms of resources and development time?

Alexander Bricca
CFO, Paradox Interactive

Yeah.

Ebba Ljungerud
CEO, Paradox Interactive

Is it similar to EU4?

Alexander Bricca
CFO, Paradox Interactive

Yeah. Similar answer. We don't disclose how big investments we do in specific games, but we have many times said that we are constantly increasing the effort and the resources we put into new games. EU4 was released seven years ago. On Thursday, it's actually the seven-year anniversary.

Ebba Ljungerud
CEO, Paradox Interactive

Yes

Alexander Bricca
CFO, Paradox Interactive

For Europa Universalis IV, compared to the games we released three, four years ago, we have increased a lot.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah.

Alexander Bricca
CFO, Paradox Interactive

Compared to seven years, even more. If we compare it to the base game of EU4, we have invested much more in CK3. We have also come out with tons of expansions on EU4, so if we add that together, then I am guessing that we are fairly close.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah. That's true. All right. We have, "What does organizational changes in the communication regarding Bloodlines 2 mean?" Well, when we do decide to push a release of a game, we review the whole structure of everything. It's nothing really strange about it. It's part of we continuously evaluate how we work on a game and how we continue to work on a game. It's pretty much what we would do all the time. I know, Empire of Sin is also coming out later this year, and I know that we had a push of that game as well before and then, and it was the same then. We just review how we do things and try to make sure we give the game the best possible preconditions for a good launch.

Alexander Bricca
CFO, Paradox Interactive

Yeah. Right.

Ebba Ljungerud
CEO, Paradox Interactive

What about the financial forecast for Bloodlines?

Alexander Bricca
CFO, Paradox Interactive

Yeah.

Ebba Ljungerud
CEO, Paradox Interactive

How is that affected by the delay?

Alexander Bricca
CFO, Paradox Interactive

Yeah. Two kind of clear impacts. One is, of course, that since we release a game later, the revenues from it is going to come in later. The reason why we delay this game as is almost all the time, the reason why we delay any game. Is that we want to push in more resources and spend more time developing it. That means that the development cost increases. Since we capitalize the development cost during the development, that doesn't show up now. It shows up in the cash flow, but not in the result. That will be seen once we release the game, then we will have more to depreciate.

Ebba Ljungerud
CEO, Paradox Interactive

We've said it many times before, but the only cost we take here now is marketing costs.

Alexander Bricca
CFO, Paradox Interactive

Yes.

Ebba Ljungerud
CEO, Paradox Interactive

Only, but it's the main cost.

Alexander Bricca
CFO, Paradox Interactive

Yeah. That's right. We don't capitalize that. Of course, with the development comes R&D.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah.

Alexander Bricca
CFO, Paradox Interactive

Manager's time and so on that we don't capitalize.

Ebba Ljungerud
CEO, Paradox Interactive

What about virtual PDXCON this year? Or will there be a PDXCON this year?" We have had many questions in the chat as well. We don't have any news to share at this point. We, of course, want to have a PDXCON. COVID definitely came in the way. As soon as we have good plans, we will share them with you. We would love to have a PDXCON, if we can find a cool way to do it.

Alexander Bricca
CFO, Paradox Interactive

Yeah.

Ebba Ljungerud
CEO, Paradox Interactive

What about the goal of 10% revenue?" Do you want to answer that, maybe, Alex?

Alexander Bricca
CFO, Paradox Interactive

10% revenue.

Ebba Ljungerud
CEO, Paradox Interactive

Does it still stand? If so, is the focus for more internally developed games, licenses or further studio acquisitions like Playrion?

Alexander Bricca
CFO, Paradox Interactive

Right. Where the 10% of our revenue is going to come from mobile games. We decided some years ago that we wanted to make a huge effort to expand our platforms from PC.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah, not just mobile, any platform.

Alexander Bricca
CFO, Paradox Interactive

No. We have been very successful, I would say, regarding console, where we now, or for at least a year, is constantly seeing around 50% of our revenues coming from console.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah.

Alexander Bricca
CFO, Paradox Interactive

Mobile, we would like to see the same, but so far we haven't managed to achieve the same success on mobile. If we look at the first two quarters this year, I think it's just below 1% of our revenues that is coming from mobile. In order to hit 10% over the full year sounds a bit unlikely.

Ebba Ljungerud
CEO, Paradox Interactive

Probably behind a little bit.

Alexander Bricca
CFO, Paradox Interactive

Probably behind. Now we have added on the Playrion. Through that, we get the game that is up and running, that has a very solid revenue. Therefore, we get that.

Ebba Ljungerud
CEO, Paradox Interactive

It will help for sure.

Alexander Bricca
CFO, Paradox Interactive

That will definitely help. Of course, Galaxy Command, that it's a bit early perhaps to say what it's going to yield this year, but who knows?

Ebba Ljungerud
CEO, Paradox Interactive

I see it says 50% from console in the chat. No, it's 15.

Alexander Bricca
CFO, Paradox Interactive

15.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah, not quite there yet. Okay, how do you see Paradox's game library growing in the future? More games or fewer, bigger games? Both, I think. We are developing more games, but we are also seeing that the games grow. If we go back to what you said before around EU4 being released seven years ago, the individual games titles have grown since then, and that's how we foresee that it will go in the future as well. Having said that, one has to remember that our games tend to be very niche, so it depends a little bit what you compare to. We can be very happy with a game that doesn't sell that many copies. It's more about what does the game cost and what does the game sell. It's not only what the game sells. Both are relevant.

Definitely a question for you, Alex. The Swedish krona has strengthened in relation to the U.S. dollar. How does that impact us or Paradox?

Alexander Bricca
CFO, Paradox Interactive

Yeah, it sounds good that the Swedish krona has strengthened, but we have only a small part of our revenues in the Swedish krona. We have a quite big chunk of our costs in the Swedish krona.

Ebba Ljungerud
CEO, Paradox Interactive

Our biggest studios are here, for instance.

Alexander Bricca
CFO, Paradox Interactive

Yes, our biggest studios are here. It has changed the ratio a bit because, I would say almost all our external games are developed by foreign studios, yeah. We're getting more and more studios that have salary and tax costs in foreign currencies, but we have much more costs in SEK than we have revenues. That means when we have strong foreign currencies, we as any exporting company, gain from that.

Ebba Ljungerud
CEO, Paradox Interactive

Yes.

Alexander Bricca
CFO, Paradox Interactive

We have had one year, maybe two years, with very strong dollar especially. Which has been in our favor. Now we have during the last quarter seen a strengthening of not only the U.S. dollar, but in the pound and the euro as well, or you could say a weakening of the SEK, and that is on the bottom line, it's negative for us-

Ebba Ljungerud
CEO, Paradox Interactive

Yeah.

Alexander Bricca
CFO, Paradox Interactive

-of course.

Ebba Ljungerud
CEO, Paradox Interactive

It's also part of the world we're in.

Alexander Bricca
CFO, Paradox Interactive

Exactly.

Ebba Ljungerud
CEO, Paradox Interactive

We know that this happens so don't-

Alexander Bricca
CFO, Paradox Interactive

Exactly.

Ebba Ljungerud
CEO, Paradox Interactive

- panic over it. All right. How has the pandemic affected PDX? What measures have been put in place? I said it a little bit before, but we've done a lot of things. First of all, of course, moving all employees to work from home. We've opened up a little bit, so you can choose if you want to be in the office. You have to sign up and everything. We've done a lot of activities both for ourselves but also for others. We've done a lot of sales that have been really appreciated internally as well, where we've donated. I think last quarterly reports we talked about a donation we made to the COVID fund. I can't remember how much it was.

Alexander Bricca
CFO, Paradox Interactive

It was just above SEK 500 million. 500 what do you think?

Ebba Ljungerud
CEO, Paradox Interactive

Thousand.

Alexander Bricca
CFO, Paradox Interactive

Five of course.

Ebba Ljungerud
CEO, Paradox Interactive

I mean, could've been. Maybe.

Alexander Bricca
CFO, Paradox Interactive

Yeah. I wish.

Ebba Ljungerud
CEO, Paradox Interactive

I'm like, that's a lot.

Alexander Bricca
CFO, Paradox Interactive

Just above $500,000.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah.

Alexander Bricca
CFO, Paradox Interactive

5 million.

Ebba Ljungerud
CEO, Paradox Interactive

It was a good donation. Yeah. It was a big donation for us. We do a lot of those things. We've also started working with some organizations that look into how you can make games more accessible for people with various disabilities, which isn't technically connected to the COVID situation, but it's more like how do we work in a little bit more broad sense with that. I talked a little bit about the financial implications as well. The next one is can you tell us anything about the game Paradox Tectonic is working on? We've gotten a lot of questions on what different studios are working on. As I think all of you know, we don't disclose until we decide to disclose, because we want to make sure that the game is what we want it to be.

I think you also have heard me say before that we cancel around 40% of our projects, so around four in 10 projects are canceled, which means that if we announce too early, that can lead to big disappointments in various groups. Having said that, they are working on a new IP we've set. In terms of our other studios, we both have situations where studios help each other and work on various games. For instance, in Malmö, they are working a lot on Imperator right now. That can happen, and then there are also their own games. Okay. We have one around M&A. You seem to be on a roll. Are there any other mergers and acquisitions coming anytime soon?

Alexander Bricca
CFO, Paradox Interactive

Yes. It looks like we're on a roll. We closed two acquisitions within two weeks in July.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah. Unusual for us.

Alexander Bricca
CFO, Paradox Interactive

It's unusual. It's quite some time that we did it. It's more a coincidence than a trend that it happens within such a short time. Yes, we are continuing as we have been. We want to grow. We want to grow capacity-wise, and competence-wise in terms of both development and publishing skills. We want to grow our numbers of IP. This we can do either through organic growth, as we have seen with Tectonic or with Tinto. We can do it through acquisitions. As we P Iceflake or Harebrained or Triumph. Which one we choose has to do. We look at the time it takes to build something on our own compared to that's when we acquire something, we can get it immediately. We, of course, look at the costs.

Often, if you're going to acquire something that is already there and existing up and running, you need to pay for it-

Ebba Ljungerud
CEO, Paradox Interactive

Yeah.

Alexander Bricca
CFO, Paradox Interactive

-more than it costs to build it. The risk.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah.

Alexander Bricca
CFO, Paradox Interactive

Building something yourself often comes with not getting it right the first time. We look at all these things and want to have a good mix of organic growth as well as acquisitions.

Ebba Ljungerud
CEO, Paradox Interactive

All right. Okay. We have been seeing lots of new projects announced for the World of Darkness IP in the past year. Is it your intention to develop some of the other IPs in the same way? I think that several of our brands have potential to grow and become bigger. It goes with what we do and what others do. It also connects to what we license out to other people. If it makes sense, we make games, but if we want to do something else around the project, then we're happy to license it to someone else. That's why you've seen a lot of board games and books, et cetera, on many of our IPs.

It makes sense for us to do licensing, definitely, and the base of a decision is really, will it help to grow the IP in general, and will it make it bigger for the future?

Yeah, absolutely, we can do that.

Any plans for BattleTech? Do you want to answer that?

Alexander Bricca
CFO, Paradox Interactive

There is another one I see regarding economics.

Ebba Ljungerud
CEO, Paradox Interactive

I kind of answered that question.

Alexander Bricca
CFO, Paradox Interactive

Okay. You skipped that one.

Ebba Ljungerud
CEO, Paradox Interactive

I answered it.

Alexander Bricca
CFO, Paradox Interactive

Yeah.

Ebba Ljungerud
CEO, Paradox Interactive

I answered it.

Alexander Bricca
CFO, Paradox Interactive

Yes, you answered it. It's a very financially sound way to build your brands.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah, exactly. We get the help from others.

Alexander Bricca
CFO, Paradox Interactive

Because you get the revenue through it. Yeah. BattleTech.

Ebba Ljungerud
CEO, Paradox Interactive

Yes, what do you think?

Alexander Bricca
CFO, Paradox Interactive

I don't know.

Ebba Ljungerud
CEO, Paradox Interactive

No. BattleTech has gone into what we call legacy, we won't be developing more on BattleTech. We love the game, the fans are super passionate about it and still play it a lot. It's more we balance it towards other things. HBS, the studio who have built the game, they are working on two new projects actually that we still haven't announced. That should be coming up. All right, the next Stellaris expansion. It's kind of the same answer as I said before. We don't disclose when things come until we know when they're coming. We want to give the teams their peace of mind to build. Often in the beginning when you start building, you don't know exactly how long it's going to take, it also doesn't make sense to announce too early.

That doesn't mean that we aren't working on more Stellaris content. That we will do for sure. We have some questions around Spain. Why we chose to open a studio in Spain specifically, or in Barcelona even more specifically. There are lots of reasons why we choose the location. In this case, we know that there are many studios who work with slightly different types of games in Barcelona, which means that there's a pool of very talented people who can come work with us. It's also very important to have a creative lead, and Johan Andersson, who will lead the studio, he wanted to move. It also makes sense to build around that. In general, for us, we always look at studios having strong creative lead and strong passion for the games they're building.

You can't really force anyone to build a game they don't want to build. That's really why. Okay. We have a few questions here on business models. I saw some on the chat around why we chose to go with Game Pass. We did it with Imperator, but also for CK3. We have one around learnings from the test with the EU4 subscription offer. I don't know if you remember, but on Steam you could buy all DLCs in a subscription model for a while, and then the free weekend for Imperator. In general, for all of these tests and different ways of selling our games, the only thing we know is that how things sell change over time.

That has been true for as long as Paradox has been around, and it will be true for the future, which means that we always do tests of different things. Subscription is a big thing at the moment. It's coming on very strongly, so we do various tests in that. We will continue to do that. The same goes for free weekends where we give away the base game. If a game has been around for a while, it's a good way for us to introduce new players when we release a new DLC, for instance. These tests will continue to happen, and I think free weekends have been very successful. Subscription also looks to be very successful. It's not for everyone. It depends on how you play the games.

For us, it's not one or the other, it's how can we add to how we make our games available for all our fans, really.

Alexander Bricca
CFO, Paradox Interactive

I think regarding free weekends, that is something that has been very successful for us when we think that we have done great improvements on the game. We did it on Surviving Mars last year.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah.

Alexander Bricca
CFO, Paradox Interactive

We saw a very positive impact. We got in a lot of new players that tried it and stay on. Therefore we did something similar with Imperator: Rome this year after all last year's improvements-

Ebba Ljungerud
CEO, Paradox Interactive

Exactly, yeah.

Alexander Bricca
CFO, Paradox Interactive

-since the launch, and we've seen benefits for that game there as well.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah. Okay, cloud gaming, that's a big one that we've been talking about a lot. What's our stance on that? Do we like it, do we not like it? Stadia, xCloud, GeForce NOW, et cetera.

Alexander Bricca
CFO, Paradox Interactive

Yeah, we like it.

Ebba Ljungerud
CEO, Paradox Interactive

We like it.

Alexander Bricca
CFO, Paradox Interactive

I mean.

Ebba Ljungerud
CEO, Paradox Interactive

It's the same, right?

Alexander Bricca
CFO, Paradox Interactive

Yeah.

Ebba Ljungerud
CEO, Paradox Interactive

It develops over time.

Alexander Bricca
CFO, Paradox Interactive

Yes. We want to be on the platforms that our players prefer to be on, whether it's now or in the future. We can't really know how it's going to be in the future. Therefore we're super happy to try on different new things. Currently we have games on both GeForce NOW and xCloud.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah.

Alexander Bricca
CFO, Paradox Interactive

We continue to experiment.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah, they're doing really well. How does Paradox Interactive work with Triumph Studios from game design to release?" This is a very broad question. It's basically how do you publish a game? I think we're going to have to save that for another time.

Alexander Bricca
CFO, Paradox Interactive

Yeah.

Ebba Ljungerud
CEO, Paradox Interactive

I recommend that you listen to the podcast that Shams and Daniel have every now and then. There are some episodes specifically on that. It's a very long cooperation, a very close cooperation, I can tell you. Okay. "Where lies your biggest markets? Europe, Eastern Asia, North America, et cetera?

Alexander Bricca
CFO, Paradox Interactive

I normally answer that with the truth, that is that North America and Europe are our biggest markets, and they are fairly equal. Then Asia, China, Japan, South Korea are big markets as well for us.

Ebba Ljungerud
CEO, Paradox Interactive

Growing as well.

Alexander Bricca
CFO, Paradox Interactive

Yeah. Not in relation to how big those gaming markets are. North America and Europe are still our big markets.

Ebba Ljungerud
CEO, Paradox Interactive

Mm-hmm. "What about the broker firms who follow Paradox?" Do we know them all by heart?

Alexander Bricca
CFO, Paradox Interactive

Yes.

Ebba Ljungerud
CEO, Paradox Interactive

SEB?

Alexander Bricca
CFO, Paradox Interactive

Yes.

Ebba Ljungerud
CEO, Paradox Interactive

Carnegie?

Alexander Bricca
CFO, Paradox Interactive

Yes.

Ebba Ljungerud
CEO, Paradox Interactive

Oh, you can't remember all of it. Handelsbanken.

Alexander Bricca
CFO, Paradox Interactive

No. Danske Bank.

Ebba Ljungerud
CEO, Paradox Interactive

Danske Bank.

Alexander Bricca
CFO, Paradox Interactive

ABG.

Ebba Ljungerud
CEO, Paradox Interactive

ABG.

Alexander Bricca
CFO, Paradox Interactive

Those are the four Swedish ones. We have-

Ebba Ljungerud
CEO, Paradox Interactive

Jefferies

Alexander Bricca
CFO, Paradox Interactive

Jefferies and Berenberg.

Ebba Ljungerud
CEO, Paradox Interactive

Yes.

Alexander Bricca
CFO, Paradox Interactive

We have a couple of new ones that are about to start.

Ebba Ljungerud
CEO, Paradox Interactive

They're not always super easy to get hold of these-

Alexander Bricca
CFO, Paradox Interactive

No

Ebba Ljungerud
CEO, Paradox Interactive

-analysts.

Alexander Bricca
CFO, Paradox Interactive

No.

Ebba Ljungerud
CEO, Paradox Interactive

They're a product that the banks charge for usually.

Alexander Bricca
CFO, Paradox Interactive

Yes. They are very thorough products that they put in quite a lot of time too. They're quite interesting reading.

Ebba Ljungerud
CEO, Paradox Interactive

In the financial press, a lot of the times you can see articles based on them.

Alexander Bricca
CFO, Paradox Interactive

Yes.

Ebba Ljungerud
CEO, Paradox Interactive

That's a good way to find them. "Do you plan to acquire more mobile game studios in the future?" You kind of answered that already, that we are. "Are you guys allowed to talk about if you make money off Game Pass downloads or comment on all how Game Pass has impacted your business?" It's a little bit too early to say. The big test for us here is the CK3 release.

Alexander Bricca
CFO, Paradox Interactive

Yes.

Ebba Ljungerud
CEO, Paradox Interactive

Where we will be part of Game Pass.

Alexander Bricca
CFO, Paradox Interactive

Yeah.

Ebba Ljungerud
CEO, Paradox Interactive

Maybe we can come back to that in a later quarterly update.

Alexander Bricca
CFO, Paradox Interactive

Yes. Historically, what you're seeing has been positive, I think. We have definitely got added revenues from the Game Pass collaboration. At the same time, we are seeing record numbers from Steam.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah.

Alexander Bricca
CFO, Paradox Interactive

So far it looks very promising.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah. "Ebba mentioned a somewhat decreasing trend in the last weeks. Would you expect another pickup in fall/winter if COVID persists throughout that period?" It's really hard to say. All at-home entertainment, if you will, has seen upticks due to COVID, so it's not impossible. I think it depends a lot on how different countries are going to react in different parts of the world, and how it's going to pan out. The famous second wave we've been hearing about, we don't know how that's going to pan out, for instance. That's a little bit hard for us to predict. If a lot of people spend a lot of time at home, they tend to also spend time on entertainment at home. Those two go together. "What kind of revenues will the two acquisitions add?" That we don't actually disclose, do we? Or do we?

Alexander Bricca
CFO, Paradox Interactive

No. No, we don't. You will see in the Q3 report, you will be able to figure out something regarding the economics around them. What kind of revenues? I guess the question is size-wise, but otherwise, from Playrion, it will be mobile revenues, of course. Iceflake will mainly produce development-

Ebba Ljungerud
CEO, Paradox Interactive

Yeah.

Alexander Bricca
CFO, Paradox Interactive

-for the games that we publish here.

Ebba Ljungerud
CEO, Paradox Interactive

All right. Two more questions. Do we have time for that?

Alexander Bricca
CFO, Paradox Interactive

Yes.

Ebba Ljungerud
CEO, Paradox Interactive

One is, "Is there a possibility to get Paradox stock available for buying on Revolut?" Revolut.

Alexander Bricca
CFO, Paradox Interactive

I don't know what that is.

Ebba Ljungerud
CEO, Paradox Interactive

It's the bank card, you know that you can withdraw money in any currency. I'm guessing it's also some sort of trading. Let's rephrase. Other markets than the one we're currently on

Alexander Bricca
CFO, Paradox Interactive

No, we are listed at Nasdaq First North.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah.

Alexander Bricca
CFO, Paradox Interactive

That is where the shares are bought.

Ebba Ljungerud
CEO, Paradox Interactive

Yeah.

Alexander Bricca
CFO, Paradox Interactive

I think if you are, for example, abroad, you should find your broker or find a broker. I'm sure they can help you with acquiring the shares.

Ebba Ljungerud
CEO, Paradox Interactive

We don't have any plans to change.

Alexander Bricca
CFO, Paradox Interactive

No, we don't have any plans to change. We are very happy to be on Nasdaq First North.

Ebba Ljungerud
CEO, Paradox Interactive

Last but not least, the collective bargaining agreement that you announced for Sweden, it's your intention to extend similar things to other parts of the world. We've grown so much as a company, and especially in Sweden, we've grown so much. Just in the years that I've been involved, since 2014, we are many times bigger. It felt like a good time to actually find these a little bit more structured ways of working. We're not against it in other countries. Absolutely not. It's more that it depends on the size of how big we are in a country and also how the employees in that country want to handle things.

Alexander Bricca
CFO, Paradox Interactive

Yeah.

Ebba Ljungerud
CEO, Paradox Interactive

All right. I think that's it.

Alexander Bricca
CFO, Paradox Interactive

Good timing.

Ebba Ljungerud
CEO, Paradox Interactive

Thank you so much for tuning in.

Alexander Bricca
CFO, Paradox Interactive

Yeah. Thank you.

Ebba Ljungerud
CEO, Paradox Interactive

We're going to have a new one of these in November.

Alexander Bricca
CFO, Paradox Interactive

Yes, November 17th.

Ebba Ljungerud
CEO, Paradox Interactive

17th of November.

Alexander Bricca
CFO, Paradox Interactive

The Q3 report.

Ebba Ljungerud
CEO, Paradox Interactive

Same time, same place.

Alexander Bricca
CFO, Paradox Interactive

Yes.

Ebba Ljungerud
CEO, Paradox Interactive

The drill is that we release a press release at 8:00 a.m. Central European Time, and then we have our stream at 12:00 Central European Time.

Alexander Bricca
CFO, Paradox Interactive

Yeah.

Ebba Ljungerud
CEO, Paradox Interactive

Same procedure as always.

Alexander Bricca
CFO, Paradox Interactive

Same procedure.

Ebba Ljungerud
CEO, Paradox Interactive

Thanks a lot, Alex.

Alexander Bricca
CFO, Paradox Interactive

Thank you.

Ebba Ljungerud
CEO, Paradox Interactive

Thank you to you.

Alexander Bricca
CFO, Paradox Interactive

Thank you for watching.

Ebba Ljungerud
CEO, Paradox Interactive

Bye.

Alexander Bricca
CFO, Paradox Interactive

Bye.