Hello everyone and welcome to the Quarter one interim report stream for Paradox Interactive with me, Fredrik, and.
I'm Alexander Bricca, the CFO.
Perfect. As always, we start by going through all the projects that we've released or the releases for Q1 and then we go over to the numbers which Alexander will present to you, and then we'll do a Q&A. We even got our first batch of AI-generated questions for this stream, we're super happy to see that we're in the AI age finally. That's me, and we move on.
It's a balanced, not to say a bit boring Q1 with very few releases. Worth mentioning here, like Alexander will probably mention as well, is that we have a small growth on revenue if we take foreign exchange into account because we see a bit of a weaker dollar compared to the same period last year.
Overall, a stable revenue, stable operating margin and stable cash flow. As we always say, I would say in these streams, we still are in control of our future, and we can do the investments we need to make. If opportunities should arise, we're well prepared to take care of those as well. The big thing on the gaming front is the sentiment change of Cities: Skylines II, which is now mostly positive in the last 30 days on Steam, meaning more than 70% positive reviews. It impacts the sales a bit in a good way, so we're super happy with that.
Our studio in Tampere, Iceflake, has made a great job of gathering the community and releasing a string of patches that has improved the quality of life on the product. Of course, there's still a lot of work to be done and we look forward to a long life of this product with a lot of good products being released as well. As I mentioned, it is a bit of a calm release quarter.
The gearing up for the year to come. Last year we released in Q4, we released DLCs for all our major products. In Q1 it's the only big DLC we had was for Age of Wonders 4 which is a good game, good stable gaming community, but one of our smallest, smaller franchises.
We have a lot of stuff lined up later this year. Like I said, Rise from Ruin for Age of Wonders 4 was the only big DLC. We did some releases for Hearts of Iron IV, for Cities: Skylines 1, and, yeah, that's it. Cities: Skylines II obviously, Office Evolution and City Stations. Overall, calm and controlled. I posted this on LinkedIn a couple of months ago, and it was picked up by a few people.
I think it's worth mentioning so you can see how we see development from the inside. Some quarters will be better, some will be not so good, because it depends on what we release and how we release and at what cadence we have basically in the company.
If you want to go back 10 years in time, roughly from when we listed the company on Nasdaq First North, in 2016, this is the development of daily peak users for all our games combined. We have more or less quadrupled the number of gamers that we have. It shows in the monthly active users which also happens to be the most important metric for us to see the health of the company.
Where does Paradox Interactive stand today? Because if you have a lot of monthly active users, it means that you also can sell a lot of the products that we make, like the DLCs and the Creator Packs and whatnot. Keeping a healthy growth and pace of concurrent users is absolute key to our business.
Of course, we look forward to adding more games to the already 7 games that we have in our portfolio that we call live games that we constantly update and release new DLCs and all sorts of downloadable content for, you could say. We build games that players value for a long period of time as well. Stellaris and Hearts of Iron IV both turn 10 this year in May and June, so you can easily see the longevity on our franchises once we have a hit. Of course, we have the ambition to grow. We're kind of taking aim here, preparing a next sprint in the life of Paradox. Those are the 7 franchises that we currently support.
We have a couple of smaller ones like Across the Obelisk and Surviving Mars that are more in experimental stages, but these are the 7 key franchises. Here we focus on fine-tuning the player experience and making the player experience better while building our strategic moat for each game. Also, we're gonna focus more on improving the player services around the games if you wanna call it meta layer or meta game or however you put it.
What we used to say 7 games in the pipeline is now 8, which means that we have a healthy amount of projects as well, and we hope to reveal at least some of them this side of the year. Yes, some maybe even sooner than that. We'll see.
We also have the capacity to fund and to buy our way into new projects as well. We have money in the bank, and there are also a lot of projects out there that is currently looking for funding. They might have gone halfway through or 75% through on the project and they might need funding. A partner like Paradox might come in handy there as well. Our focus remains on strategy and management games. That's where our sort of our key efforts will still be focused.
Alexander, I'll let you go through the numbers.
Thank you, Fredrik. Right. You mentioned it a bit, revenues came in at SEK 431 million in Q1 this year compared to SEK 464 million in same quarter last year. That's a 7% decrease. As you know, if you follow Paradox, you know that we have two things that drives our revenue from quarter to quarter. It's what we release in the quarter and currency impact. Start with currency impact since you touched upon it. I think the dollar is down 14% if you compare Q1 this year compared to Q1 of 2025. EUR a bit less, 5%, GBP 8%, CNY 10%. In average, it's about 10%.
Yeah.
Take away 10%, that's SEK 40 million-SEK 50 million from last year's revenue, so that means that we have grown 2%, 3% organically,
Yep
This year.
Not spectacular, but still.
No. It doesn't make the most sense to do these comparisons because we don't have a stable release pattern from quarter to quarter.
Right.
The next thing is therefore to look what have we released. Q1 tends to be slow, and it's not no different this year. As you mentioned, Fredrik, we released on all our big franchises in Q4, so obviously the following quarter is slow in terms of releases. It was Age of Wonders 4 that made the only big expansion release.
Mmm.
Where is it down? We do less revenues on HOI, Hearts of Iron, and Crusader Kings this year compared to last year because last year we had the release on Hearts of Iron and one on Crusader Kings, therefore we're a bit down this year. Stellaris didn't have a release last year, but they released the expansion pass in Q1.
Mm.
When we release expansion passes, it generates a lot of sales, but we don't put that onto the revenue. We don't recognize it as revenue until we actually release what is in the expansion pass.
Right.
Even so, when we release an expansion pass, it generates attention to the game because we do marketing, so other parts of the game like the base game and other DLCs are being acquired. That happened in Q1 last year when we released the Stellaris expansion pass. Now that this year it comes in Q2 instead, I think.
Right. We didn't have any big.
Exactly
items on the balance sheet that we could count in for Q1 this year.
Well, we didn't release any, we didn't announce or release an expansion pass on Stellaris.
right.
That will come later this year. What is up on the other hand is Age of Wonders because we released an expansion there. Bloodlines 2, of course, we didn't have that live last year. This year we had it. I think worth mentioning even though it's flat fairly much is Cities.
Mm.
Because last year when we released the Creator Packs and radio stations on Cities 2, that was part of the Premium Edition.
Right.
When we release Premium Editions with the original base game on our most successful titles, we sell a big chunk of Premium Editions. A lot of the money sits on the balance sheet, and when we release the content, we release and recognize revenue.
Mm.
That happened in Q1 last year.
Right.
Therefore Q1 for Cities last year is a very tough comparison.
Oh
due to this. Still, we managed to make very similar revenues this year. That has to do with the fact, as you mentioned, Iceflake has been able to turn around the sentiment on the product. The sales levels now is, it looks very good. That, I think is one of the highlights of the quarter. Top revenue contributors, it's the same as always. It's our big seven franchises, as you mentioned, plus Bloodlines this quarter. I'm afraid it's gonna have a diminishing impact on the top line quarter by quarter, but Q4 it had a big impact of course. Still a significant impact in Q1. Let's see what happens in Q2.
Operating profit, SEK 101 million compared to SEK 147 million, so it's down SEK 46 million compared to last year. It's effects on top line and it's amortizations.
Mm.
We have higher amortizations this year. We'll come back to that, but that has to do with the fact that we released big games in Q4.
Mm.
Bloodlines, Europa Universalis V, but also Surviving Mars. With our digressive amortization model, we take a lot of cost in the earlier periods.
Mm.
Most in the Q1 like Q4, but a significant amount also in the Q2 like Q1.
Yeah
Pushes down profit. It also, if we move on, profit after financial items SEK 106 compared to SEK 140, SEK 54 million last year. Profit after tax SEK 86 compared to SEK 124. Profit margin 25% against 33% of Q1 last year. It's the same there. It's FX, and it's the amortization of the base games we released back in Q4.
Right
that holds it down temporarily, I would say, in Q1. Equity to asset ratio, very solid company, 80%. It's slightly down since a year back, and that has to do with the fact that we renewed the office lease agreement here in Stockholm, so we put that on the balance sheet as an asset and as a debt.
Mm.
Therefore it decreases a bit. Average number of employees, in the quarter 681 compared to 596 1 year ago, it's a massive increase. A big chunk of that is Haemimont that has been added.
Yeah.
We've also increased, Haemimont has continued to grow because they have pro-.
They have a couple of projects.
They have projects that are moving into later phases and that means that we add on people to the team.
Also Iceflake took over Cities: Skylines II.
Iceflake took over Cities: Skylines II, that's right. We see some smaller increases here and there in, especially in the development studios.
Right.
Let's move on to the next slide.
Right. That was my job, right?
This chart shows it's the standard chart as we have had before, revenue and our three main costs. Revenue we have talked about, but what the chart shows here is that it fluctuates quite a lot between the quarters with the releases. The three main costs, cost of goods sold, selling expenses, and administrative expenses, they also fluctuates with the releases, especially selling expenses and COGS. You can see that in Q4, proportionally very big bumps. Now in Q1, it's back to much more normal levels.
Mm-hmm.
Cost of goods sold, SEK 264 million this year is Q1 compared to SEK 221, so it's up. We're going to deep dive a bit on that on the next slide. Let's take selling expenses there. We are down from SEK 48 million last year to SEK 41 million this year, that has to do with we had more marketing on EU5 last year. We started to take costs for the launch already in Q1, we had slightly more releases last year, we spent more marketing on Hearts of Iron and Crusader Kings. Yeah. Administrative expenses normally stays very flat.
This time it's up almost SEK 6 million. That is one of items, where of the biggest one which represents a little more than 50% of those, almost SEK 6 million, has to do with the list change.
Right.
We can touch a bit more on that, but we're having fees for applying for the list change to Nasdaq and also advisors to help us get prepared for list change.
Yeah.
That is something that is temporary and will go away as soon as we have completed the list change.
Sounds good.
Let's go to the next slide.
This is new, right?
This is new, yeah. Part of this has always been in the quarterly report number-wise, and part of it we have talked about during the stream, now let's also add a slide. These are the seven kind of sub-components of the cost of goods sold. In total, SEK 264 million if you add everything together for Q1 this year compared to SEK 221 million last year. The biggest item is the one you see on the left, that's amortizations of capitalized development costs. It's a bit difficult to read there, but it's SEK 120 million Q1 this year.
Hmm
Compared to SEK 72 million last year. That's a SEK 48 million difference. If you take the three games that we released in Q4, Bloodlines 2, Europa Universalis V, and Surviving Mars: Relaunched, the amortizations on those three games alone in Q1 explains this SEK 48 million difference and some more.
Hmm.
That means that the remaining games have slightly less amortization compared to Q1 of last year.
Hmm.
This is also a temporary effect that will of course go down. We will see impacts already in Q2.
Yeah
Where the majority of the development cost for these games have been amortized. Write-downs, 0 in Q1 this year and 0 Q1 last year. Then we have amortizations of licenses, trademarks, and similar rights. This is, this is amortizations of acquired businesses and assets. This year we have taken SEK 8 million as costs.
Hmm.
Last year we took SEK 16. This is acquisitions. This year it's the acquisition of Haemimont and the acquisition of the game Stranded: Alien Dawn, both we made, like, 1 year ago.
Yeah.
Why does it go down? Well, because in 2020, we acquired Playrion.
Hmm.
We amortize these acquisition costs. For Playrion, we did it linearly over five years, and last year it was fully amortized, so then we don't have any amortization left.
Hmm.
We do this quite, I think, prudent, not to say aggressively. We like to allocate, when we acquire a company, like Haemimont, we like to attribute the acquisition price to assets that we can amortize over time.
Hmm.
If you read the notes from the acquisition, I think we spend roughly EUR 10 million as a fixed amount for acquiring Haemimont, and that we are amortizing in different ways. Then we have roughly EUR 10 million or EUR 11 million more in earn-out that we're also taking. I think in 2025, we took SEK 32 million as costs.
Right.
That pushes down the profit and loss temporarily because we think the value of Haemimont, for example, is not decreasing. It's probably going upwards if we're doing the right things together.
Yeah, for sure.
As we recognize it, we take it as a cost over the initial years. It's a very prudent way to do it. Let's move on. Non-capitalized development costs. This is SEK 72 million this year compared to SEK 75 million last year. It's not a big change. This is development costs that we have for project that we don't capitalize.
Hmm.
so that can,
Early stages, for example, prototypes. Yeah.
Yeah. So it can be either prototyping for all projects, like even the low-risk projects that we do in-house, the prototyping stages we don't capitalize. For the more high-risk projects, everything that we have released under Arc, there we wait even further until we start capitalizing.
Hmm.
Now we're comparing this to last year's Q1, and it's not much different, but if we would compare this to three, four years back, it has gone up quite a lot because then we used to capitalize this instead.
Right.
This is another, I think, prudent way to handle development costs. Yeah. Let's move on to the 6th one, development support operations and maintenance of game. This is tech costs that we have in publishing. It's development of more generic tech.
Mm.
It's not game development. This is development and maintenance of the launcher, the mods tools, the forums, everything regarding that.
Yeah, everything that is not the game-
Yes
Still tech-related.
Yes. That also stays fairly flat. Let's see, it was SEK 24 million this Q1 compared to SEK 22 million last Q1.
Right.
Royalties and revenue-based earn outs, SEK 34 million in Q1 this year compared to SEK 29 million in Q1 last year. It has over the last year stayed at this level more or less. It's mainly royalties of Cities:.
Mm-hmm
And earn out on the Triumph acquisition.
Right.
It means it's based on revenues from Age of Wonders 4. Now, it goes up from Q1 last year because Age of Wonders 4 released an expansion this Q1.
Hmm
Which generated more revenues and therefore it generated more royalties. That agreement ends today.
Yes.
April is the last month that we pay this earn out. Therefore, royalties and well, royalties will stay the same.
Mm
Revenue-based earn outs that is included here will drop in Q2 compared to Q1.
Right. Next one.
Yes. That's it about COGS. All right.
Yeah
If you look in the P&L, we have four more items. We have other income and other expenses to start with. If you add those together, it's a positive impact of SEK 6 million this Q1. Last year's Q1, it's negative net impact of SEK 23 million.
Hmm.
This is mainly, currency movements within the quarter, and it's especially dollar movements within the quarter. If you might remember last year's Q1, the dollar went down significantly.
Hmm
That's why we had the negative impact during the quarter.
It was still higher than it is now, right?
Yes. Yes, this only explains dollar, it mainly explains dollar movement.
Dollar movements within the quarter.
In the quarter. It's a good thing you're pointing out. If we compare Q1 in total this year compared to Q1 in total last year, the FX movements have not been in our favor. In total, 10% on top line.
Yeah
Is very good to point out. We have the other two bars to the right, financial income and financial expenses. That is, it goes from net SEK 7 million to SEK 5 million.
Interest
The interest, the positive interest rate we have on our bank accounts.
Yeah.
It has come down because the interest level has come down.
Good news for homeowners, not so good news for our money in the bank, right?
Exactly. All right.
Financial expenses is self-explanatory, I guess. We'll move on to the next one.
Yes, let's move on. Right. This chart shows rolling 12 months to show you a bit more trend. Bar shows revenue. The yellow line shows profit or operating profit. What you can see if you look at the revenue trend, there are some ups and downs, but the trend is very clear. It's very similar to the CCU chart you showed, Fredrik, earlier at the presentation.
Hmm.
It is steadily going up back from the First North listing in 2016.
Yeah
up until where we are today. That's a very healthy trend.
Yeah, it's 4 times both on the CCU and on the revenue, more or less. It follows the same sort of chart.
Yeah
which shows us that the health of the company can be measured, pretty much by the monthly active users or like, the combined CCU curve that we see.
Yeah. Good point. Profit on the other hand, that's much more volatile with, sure, releases, good releases just as a revenue half, but also with write-downs of projects that haven't gone very well. That you can see, it happened in Q3 2021 when we took a big cleanup in the development pipeline, and then we have had three releases, Lamplighters League, Life by You, and latest, Bloodlines 2, that has pushed down profitability.
Now we have a very clean balance sheet, I would say.
That's right.
While we can't promise anything, we think it's gonna look a bit better from now on.
Yes. I think, just as you said, in our balance sheet now, we don't have any high, big items on high-risk projects anymore. That's a great foundation to start building a nice growth on the yellow line as well.
For sure. Okay, let's move on.
Let's move on.
That's the Q&A.
I think you clicked it. Yes.
Oh, I double-clicked.
You clicked it quick. Yes.
Yeah, yeah.
Yeah.
This is a good one.
You don't want to miss this.
Cash flow.
Cash flow. Green bars going upwards is cash flow from operating activities. There we made SEK 309 million in Q1 compared to SEK 266 in Q1 of last year.
Not bad.
Not bad at all. You shouldn't look at single quarters because there are movements between the quarters, but look at Q4 as well last year.
Hmm.
Even stronger. The cash flow in the company the last two quarters have been truly amazing. The yellow bar shows here if you have looked at our presentations before it is worth pointing out we made a little change here. The yellow bar shows investments in capital development.
Mm.
Previously we also had investments, for example, when we bought bonds.
Mm
Bought companies. I think this shows better how the underlying company's performing cash-wise.
Yeah
We had very similar, SEK 121 million in investments in capitalized development this year compared to SEK 120 last year. Very stable.
Excellent.
That I think takes us,
It's the last one.
To the questions
For Q&A. We've had some questions that popped in, and as I mentioned, there might be some.
Yes
Questions as well. If you take our report and put it into Claude or whatever AI solution you have and say, "Ask a couple of questions on this," it will pop out questions for sure. Don't do that. Try to come up with your own questions.
Here we have a good one. It's for you, Fredrik, how do you aim to replenish your pipeline with new projects?
That's a very good question. There are several different ways to do this obviously. The first one is in-house development and working with prototyping and seeing what we potentially can do within the areas that we're active. Another one is, obviously I mentioned this in the beginning, third party projects.
There are a lot of developers and publishers out there who have great projects and at the moment need a good partner that has strong finances and a publishing pipeline and that's where Paradox comes in handy. We're actively scouting for new opportunities and we do have space for more projects in the pipeline, not a whole bunch because we wanna do a great job for every project, but we might fit one or two more projects in there. We'll see if we can find something.
We're not gonna pick up just anything, but something that fits with our portfolio, with our business model, with our way of working pretty much. Right, Alexander, could you please quantify the impact of FX on revenue development in Q1 2026 versus Q1 2025?
Yes.
You touched up on that.
Yes. I think we did, but it's worth repeating. Roughly it's a 10% headwind on the revenue.
Yeah.
Revenues are held back some SEK 40 million-SEK 50 million.
Yeah
due to the increased value of the SEK compared to U.S. dollars.
Yeah. Does that go directly all the way down to the bottom line as well, right?
Well, that part goes directly down, but then of course we have some costs in EUR.
Yeah
for our European studios.
Yeah.
We have some costs in U.S. dollars as well. We have a small natural hedge.
Yeah
We have some 97%, 98% of our revenues in foreign currency.
Yeah.
Cost-wise it's, roughly 50.
Cool.
Question to you, Fredrik. Can you give some more color on the internal work with Skylines II and your expectations on new content releases for the game throughout the year?
That is a great question because I came home from Tampere yesterday. I visited the studio for two days. It was very enlightening for me. I hadn't been there before and I hadn't thus seen the new office where Cities: Skylines II is being developed. They had a flying start with Cities II, you could say, releasing a string of patches that has turned a sentiment on the game. We're in a much better place now than we were in the beginning of the year. You can see that on the player sentiment, you can see that in the number of players, you can see that on the revenue. It's positive across the board.
Obviously, bringing a new team and taking them up to speed where we wanna be it has taken some time, we're gonna start releasing new content. Hopefully we're gonna announce something soon, we can't give any direct promises on what to do. We hope to very soon be up to, you know, the speed where we wanna be and the release cadence that we wanna have for the game.
The most important thing is that the game is in good shape once we start releasing this, we're not running into more problems, especially on the performance side. Cities: Skylines II is getting there slowly but surely and shows all the right signs. That's what I can say in summary.
I can add, without saying the numbers, but the revenues in Q1, if you add the franchise together, Cities 1, Cities 2, console port on Cities 1, UGC, it did great revenues.
Great. This is for both of us. Do you expect a change in the level of non-capitalized dev cost versus last year? Would AI allow you to do more with less, thus resulting in less development costs? That's a 2, it's a double question, right?
Yeah. Let me take the first one. Do you expect a change in the level of non-capitalized development versus last year?
Yes. Yeah, we'll go back here.
That is what we showed, so non-capitalized development cost, it's very little changed compared to last year. It's a big change if you go two, three, four years back.
Yeah, where we capitalized almost everything, right?
Yeah. Yes. It's fairly flat. Yeah, I think that's answered that questions, I think.
Yeah. Touching on the AI side, I could do that probably. I mean, we think that first of all, AI is gonna help us release more things quicker and better with higher quality. Our aim with using AI tools is first and foremost to increase the cadence and increase the production quality of what we're doing. We're slowly getting there. Alexander Bricca, what's the timeline for the move to the Nasdaq Stockholm main market? Would you be open to buybacks in the near term 2026, 2027?
Right. When we disclosed this, we said that we will make the move during this year, some point during 2026. We sent in the application to Nasdaq at the end of February, that means that it can't happen earlier than three months after that. The earliest theoretical possible time it can happen is at the very beginning of June, the latest according to our targets.
Estimations, yeah.
Is December.
Yeah, this year.
Sometime between June and December. We do everything we can to make it happen as early as possible.
Yeah, December 2026.
Slightly earlier, I hope. There was a second question, would you be open to buybacks in the near term? Well, in the notice to the annual shareholders meeting that we have on the 12th of May, we have asked the shareholders to give the board a mandate to make share buybacks during the upcoming 12 months.
That's a board decision.
That's Yes. So, whether the board will use that or not, will have to be strategized by the board over the next 12 months. The possibility is there once we have completed the list change and once the annual shareholders meeting have given the board a mandate. Fredrik, Europa Universalis V reviews stood at approximately 80% shortly after launch, but have come down to below 50%. What went wrong in your opinion, and what will PDX do to improve the game and build back positive momentum?
First of all, it doesn't stand at 50%. It stands at around 74, I think, of the total reviews, but the recent ones are 47, 48 something, just to correct. What we did with EU5, Paradox Tinto, the development studio, it was a lot of rapid changes after the game's release, and it had different impacts on the game, and the reactions from the community was, to a certain extent, negative. We're working now to balance and work with the issues that people have with the game, and it's going at a really good pace as well. They're improving the game day by day.
As you know, we work with very complex games, sometimes it takes some time, but we think we're really on the right path of fixing all the things we need to fix. Right now we're looking forward to a big update and the new DLC, Rise of the Phoenix, that is just around the corner here in the beginning of May. You have a lot to look forward to, all of you EU5 fans out there. Alexander, what drives the strong sales in console in Q1? Is this a one-off or a trend shift? Are there plans to bring additional existing PC franchises to console platform as a part of the pipeline strategy?
It's a bit of both. If you look at one of the notes in the report, I think we made SEK 49 million of revenues in Q1 last year from console, SEK 49, and this year's Q1 we do SEK 71, so it's an increase.
Mm.
The main explanation is Bloodlines 2.
Right.
Bloodlines 2 had of course zero last year, and it has a significant share of its revenues coming from console, as we expected.
Mm.
Also Age of Wonders, Age of Wonders 4 released this quarter, and the Cities: Skylines 1, where.
Mm
Where we came out with a DLC both on PC and on console, for the first time for some while. I think the part of this, the main part of this increase that is attributable to Bloodlines 2, that will decrease over the next quarter.
Mm.
Where we have an upside is of course Cities 2.
Mm.
Out of our core games, it's Cities: Skylines 1 that has had most of its sales generated from console. There we have yet to come out with the console version to Cities: Skylines II. Apart from that, it's a decision that every game team or we make game by game.
Mm.
Some games we think are the right thing to sim-ship from the start.
Mm.
Some games are not. Some games there we can port to a console version later on. Some games are better just being a PC version. It depends on the player base and the game.
Yeah.
Fredrik and Alexander, let's see. You increased pipeline by 1 from 7 to 8 in the quarter. Yes. Is that related to note 4? All right. Subsequent events. Is this in line with the strategy for publishing mentioned in the CEO comment? I can answer it on the formalities. Yes, in note 4, we write that, after the quarter, we have entered into a publishing partner agreement, and that is also why we have increased the games in pipeline from 7 to 8.
Yes
because we've added a publishing game.
Yes.
Uh,
It's a game we can't speak too much about that right now. We're gonna come out with more information soon, but it's a game that fits our portfolio really well. That's all we can say.
Yeah
At this point, I think, and we'll get back to you with more information.
Yes. Right.
We wished we could have said more, though.
Yeah.
To what extent is Paradox currently using AI in its development process, and how fast are you to adapt? Do you expect AI to disproportionately benefit smaller teams by improving efficiency compared to larger publishers? More generally, how much of a threat do you see AI posing in to the existing games industry?
You talked a bit.
I spoke..
about it.
I spoke a bit about AI. We are currently rolling out AI into most parts of the company. We are being very mindful about copyright infringements and other things when it comes on the art, the music side. We're taking a bit more caution there. On the programming side, I think most programmers are using some sort of AI tool to help them, you know, be more efficient and program faster, and then we review code, obviously manually still, to make sure that we're not bloating the code or our own engine. I think AI will benefit smaller teams, yes, to a larger extent than the larger teams.
Maybe I'm biased because our teams are a bit smaller than the industry average, but I think you will get a lot more done on your small team now than you could 2, 3, 4 years ago. How much of a threat? I mean, the last year 20,000 games were released on Steam, so there's for a long time been a lot of games released and it's easier and easier to release a game for every year because the number of things you can, the number of tools you can use to make a game just increases for every year. AI is a jump forward on that sort of trend line, but it's not gonna revolutionize anything for us.
I think in the short to medium term, this is a strategic strength for us because it's gonna increase our moat, it's gonna increase our release cadence. It's hopefully gonna increase the quality of what we release as well. I see, at least for Paradox, I see AI in the short to medium term as a big strategic benefit rather than a strategic threat. It's always hard to see where a tech trend is going in the long term, right?
For the industry as a whole, sure, more games are gonna be released, and I think also important to remember is that every technology shift that has happened in the games industry, be it the games engine or, old, like, graphic improvements in the 1990s and even before that, has always benefited the gamer most of all.
They get better games at a lower cost pretty much, so quality's gonna increase. Oh.
Sounds good.
Yeah, it sounds like you are Paradox pretty much. Maybe it is not, but still a step in the right direction.
Perhaps one more question for you, Fredrik.
Okay.
Players in China and Western markets often want pretty different things from your games. How are you handling that balance both in how you design games and how you sell them?
We seem, our view of this is that we have gamers both in the West and in China or in Asia, and we see that China has been growing significantly for us in the past 6, 7 years. We don't see the design component as critical to address a certain market. It's more about how you charge for the games and the price levels and stuff like that. There are differences in what type of content people prefer in different markets. In our historical games it has to do with, for example, what countries we're actually touching upon.
I mean, the All Under Heaven expansion for Crusader Kings III is focused on Asia and China, Japan, Korea, and Korean Peninsula, of course it's going to be more attractive to Asian gamers. All in all, I mean, the marketing differs between the different areas as well.
Not as much as I think you would expect, but it's still, you know, you have to adapt to each market, especially when it comes to working with influencers and working with how to get into the market and also explain the game to the different markets. All in all, I would say that our games are not saying that they are universal, it sounds a bit bombastic, but that's the way I would put it.
Alexander, is it possible to quantify how much the cost base could come down from Q2 given lower royalty fees from Age of Wonders IV in Q2 2026? What was the non-recurring item cost in administrative expenses, and how large? What CapEx run rate should we expect for this year? Reasonable that it could come down as Bloodlines 2 and EU5 is out, or do you have new projects filling the gaps?
All right.
That's a lot of questions.
Yeah.
How much time do we have?
Yeah.
We have 19 more minutes, so.
All right. I think we can do them fairly quick. The first one, how much could the cost base come down in Q2 or from Q2 in terms of royalty fees? There you see it, we had like SEK 30 million in total royalties and revenue based earn-outs. I think Q2 we will tell you pretty much because we will have one month in that quarter where we still have the earn-out.
Mm
and two months without it. I'm not gonna forego that and tell you how much of this.
You will see in the next report.
Yes. You will probably be able to do a fairly quick estimation going forward based on the next report.
Mm.
Um,
Non-recurring item cost.
Administrative expenses
Administrative expenses.
Yeah. Admin expenses went up from SEK 25 to SEK 31, and we said it's mostly non-recurring, so it's one-offs. The slight majority of that increase has to do with.
This change
This change, yes. It's application fees to Nasdaq. It's cost for advisors that are helping us to prepare the company. Yes. That's what it is and it will come down of course once the project is done. More questions in the same question. What CapEx run rate should we expect for this year? Reasonably, the reasonable that it could come down as Bloodlines 2 and IV is, EU5 is out, or do you have new projects filling the gaps?
Yeah, there you see it. I think, I know we said when we presented Q4, we said that the investment in cap dev that you saw in Q4 was probably at a good base level. That's probably where we'll be going forward.
Now we have come down slightly more from Q4 to Q1. Maybe something between Q4 and Q1 is a good estimate on where we'll be.
Mm
In Q3 and Q4. Sure, EU4 is out, but.
EU5.
Yeah, EU5 is also out. we still have investments to make in the DLCs for that game.
Yeah
We're not decreasing the development on the game.
No.
Then we have the other 8 games in the pipeline, where we increase on most as the projects are proceeding.
Yeah.
We tend to increase, so, but that's normal. I think Q4, Q1 are good levels. Maybe closer to Q4 than Q1 if I'm gonna guess.
Mm.
Was that all?
That was the final question for the day. We wanna thank you very much for watching this Q1 live stream with me, Fredrik.
Alexander
We hope to see you-
Thanks
next time when we present the-
Q2 report.
Q2 report.
That will be at the beginning of August.
Beginning of August.
Yeah.
Don't miss it. It will be a lot of fun.
Thanks for watching.
See you next time. Cheers.
Yeah, bye.
Bye.