So we're live. This is the Q3 2026 report stream with me, Fred, and?
I'm Alex Bricca, the CFO. Welcome, everyone.
Welcome. We're going to take you through the numbers and the releases of the third quarter of Paradox Interactive. That is me. As always, I will start. To summarize the third quarter, I think we have to go back to 2021 to find a quarter with as few releases as we had in this quarter. It's safe to say that it was a back catalog that was carrying most of the revenue and the profit in this quarter. There were, like I said, three releases. Two of them were in the two last days of the quarter, and all of them were in September, which was the last month of the quarter. Transport Fever 3, which is a co-publishing deal together with Swiss developer Urban Games, released on September 30. Worth mentioning, new cooperation there.
Another thing that happened in the quarter was our gamescom reveals and announcements. We announced and later on also released, obviously, Transport Fever 3. The announcement date was revealed on gamescom. But we also announced our first original IP from Paradox Interactive in 10 years, Afterworld, which is a post-apocalyptic grand strategy game from one of our internal teams. We also announced LEGO Skylines, which is a new city-building game in cooperation with the Danish company LEGO, and developed by Iceflake Studios, also an internal studio in Tampere, in Finland. It's very well in line with our strategy and what we're good at, so we have really high hopes for the games to do well.
We also, during the quarter, in order to focus more on our key business and our key platforms, we sold the mobile game studio Playrion to a Danish company, Trophy Games, and that led to a one-time revenue of SEK 40 million in the quarter. On the other hand, we have been writing off Playrion for a five-year period as well. Previously it has impacted our EBIT negatively, so it is a positive. It did not affect revenue, though, only other income.
Other income.
Other income, okay. That was it. As I said, very slow quarter. Transport Fever 3, second-to- last day of September. Crusader Kings III: By God Alone, the last day of September, the last day of the quarter. Feeding the Future, a content pack for Surviving Mars: Relaunched. That was also released in September and had two, three weeks of sales before the quarter was ended. If we want to look at Q4, we have a bit more things going.
A new expansion pass for Age of Wonders 4, a new expansion pass for Cities: Skylines II, and releases for both games in that quarter. It is the first paid content that Iceflake Studios is creating for the game Cities: Skylines II. We also have content for Europa Universalis V, Crusader Kings III, and Stellaris, and some stuff for consoles, including Switch 2.
Worth mentioning is that we actually released Cities: Skylines on Switch 2 just yesterday. If you have not tried it, now is the time. With that, I leave.
All right.
The word to you, Alex. Take it away.
Thank you. As always, let's go through the numbers a bit more in detail. We did SEK 456 million on the top line this year's Q3. It is 15% better compared to last year's Q3, when we did SEK 395 million. The drivers, it is what we release, and quite often it is foreign exchanges as well.
Currency movements this Q3 compared to last year's Q3, it hasn't happened much. I know the dollar has gone up 1%, maybe a little bit more.
Yeah.
The euro has been flat, so not much of the revenue difference comes from currencies. But in terms of releases, all the change comes from Transport Fever 3.
We released that, as you said, the very last day of September, but it managed to generate substantial revenues. That created the increase compared to last year. If we look at the DLCs for our existing franchises, there we released less this Q3 compared to last year. Last year we released on Stellaris, we released on Age of Wonders 4, Victoria 3, a small one on Crusader Kings III, and Cities: Skylines. I think we had a couple of content creator packs and radio stations there. As Fred mentioned, this year we only released a core expansion on Crusader Kings III the very last day of September.
In the quarter, and a smaller DLC on Surviving Mars: Relaunched.
Yes. Also in September.
Crusader Kings III" is up revenue-wise compared to last year. "Stellaris," "Age of Wonders 4," "Victoria 3" are down since we haven't released anything. The thing that stands out this quarter, again, I think is "Cities." "Cities," we released on the franchise Q3 last year.
But not this quarter. We are still doing better revenue this Q3 compared to last year.
Which is a great trend.
It is a great trend. If we look at the top revenue contributors, it is Age of Wonders 4, Cities: Skylines, Cities: Skylines II, Crusader Kings III, Hearts of Iron IV, Transport Fever 3, Stellaris, and Victoria 3. Europa Universalis and Vampire: The Masquerade - Bloodlines 2 are just outside of this top list. But on the franchise level, Cities: Skylines is the top- grossing franchise in the quarter despite not releasing anything. Cities, after the takeover of Iceflake Studios.
Very strong.
Has turned into a great state, and now we have a full expansion pass to look forward to as well. That is exciting. Operating profit for the third quarter of this year, SEK 142 million, compared to SEK 112 million last year. That is up 27%. As you mentioned, Fred, we sold the mobile game studio Playrion during the quarter. That had a positive impact on the operating profit of SEK 40 million.
We acquired the studio six years ago, and just as you have said, we have amortized the full acquisition cost over five years. Each quarter for five years, that has held back the profit. Now when we sell the studio, the profit shows up in the quarter where we sell it. Profit after financial items comes in at SEK 146 million, compared to SEK 116 million last year. That is up as well.
The reason why we have higher profit after financial items than operating profit is because we do not have any debt, but we have positive cash balances. So we make an interest on that. Profit after financial items margin is 32% Q3 this year compared to 29% this year. That is good. If we would remove Playrion, we would be lower than last year. The reason for that is that it is the revenue mix.
This year we have a substantial part of the revenues coming in from Transport Fever 3, and we do not have the same high margins on Transport Fever 3 that we have on our core titles like Stellaris, Hearts of Iron IV, and Crusader Kings III. Equity through asset ratio, 77%, very similar to last year's Q3 when we had 78%. The number of FTEs, so full-time employees, in average throughout the quarter was 707.
That is up compared to 654 last year. The increase is mainly in the studios. Of course, Iceflake has increased a lot.
Since they took on Cities.
Since they took on Cities, but also bringing LEGO Skylines into full swing. We have, of course, our Paradox Development Studio here in Stockholm with, for example, Afterworld coming to later stages, meaning more employees. Triumph Studios has increased a bit as well, and also a bit on our central publishing. We are prepared for next year to release everything. Playrion is still here with 30 FTEs.
Right.
We sold the studio on the very last day of the quarter.
Yes. October 1st is the first.
Yeah.
Day outside.
We had 30 FTEs as average during the third quarter. That means when we do this report in a quarter from now, we will be 30 FTEs less, plus or minus any other changes, of course, in the rest of the organization. Let's move to the next slide. This chart shows our main costs and the revenue as well. Cost of goods sold, selling expenses, and admin expenses. Revenue, we have discussed, up from SEK 395 million- SEK 456 million, the green line.
Our biggest cost item, cost of goods sold, is up from SEK 203 million- SEK 269 million. We will go through that when we come to the next slide. But first, let's touch a bit on selling expenses. SEK 59 million in Q3 this year compared to SEK 50 million in the same quarter last year.
The increase is driven by our marketing campaigns that we have for Transport Fever 3, Afterworld, and LEGO especially.
A lot of gamescom costs.
A lot of gamescom costs. Yes, for sure. Administrative expenses tends to stay fairly flat, so SEK 29 million this year compared to SEK 29 million last year's Q3 as well. Admin expenses, that is everything that is not cost of goods sold or selling expenses. Let us move on and make a little bit of a deep dive into the cost of goods sold. We have seven sub-categories. The biggest one is amortizations of released games. There we went from SEK 71 million in Q3 last year to SEK 94 million Q3 this year. It is an increase of SEK 23 million, and that is mainly driven by releases that we did last year. In Q4 last year, we released Surviving Mars: Relaunched, Europa Universalis V, and Vampire: The Masquerade - Bloodlines 2.
Of course, Q3 last year, we did not have any of those games. We still have some amortizations that we do on those.
That is the main explanation why it is higher. There are movements within each franchise. Crusader Kings III is higher since we released a core expansion this year. Last year, it was a smaller release on Crusader Kings. Then it is up and down with the other franchises. Write-downs, zero this year, zero last year in Q3, which is good. Then we take SEK 8 million as cost for amortizations of our acquired businesses and assets. It was SEK 9 million last year, and it is SEK 8 million Q3 this year. This is the acquisitions of Haemimont, the studio that we acquired a year and a half ago, and the game Stranded: Alien Dawn that Haemimont has developed.
But it was owned by another publisher. We have acquired that studio and that game, and we are amortizing the acquisition cost like we did with Playrion over the years. We let that hold back our result quarter- by- quarter. And of course, our expectation and hope is that, for example, Haemimont is going to not decrease in value for us, but increase in value.
This is a very prudent way to handle it, I think. Depreciation, so that's especially the rent for all our studios that we do to accounting rules take as depreciation SEK 7 million both years. Then we have non-capitalized development costs. These costs regards development costs for games that we consider a slightly higher risk than others, so we start capitalizing in later stages.
But it also regards some development costs on the lower-risk projects where we just don't capitalize it. That can be producers and business owners that work on these games. It's profit share, it's managers' times and so on. Now it's some AI cost that ends up here as well
that has increased compared to last year. But all in all, it's very similar. It was SEK 68 million last year. It's SEK 66 million this year. Then we have development support, operation, and maintenance of games. This is the tech cost we have in our publishing department. So they work with launcher mods, forums, not game-specific things. We had SEK 27 million of cost this year compared to SEK 24 million of cost last year, so very similar. Then we have the final item where we've had a big movement, and that is royalties.
Up until this quarter, our royalties have been driven by Cities: Skylines and Age of Wonders 4. Now with Transport Fever 3, we are recognizing quite a lot of royalties on this sub row. What we did when we acquired the publishing rights for Transport Fever 3, we talked about this a quarter ago when we did the Q2 presentation.
We put that amount on the balance sheet as a prepaid expense, and it sits there until we release the game. Upon release of the game, we start to take these costs over the P&L as a cost, and the cost item it shows up under is royalties. Royalties have gone from SEK 23 million in Q3 last year to SEK 67 million this year. If it hadn't been for Transport Fever 3, we would have gone down from SEK 23 million because Age of Wonders 4, there we have stopped paying royalties.
Or earn-out for the acquisition of the studio. We did that in Q2. More sales on Cities this year, so slightly higher royalties on Cities, but all in all, the royalties, except Transport Fever, has gone down year-over-year. Then we released Transport Fever, and we take a proportion of these costs, all these prepaid costs, we take a proportion of that based on the sales of the quarter. We have made a sales projection for the game, and as long as we follow that sales projection, we take a certain percentage every quarter based on that sales as a recognition of these prepaid expenses.
Right. Next slide.
Yes. Below EBIT, we have. No, it is actually above other income, other expenses above EBIT. Normally, other income and other expenses is currency movements.
Within the quarter, and especially the US dollar movements. Last year it was SEK -1 million. This year is SEK +43 million, but that is not all FX. SEK 40 million of that is the impact from the Playrion sale.
Yeah.
FX movement has not been that much this quarter, you could say, as it was not that either last quarter or last year's Q3.
Right.
Financial income, that is below EBIT, so that is mainly interest on our bank accounts.
Yeah.
I think we have one or two more slides.
Yeah.
Yeah, so this is to show you the trend. This shows revenue and profit rolling 12 months, so like a full year.
What it shows is that the revenue and profit swings with releases, the amount of releases, and how successful they are. It also shows that, especially if you look at the revenue, it is a very solid trend upwards. If you just look at three, four, five quarters, it can move in either direction, but if you look at it over a longer period, it is a healthy upwards-going trend. The profit line in yellow does not really show the same pattern, and that is because in 2023, 2024, and 2025, the profit has been held back due to write-downs on three very high-risk projects that we had.
Yeah.
The last one was Bloodlines in Q4 last year, and that keeps holding down the rolling 12 profit up until this quarter. So next quarter, we will see a nice relief on the rolling 12 profit.
We're going to see the yellow line going up again.
Yes, exactly. That, of course, we're looking forward to it. But also, now with all those three projects released, we don't have any more project of that magnitude.
On the balance sheet
And risk on the balance sheet. We have a very good foundation to create a growth in terms of both revenue and profits going forward.
And a healthy margin as well.
Yes.
Even if we are going to have Transport Fever 3 as a 10-year contract, it is not going to be the same margin on Transport Fever 3, but.
Sure.
It is also going to be a small part of the portfolio. It was an opportunity-based deal that I think is actually a good deal with a good developer.
I agree.
Next slide.
There is one more, I think.
One more.
Yes.
Cash flow.
The important cash flow.
Yeah. Here we go.
Cash flow from operating activities, Q3, SEK 197 million, so almost SEK 200 million. Very close to last year, it was SEK 195 million in Q3 last year. So very similar. Cash flow from investments in capitalized development, SEK 166 million this year's Q3 compared to SEK 182 million Q3 last year. So we are down a bit. I know that last year we had some of the final base game development of Vampire: The Masquerade - Bloodlines 2 coming in in Q3, so that pushed up the cash flow from capitalized development investments. I think those were all the slides.
That is all. Let us move over to the Q&A. We have had a couple of questions come in, so let us answer those.
The first one is for you, Fredrik. Given your comment in the report that, and then there is a quote, "A great deal of work remains before the games are ready for release," regarding LEGO Skylines and Afterworld. Would you say that the window between announcement to full release is different compared to historical patterns? Follow-up, given the community feedback post-game reveals, have your confidence in the games increased/decreased or being neutral compared to your view pre-game reveals? All right. That was a mouthful.
No, there's a lot of questions in that question. Let's start with, I wrote in the CEO word that a great deal of work remains before the games are ready for release. It should not be interpreted as a long period of time, because what I mean basically is that the easy part is always announcing the game. The hard part is always releasing a good game. That's always going to be the hard part in our industry. Historically, we've had, I think, longer periods of announcements before release. We are trying to keep it a bit shorter. Game development is not an exact science, so that's why we have refrained from actually giving an exact date or a release quarter. But we aim at least to be having closer than historically between the announcement and the release date.
The last one there, have my confidence in the game increased or decreased? I had high expectations for the games, both of them, both Afterworld and LEGO Skylines, and I think both of them met the expectations that I had. Especially LEGO Skylines has had a lot of interest from our console partners, which is very positive, I think, for us. We have never seen that before with any of our games, which is a new experience. That was on the very positive side. But apart from that, high expectations that I think were met in the gamescom announcements and the following feedback as well.
Great.
Alex, could you help us understand how much of the recognized SEK 67 million in Q3 royalties was related to Transport Fever 3? How should we think about the expense recognition over the coming quarters relative to recoupment and whether the royalty rate or margin profile changes once the advance has been fully recouped? Should we expect Transport Fever 3 to carry a structurally lower gross margin than internally developed games even after the advance has been fully recouped?
Okay.
That's a lot of questions in one question as well.
You have to write again if I forget one of the sub-questions. I'll start with the last one. Should we expect Transport Fever 3 to carry a structurally lower gross margin than internally developed games? Yes.
Yeah, a bit. Yeah.
Yeah, because on games that we have developed on our own that have several years on them, like Stellaris, Hearts of Iron, Crusader Kings, and so on, the margins are very high. Transport Fever 3 is a deal we made with an established developer. It was a sequel, and we came in very late in the process.
The game was almost done. That means, of course, that a big part of the risk has gone, both in terms of production risk, but also in terms of market risk, because it's a sequel and.
Yeah.
The players are already there to some extent. Of course, you have to pay for that risk.
The way you pay for that risk is that you get lower margins.
Yes.
Yeah.
How much of the recognized SEK 67 million in royalties are TF3? It's the vast majority, right?
Yes. It's a vast majority. So, in Q3 last year, we had, what did I say? 24 million I think, right? If it hadn't been for Transport Fever 3, we would have been lower than 24 million. A decent amount lower.
Yeah. So it's a quite big amount.
It's a quite big amount.
Yeah.
Also, how should we think about the expense recognition over the coming quarters relative to recoupment and whether the royalty rate or margin profile changes once advance has been fully recouped?" Well, I touched upon it a bit during the presentation, but what we have done is that we have made a forecast on how much this game is going to generate in terms of revenue. We have made a forecast regarding how much we're going to pay in this fixed prepayment and in royalties. Then we have spread out the recognition of all that royalties and prepayments, so it follows the sales curve.
Yeah.
But then the sales curve might change, so therefore also the margin might change. If the sales come in lower than we expected, then we are going to need to push up the recognition rate to not end up with too big balance sheet item. But if the sales are better than our forecast, then we would recognize a higher percentage.
Yeah.
As profit.
Up until recoup. It is worth noting as well that this goes in line with or just above our expectations that we used as a calculation when we signed the deal as well.
Yes.
So we are pretty much in line or slightly over, is worth noting as well. Should we go on.
Yeah.
To the next question?
I think so. Fred: "The first buyback was rather small. Since the buyback has now been completed, we are surprised that you have not announced another one yet.
Yeah. Small or big, it is obviously in the eye of the beholder. We had a dividend of SEK 5 in May, and now we completed a buyback of SEK 200 million. It was our first buyback program as well, so we think it has worked well, and it is also a good tool for us to distribute back value to the shareholders.
I agree. So we will continue evaluating at the board of directors the share price and how to, with the cash that we have, how we are going to deliver maximum value to the shareholders pretty much. So that is going to be on an ongoing basis, and that is.
I think the- the best answer I can give.
I think it's worth mentioning that I think five years ago, we had dividends of SEK 100 million.
Yeah.
Then the following year, we increased it to SEK 200 million.
That's right.
Then SEK 300 million, then SEK 500 million, and this year we have SEK 500 million plus SEK 200 million.
SEK 200 million in buybacks.
It has been a constant increase.
Yeah.
If we can continue to increase it in that pace.
Yeah.
That is of course a great.
Yeah.
We will see.
It is under constant scrutiny and.
As you mentioned, it also depends on what opportunities come up.
Yeah.
It can be M&A, it can be other things as well, of course.
Yeah. A lot of things are happening in our market right now, so it is interesting times. Alex, could you elaborate on why you think that capital relating to Transport Fever 3 will only be tied up for a short period of time? Based on the press release, it is not obvious that revenue from this game was very high. How short is short?
Yeah, so normally our game development, it takes us five years often to develop games.
Yeah.
From the first Swedish krona we put in until we get something back, it is five years.
Yeah.
And in this case, we invested our first money in, was it March? No, it was Q2. I think it was Q2.
March or April, I think.
Okay. Yeah.
Yeah.
It was earlier this spring.
Yeah.
The first money we received now.
We received now.
Yeah.
End of October, right?
Exactly. When we get.
So it is half a year, pretty much.
Yes, exactly. So, that is what we mean with not tying up capital for a long time.
Yeah. And obviously not all of it has come back, but we are still looking at, compared to a lot of the development cycles that we are looking at, it is not a very long period to tie up capital and.
I think.
Based on the press release it's not obvious that revenue was very high. I don't know. Maybe we were too negative in our press release because it goes like I said before, it goes in line with our expectations. So it's not that we're dissatisfied with the release in any way.
No. We don't give any projections on how much we're going to make on a game, but I know that some of the analysts, they have estimated that, okay, we think that it's going to take you one and a half to two years.
To pay back this. If that is the case, that means that the payback time is two years.
Yeah.
Two to two and a half years then.
Yeah.
Which is fairly short compared to our cycles.
Yeah.
Fred, what are your expectations on Cities: Skylines on Switch? Should we see it as more experimental, or could it have decent contribution in Q4? Would be interesting to hear your thoughts on your exposure and the potential for games on Switch in general as well.
Right. This was a bit unexpected, to be honest, but okay, let's do it. First of all, this might be completely wrong, but I think we already have Cities: Skylines I on Switch one. This is the Switch 2 release, which is the next- generation of the Nintendo Switch. This is not a huge platform for us for any game that we have. Just to be open with that, we can't guarantee any miracles in the numbers. I think it's going to do okay. It's not going to be changing anything or move the needle in Q4, I don't think, is my honest take on it. However, the coming LEGO Skylines game has gotten a lot of interest from all console manufacturers, including Nintendo.
I hope that is a game, I think that is a game that can do really well on the Switch because of the overlap of target audience in between the LEGO audience and the Nintendo audience. We are going to see. I have higher expectations for LEGO to do well than I have for Cities: Skylines I. That being said, games on Switch in general is probably the thing I know the least about, except for mobile games, in the games industry.
My take is as good as the next guys. But I think Switch is an interesting platform. I play Switch games from one time to another, but we have not seen any major revenue there so far. We will see about the LEGO release. But for Cities 1, Switch 2, not moving the needle, still performing okay, I think.
Am I too negative now, or what do you think?
No, I think it is correct to be prudent.
Hope for the best and plan for the worst.
Yes.
Are the words that we live by, so that's great.
Yeah. We haven't received any more questions.
We have not.
No.
That is a shame. I actually like answering these questions. So, but anyways.
We are available throughout the afternoon and, of course, tomorrow, following weeks. If you have questions on the report or the presentations or anything else, you have the address. Send us an email, and we will answer it.
Yeah. We have a quite busy Q4.
Yes.
Not super busy. Hopefully a very busy 2027, and a lot of more quarterly reports to look forward to. Until then, thank you very much.
Yeah.
See you next time.
See you next time.
Cheers.
Thank you.