Good evening. Welcome to the teleconference on CD Projekt Group's financial results for the third quarter of 2021. I'll run this call together with Piotr Nielubowicz, member of the board and CFO. After the presentation, we will run the Q&A session. The webcast of the presentation along with audio feed are also being streamed on our corporate website, cdprojekt.com, and on our IR YouTube channel. Let's begin with slide two, where you will find a chart presenting the allocation of our development team to ongoing projects. As you can see, a gradual shift to new project is taking place, especially as more and more developers join the team working on the expansion to Cyberpunk 2077. Since its launch, Cyberpunk 2077 has already been significantly improved, which is, for example, reflected by the increasingly positive sentiment surrounding it on Steam.
That said, we are still working hard to better gamers' experience on every platform and to deliver next-gen quality in the next-gen version. Moving on to slide three. I would like to confirm that both the internal Cyberpunk team and the Saber team working on the next-gen version of The Witcher 3: Wild Hunt are on track to meet the announced target release dates for their projects. We'll share more details on both releases next year. Moving on to GWENT. Please have a look at slide four. As GWENT turns five years old, we've decided to make some adjustments to the game's operations. We'd like to remain as flexible as possible, which means GWENT will receive new updates and content drops regularly, while at the same time, part of the team can support other projects at the studio.
When it comes to future plans for the game, we are going to share more details during GWENT Masters Season 3 finals on the fifth of December, so stay tuned. Now let's move on to slide five. As we already know, The Witcher: Monster Slayer, a location-based AR mobile game developed by Spokko, launched in July, receiving high user scores on both Android and iOS. Having ensured its high quality, our major goal right now is to improve retention and monetization mechanisms in the game. Along with the newest update to Monster Slayer on November 24, we introduced a more effective live ops system that we believe will encourage more players to have fun within the game. Moving on to slide six. Just a quick reminder of the two acquisitions that took place in the recent months.
In July, we acquired Digital Scapes, a Canadian studio based in Vancouver that we had already been working with for a few years. It has become CD PROJEKT RED's fourth development team after Warsaw, Kraków and Wrocław. In addition, in October, we joined forces with a Boston-based studio built by veteran industry veterans, The Molasses Flood. Both acquisitions enable us to actively further tap into international talent pools, creating entirely new opportunities for growth. CD PROJEKT RED Vancouver will support the studio with its skills and expertise while working on current and new projects. As for The Molasses Flood, it will closely work with CD PROJEKT RED, developing its own unannounced project based on one of our IPs. Our plan is to dynamically grow both studios in the coming years. Now let's sum up the financials for the third quarter of 2021. Piotr, the floor is yours.
Thank you, Adam. In this part of the presentation, I will guide you through our results for the third quarter of this year. Let's start with the consolidated profit and loss account, slide 8. In total, our sales revenues reached PLN 144 million, which is 38% above the sales revenues of the third quarter of last year. Most of the sales were based on our own products. We achieved PLN 104 million here, which is 68% above the comparative quarter of last year. Cyberpunk was the most important source of revenues this year, and most of its sales continued to come from digital channels. Revenues from sales of goods and materials amounting to nearly PLN 40 million slightly decreased, but their main driver, GOG digital sales, actually increased by approximately 6%.
Cost of products and services sold amounted to PLN 23 million. The growth versus last year comes mainly from PLN 17 million depreciation of historic expenditures on development of Cyberpunk, nonexistent in our P&L for the comparative period of 2020. What is also worth mentioning is that this was the last quarter of depreciation of initial expenditures on development of GWENT and Thronebreaker. Starting from this Q4, this will result in lower costs of products sold by approximately PLN 5 million per quarter. At the same time, costs of goods and materials sold, which came mostly from GOG, remained at a stable level. All in all, our gross profit from sales reached over PLN 91 million, which is by one-third more than a year ago. Moving to the operating costs. During the third quarter of this year, our selling costs increased to PLN 55 million.
The increase was mainly driven by Cyberpunk servicing costs in the amount of PLN 17 million, as a large number of our developers and testers were working on updating the game. We plan to release the next update together with the next-gen edition in Q1 next year. Even though the amount we dedicated to servicing Cyberpunk in Q3 is still substantial, it is declining quarter by quarter since the release. G&A costs also increased versus last year. Among others, we included in this position some of the early project research-based costs in the amount of PLN 4 million, as well as close to a PLN 9 million charge due to our incentive program. Since this charge is based on actuarial valuation, it's of a non-cash nature. All in all, our net profit for the third quarter of this year reached PLN 16 million.
As GOG posted negative results, a net profit of PLN 21 million was generated by CD PROJEKT RED. Regarding GOG, its performance does present a challenge, and recently we've taken measures to improve its financial standing. First and foremost, we've decided that GOG should focus more on its core business activity, which means offering a handpicked selection of games with its unique DRM-free philosophy. In line with this approach, there will be changes in the team structure. Some GOG developers who have already been working on online solutions, mainly by the studio, will transfer to CD PROJEKT RED. Furthermore, at the end of this year, GOG will leave the GWENT consortium. This means that it will neither bear its portion of expenses nor obtain the corresponding share of revenues associated with this project. Alongside all these changes, we initiated a thorough reorganization of GOG's operations.
We believe that all of the changes we are introducing will allow GOG to focus more on its core business and improve its financial effectiveness in 2022. Coming back to the group results. Although Q3 has never been my favorite quarter, I would like to present it in a longer perspective. Let's go to the next slide, number nine. The total height of each of the bars represents revenues for each of the third quarters. Revenue-wise, this was our best third quarter ever. From these revenues, we covered our costs and expenses, marked gray, and earned our net profits, marked blue. However, this year, our cost structure was different than before. Please go to the next slide. Substantial costs were either driven by time-limited activity, like the Cyberpunk servicing expenses, marked green, and early phase research costs, marked red.
The latter are actually, in a way, an investment into our future products and sales. Also, some new substantial costs were of a non-cash nature, like the Cyberpunk depreciation costs, marked yellow. Let's move to the next slide, number 11. Our consolidated balance sheet. Over the third quarter of this year, our balance of expenditures and development projects remained stable. Our investment into development of future products accounting-wise was similar to the released products depreciation. At the same time, our receivables decreased from PLN 248 million to PLN 166 million, which is natural after a seasonally stronger second quarter. At the same time, our long- and short-term other financial assets increased in line with our purchases of T-bonds as a way of diversifying our financial reserves.
The total value of T-bonds, cash, and deposits included in the positions marked with a star is summed up under the total assets table to the amount of nearly PLN 1.185 billion as of the end of September. This means that our financial reserves increased by PLN 55 million during the third quarter. The CD PROJEKT Group equity increased over the third quarter of 2021, mainly due to the retained profits for the period and capital bookings related to the long-term Group's incentive program. Among liabilities, our trade and other liabilities increased by PLN 21 million, whereas the total level of provisions decreased by PLN 49 million. This was mainly driven by the consumption of the previously set sales provisions. I haven't elaborated much on the expenditures and development projects, so now please go to the next page, number 12.
CD PROJEKT's R&D expenditures on research, development, and service of released games quarterly. This is a continuation of what I was presenting during our previous calls. The yellow part represents our total cost of servicing our released games, mainly Cyberpunk and GWENT. As I mentioned before, the amount dedicated to Cyberpunk continues to decline this year. At the same time, the proportion of the team, and therefore the total expenditures related to future projects, keeps growing. It's represented by both the green slice, early phase research cost, and the blue part, actual development of new projects. This is in line with what Adam Kiciński was presenting just now regarding the involvement of our team. Finally, our simplified cash flow on slide 13. Profits for the period were supported by the nearly PLN 89 million reduction in receivables.
In cash terms, we expensed PLN 26.5 million on development of new projects, while the non-cash book depreciation of historic expenditures on released products reached nearly PLN 23 million. All other flows and changes are below PLN 10 million. Among others, this amount includes payment of the purchase price for Digital Scapes, currently CD PROJEKT RED Vancouver. Altogether, our financial reserves increased by PLN 55 million up to PLN 1 billion and nearly PLN 185 million in cash, bank deposits, and T-bonds as of the end of September 2021. That's all from me for now. Thank you for your attention. Let's now move on to the Q&A.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask a question. We'll pause for just a few moments to allow everyone an opportunity to signal for questions. We'll take our first question from Nick Dempsey with Barclays.
Yeah, good evening, guys. I've got sort of three questions. One question and another two parter. First of all, if we look at the Cyberpunk depreciation and the Cyberpunk service lines in third quarter on slide 10, we know the depreciation line will continue at this level every quarter for basically another four years, I believe. What about Cyberpunk service line? If you're working hard to sell Cyberpunk units, and we're trying to model you selling Cyberpunk units, should we continue to expect something like this for the Cyberpunk service line? In other words, should we continue to expect those two cost items to continue at these sort of levels for quite a while? Second part question. We can see that Cyberpunk 2077 has been priced very low in Black Friday promotions, numerous examples of that.
Two questions on that. First of all, after people have seen those prices and got used to that, is it possible to get Cyberpunk back to even as much as a $50 sticker price? The second question is, given that you guys aren't really chasing volume to get in-game revenue like Ubisoft or an EA, how much of those discounts do you kind of take part in and sanction? How much of it is just the retailer? You're still getting full price, but it's just the retailer having a heavy hit to the price.
Okay. Yes, the depreciation of the already expensed prior to the release expenditures on Cyberpunk development will be with us for next five years from the release. We still have around four years in front of us, and they are supposed to be flat at the level of 3% of the total budget of the game per quarter. Unlike the expenditures for servicing the game, obviously we'll keep servicing the game as long as necessary. However, I strongly hope it will not take five years. As I mentioned during my part of the presentation, already this year, this amount was decreasing quarter by quarter.
Right now we are in a special moment heading to the release of the next-gen edition of Cyberpunk, so part of the servicing expenses is also dedicated to the next patch that will be out together with the next-gen edition. Still a substantial part of the team focuses to work on it. Obviously, after release of the next-gen edition, there will still probably be some work to be done and work to be taken care of. However, naturally, I would expect that after that, the level of servicing expenditures related to Cyberpunk should decrease more substantially. Thank you. That's all from my side as far as the first question is concerned.
Good evening. I'll take the second one. First and foremost, we are focused on bringing back the sentiment, and that's our first goal. Price matters, of course, but more gamers playing Cyberpunk, more happy they are, but the future this franchise has obviously. Regarding pricing, we are not planning any moves in the nearest future. The next-gen update will be for free for all who already bought the game on the last gens. The price of the next-gen version will be same as the price of the current version as this update is for free. Of course, having more content in Cyberpunk, I mean, especially expansion, will allow us to offer new additions, but it's too early to talk about it.
I mean, it's way too early, but of course, we are thinking about stabilizing prices. First and foremost, we have to bring back good sentiment around the game.
Okay. Thank you.
We'll take our next question from Matthew Walker with Credit Suisse.
Thanks a lot. Good evening, everybody. Thanks for taking the question. The first one is just a quick follow-up. When you say that you're stabilizing the prices for, and that will be applied also to next-gen, do you mean stabilizing at the sort of current level that we see on the various platforms, or do you mean stabilizing it by getting it back to the original price of $60? Just if you could clarify that. Secondly, in the quarter, obviously the sales unfortunately have missed people's expectations. Was that due to units or was it due to price or was it a combination of the two things? Lastly, on expansion, you intended to do or you still intend, I guess, to do expansion at some point in 2022.
Can you just clarify that that is your current intention to release the Cyberpunk expansion in 2022?
Good evening. I'll take the first one, Adam. I meant that now you can see a number of promotions on Cyberpunk, not only Black Friday, and some of them are arranged together with us, some are independent activities of retailers. After next-gen is released, we can stabilize the price in terms of promotion, but we are not going to raise the price with next-gen. We can discuss, and we will discuss, when we'll be closer to expansion, what then, after releasing the expansion, should be our pricing policy. It's too early to comment. I can take the third one.
We haven't said anything about dates and the scope of the expansion, so I don't want to pre-announce what is going to be announced when it will be ready.
Okay.
Regarding commenting on the external expectations on our sales, honestly speaking, it's hard for me to comment on external expectations whether any difference comes from this or that factor. There are two things that I would like to point your attention to. First and foremost, Q3 is always one of the weakest or the weakest quarter of the year. Secondly, still most of the sales we generate come from the digital sales as our distributors shipped a sizable number of units on release, and therefore, no additional revenues are recognized by us on this part of the market. Therefore, what we can book into our current results are mostly reports received from the digital distributors. That's all from my side.
I just have one quick follow-up, which is, can you just explain your restructuring of GOG, and does that mean that we're gonna see sales from that product line in the P&L decrease for the next few quarters? Can you just give a bit more color on what's going on at GOG?
No. The restructuring of GOG is rather to allow the team to focus on its core business. GWENT operations will not be co-hosted or co-worked on by GOG team. Entire operation will be done by CD PROJEKT RED. We also decided to move some of the processes that are related to online features used mainly by CD PROJEKT RED directly to CD PROJEKT RED, and at the same time, we organize operations of the company internally as far as the back office of GOG is concerned. It should not have any direct influence on GOG sales, either our or external products.
Okay. Thank you. Thanks a lot.
We'll take our next question from Matti Littunen with Bernstein.
Thank you. Good evening. The first one, on the sales of Witcher 3 or the Witcher franchise in total, could you give us a comment directionally? Was that below last year's level? A question on the promotions you're doing around Black Friday. Apart from the price promotions themselves, is there a significant marketing cost component related to that as well? In general, paid media sort of marketing above, for example, what you did for the summer sales. Finally on GWENT, you mentioned that you're potentially rescaling the team of GWENT. Now, right now, the developer allocation to GWENT is quite considerable relative to the revenues, if I understand correctly.
Would that sort of materially change in the future? Thank you.
Yes. I'll take the first one. Sales of The Witcher in 2021, whether it was below 2020 results. Yes, it was below 2020 results. There were, I believe, three major factors behind it. At the end of 2019, we released The Witcher on Switch, so that was a relatively fresh release in 2020. Secondly, 2020, especially the first half of it, was strongly supported by the pandemic situation, and this effect is not that visible this year.
Thirdly, at the end of 2019, there was the premiere of the Netflix Witcher series, which extended the potential audience and recognition of The Witcher universe, which I believe also, in some parts, supported the Witcher 3 sales. While this year, 2021, there was not much happening in The Witcher universe from our side. However, as you know, we are focusing on releasing the next-gen edition next year. Which I believe will be an important step for the history of this game.
I'll take the second one. Extra costs, marketing costs related to Black Friday. I would say no. I mean, it's close to zero. We have some constant marketing outflow and activities.
Please hold online.
I'm disconnected.
We are trying to reconnect your call.
Hello? Am I back? All right, I'm back. I was disconnected. I'll start from the beginning answering the second question about marketing costs related to Black Friday, because I don't know when I was disconnected. Extra costs are close to zero. We have a constant low of marketing costs, I would say, but there was no extra cost associated to this or that promotion. Piotr, you will take the third one, right?
Yeah. In case of GWENT, our primary goal is to optimize GWENT based on our experience from past years of operating the game. GWENT is already available on several hardware platforms. No need to further invest into this direction. Right now we want to focus on the quality of experience provided within the game itself, rather than on the extensive approach to the technology. At the same time, we want GWENT to be flexible, enabling us to use part of its team in other projects underway at RED, while ensuring that the game continues to receive regular updates and content drops. The aim of it is to reduce part of the costs allocated directly to GWENT, while at the same time, continue supporting it with new content and releases.
Very helpful. Thanks, everyone.
Thank you.
Thank you. We'll take our next question from Jamie Bass with Berenberg.
Hi there. Yeah, good evening, thanks for the questions. I've got three, please. The first one, I don't know if you've covered it. I was cut off for a second but, can you explain why your income tax for the quarter is so low compared to last year? It's basically at zero. Second question, there was an article last week about the Steam performance of Cyberpunk. Is it a fair takeaway to say that the situation, you know, we look into Q4 that the situation is improving on PC and reviews are starting to get better, but there's still a pretty major struggle on console? Third question is, with all this news about COVID resurgence, have you had to consider closing any studios again and going back to working from home?
Are you still continuing to sort of open up and get people back to the offices? Thank you.
I'll start with the first one. Actually, the tax amount visible in the P&L statement is a combination of taxes calculated by CD PROJEKT RED and gog.com. As you may know, at CD PROJEKT RED, we qualify to tax most of our revenues coming from our intellectual properties with 5%. This positive tax from CD PROJEKT RED was relatively low, as big part of that was taxed with a lower rate. Unlike in case of GOG, who had negative results and therefore was allowed to create a negative provision for the tax based on the tax rate of 19%. The smaller negative gross profits multiplied by 19% on GOG's side compensated bigger gross profits taxed by effectively lower tax rate.
Therefore, the total amount of the two taxes from the two test segments is slightly above zero. That's the answer to the question.
I'll take the second one. The situation is improving on PC and consoles. It's more visible on PC as scores are updated daily by Steam. We see improvement of the sentiment surrounding some Cyberpunk on every platform. The third one, COVID and home office. We have internal commitment that we'll continue home office for those who would like to work from home till at least mid-next year while we are preparing and analyzing the further model.
Our idea is to find our own path based on some internal and external research, to propose the optimal model for the group and then iterate. It won't be like the post-COVID model and full stop. We'll propose model, iterate, learn and adjust. We want to stay flexible even though we believe that working, I mean, working on the game and working on, in this kind of industry, is always very easier when we work together, but time is very, and the situation is very different, and we have to be flexible. These days, even though, as I said, a team can work from home, we see roughly 40, sometimes up to 50% of team members working from the office. Thank you.
Very clear. Thank you.
We'll take our next question from Chirag Vadhia with Bank of America.
Thank you for taking my questions. Could you give any further details on what caused the delays of The Witcher 3 next-gen to Q2 and Cyberpunk 2077 next-gen to Q1 next year? That's my first question. My second question is, are you experiencing any wage inflation in your local offices in Poland? And do you anticipate any wage inflation in your new studios in Vancouver and Boston? Finally, could you just talk a little bit more about your acquisition strategy, such as what sort of studios and skills you're looking to acquire going forward? Thank you.
I'll take the first one. As I said, during the presentation, development of both games, next-gen games, is on track to meet their targeted dates. With Cyberpunk, we are currently at the testing stage. It's there. We have to be sure that what we are releasing is in a very good shape. This requires substantial effort since the next-generation includes graphical updates exploiting the potential of the new consoles, along with a set of system-level improvements. I'm talking about systems that are general to the game. Not a revolution, but still they can interact with other systems, so we have to be sure that there is no regression whatsoever. Mostly for this, we need some extra time for testing.
With Witcher 3 next-gen version, situation is a bit different. The next-gen version is being developed by our trusted partner, Saber Interactive. Of course, with collaboration with us. As Witcher 3 was originally released almost seven years ago, of course, technology has rapidly advanced since then, and new solutions have emerged, some of which they were not the game the original game was lacking of them, like ray tracing. This update is truly technical update. There is a small pack of DLCs, but we are working mostly on technical things. As we are talking about new technologies applied to the fairly old game, it's turned out that we need a bit more time for this technical task.
Okay, I'll take the second question regarding the wage inflation. Yes, indeed, we do experience wage pressure caused among others by the high rate of inflation in Poland, and also competition on the remote work market. That's mainly for Poland. As far as the Boston and Vancouver studios are concerned, they are relatively new to the company. We work with them for a couple of months, so it's hard to talk about visible inflation on our side. I would say we are learning these markets, and for the first time, we learn it in practice cooperating with them. So it's too early for us to say whether we see the inflation there or not.
I'll take the third one. As we announced in our strategy, we want to be a bit more focused on M&As. There are at least two ways. The first, which is the Vancouver way, is to empower the CD PROJEKT RED team. The same was with Strange New Things, which we acquired years ago in Wrocław, which is now CD PROJEKT RED Wrocław. Of course, if there is any talented team interested in joining CD PROJEKT RED, supporting our strategy, we are open to discuss. The second way is to find talented teams eager to grow and develop games within our franchises, but still maintaining partial independence. I mean, their own identity.
This is the The Molasses Flood case. Kind of similar to Spokko. Even though Spokko was not acquired, was established in as a startup within the group, it's fairly the same model. The Molasses Flood will be a bit more integrated with the studio, but still, they'll be The Molasses Flood at the CD PROJEKT studio, not at the CD PROJEKT RED.
Thanks so much.
Thank you.
We'll take our next question from Vladimir Bespalov with VTB Capital.
Thank you for the presentation and for taking my question. I have actually two questions. One is on the early project research phase costs. Are we going to see those in 2022 or these are somehow related to your plans to develop in parallel to AAA games or whatever starting from next year, and this could be capitalized from next year? The other one probably is on The Molasses Flood. You mentioned that it's gonna work on a separate project, but is it like an absolutely separate project or is it somehow related to those, again, plans to develop in parallel to triple-A titles or whatever starting from next year? Maybe one more short follow-up on your M&A activities.
Do you have a pipeline of potential acquisitions on the top of the two which you have already concluded? If not, what would be the capital allocation strategy for the cash pile that you have, given that you keep generating quite a lot of cash? Thank you.
I'll take the first one. However, unfortunately, I'm unable to give you a precise guidance on that. On one side, I hope we will always keep researching new projects and exploring new ideas. On the other, the new ideas should, you know, one day, in absolutely most of the cases, transform into development of specified projects, and that's what we are heading to with the projects that are currently under the research phase. That's still for those ones in front of us. Adam?
Yes, I'll take the second and the third. The Molasses Flood project is on top of parallel AAA development. This is planned for CD PROJEKT RED, and CD PROJEKT RED is responsible for this. Molasses Flood is something on top of those projects. But as I said, they'll work closely. They've already started working closely with CD PROJEKT RED, but they have their special expertise and the project is something, as I said, on top of those internal projects. With pipeline of M&As, no, we don't have a pipeline for. I mean, we have pipeline, but we are not changing our strategy.
CD PROJEKT was built in an organic way, and we treat those M&As as a great extension of our growth. Still, we have our own strategy. We have two great franchises, and we want to develop games, and we have even more plans within those franchises. We are rather looking for talented teams to support us, and we are not really looking for consolidating someone's revenues or P&Ls. It's hard to say that we have pipeline of M&As. Of course, we are looking around. We are talking to people, and if we are coming across a group of talented people, ones that are interested in joining us, then we can start a discussion.
It brings to the conclusion that the pile of cash we have will be I mean have a different future allocation. Maybe, Piotr, you can help me with this. For sure buffers. I mean, we were always to keep huge buffers. Triple-A are expensive, and I mean, and we want to be aggressive and brave in our strategy. I think that first and foremost, we need buffers. Piotr, would you like to add something regarding our cash allocation?
Fully confirmed. Nothing to add.
Thank you very much.
Thank you.
We'll take our next question from Ken Rumph with Jefferies.
Hello, gentlemen. Apologies if the first question's already been asked. I dropped off the line and came back again. The first one was just, have you any further comment or quantification on the kind of early stage development that's been expensed? May have been asked already, in which case, just direct me back to the transcript. I'll catch it later. Three quick questions. Firstly, The Molasses Flood, as I recall, was pitching two games at E3 in 2019, Drake Hollow and another one. Was the other game that they were working on, the one that you're the ambitious project that you've kind of taken them over for? i.e., have you been kind of somehow working with them for that long? Or maybe they had a game that they subsequently decided would fit your IP.
Anyway, second question, just an update on employee turnover. Third question. You commented about regarding kind of commenting on the future that you wouldn't. You'd kind of stick to a shorter time horizon. Do I imagine that that's a year? Have I imagined that, or is that the plan? For instance, at the beginning of next year, at some point, might we get a kind of roadmap that says, "Okay, you know, here's the first expansion," and at some point we get a date or a name for it? Or might you, for instance, map out all of the expansion plan? Is there a kind of pattern that we should expect in terms of kind of forward roadmap? Thank you.
Hello. I'll take the first one.
There was a question before.
Sorry.
Before. Whether we elaborated anything more specific on the early research-based costs. No, we did not. During Q3, we expensed PLN 4 million on it, and naturally we didn't elaborate more on what project it refers to or what specifically was done within this budget.
Okay, that's great.
Adam?
Thanks.
All right. The Molasses Flood. I think that I have to skip this question because it's internal thing, and we are not revealing too much about what kind of project and we are not guiding in any direction regarding our project. Yes, they released two games. We were evaluating what they have been working on, but no further comments in this regard.
Mm-hmm.
I can add one comment. We didn't acquire them, we didn't join forces for their game. I mean, they've already started working on the game which is within one of our franchises, which was not possible before we concluded the deal. Your turnover.
Okay.
Is it yours?
Over the past 10 months, our turnover was at a standard, I would say, 12% or so typical for the industry, where some churn typically occurs in the wake of each large project. People move on to other projects or to entirely different endeavors. I believe it's a natural process and we are within the industry standards, and there is nothing surprising us or nothing substantially different to what we experienced after the release of The Witcher 3.
Mm-hmm.
I'll take the third one. I think that we'll come back to the strategic plans after the next-gen version of Cyberpunk is released because this is key. I mean, the sentiment around Cyberpunk is absolutely key to our nearest future. Yes. Definitely not before. Let's release Cyberpunk, let's see where we are, and then let's talk about the next year or years.
Okay. Makes sense. Thank you all.
Thank you.
Again, if you would like to ask a question, please press star one. We'll take our next question from Tomasz Rodak with Dom Maklerski BOŚ S.A .
Hi. Thanks for taking my question. I would like to know if you are talking to physical distributors about next-gen versions, releases, of Cyberpunk and The Witcher 3, or are you already talking about these releases? Will you have to provide additional boxes for these releases? Or maybe there are already enough boxes left from the time of the main premiere? This is the first question. Yeah, the second question regards the roadmap for Cyberpunk for the next year. I understand that you will provide the roadmap after the next-gen version is released. That's what I understood from your last answer. Could you confirm it?
Third question is regarding the Molasses Flood. I wonder when will you be ready to reveal anything about the new game from Molasses Flood. That's it. Thank you.
The first question, yes, obviously, we talk with our distributors on how to launch a next-gen edition and how to use it on their territories. I'm afraid I have no details to show right now, as not everything is agreed yet, and not everything will be initiated exactly at the same time. Please stay tuned, and I'm sure that shortly or in one day, we will announce more details on that.
Hi. I'll take the second one. Roadmap. Yes, after next-gen edition of Cyberpunk, definitely, but nothing is set in stone. We want to release the game, see the situation and then decide when to update the strategy based on the data we'll have after the release. It's hard to commit to any date, depending on what we'll see after release. The third one, I'll take the third one. When? Well, it's way too early to say. We've started, but you know, we are at the very beginning of the way. We are establishing how we cooperate.
We are working on designs, of course, but you know, it's an initial phase, so I'm not going to guide when it will be. It will be when it will be ready to talk about the game, to reveal design and to explain this concept to gamers.
Thank you.
Thanks.
We'll take our next question from Nick Dempsey with Barclays.
Yeah, good evening. Just gonna squeeze in another one. Provisions were a slightly confusing element in Q2. Can I just confirm that there are no further dissolved provisions impacting the net sales in this quarter and no new provisions either? When we're looking at provisions in your numbers, that just relates to the cost lines in this quarter. Is that correct?
Yes. Major change in the provisions line comes from natural consumption of the provisions we set historically. Obviously, there were some new cost provisions as it's natural for the ongoing business, but there was nothing like big new provision coming in or cancellation or revaluation of the provisions we historically set.
Helpful. Thank you.
That concludes today's question- and- answer session. Speakers, at this time, I will turn the conference back over to you for any additional or closing remarks.
Thank you very much. I think we've covered everything. We have comments or questions waiting on the chat. All right, we can cover this. I'll read it out loud and then I'll answer. The first question is from Michał Wojciechowski from IPOPEMA Securities . You announced patch 1.5 to be released in line with the next-gen version of the game. Why you are skipping patch 1.4? Is it included in 1.5? Well, it's a big update, so we wanted to stress it with round number.
It's hard to say that we're skipping, but that's true. We are not releasing any updates before next-gen edition to pack the whole batch of improvements in one big update to support the impact on next-gen edition. The next one is from Konrad Krasuski, Bloomberg News. How far are you from reaching new milestone with number of Cyberpunk copies sold? As you know, we normally share such sales data as a marketing tool. Therefore we did not plan to release this information today, neither precise information or information whether we are close or not that close. Excuse us, but today is not the day. We will elaborate more on that. The next question from Mr. Krasuski.
What is the technical stage of preparations of next-gen? How certain are you concerning Q1 as a date for Cyberpunk update? As I told during the presentation, all information we have from both teams, Cyberpunk, our internal Cyberpunk team working on next-gen edition, and Saber working on Witcher 3 next-gen editions, are saying that we are on track. That's what we can say. In terms of the status of Cyberpunk development, it's in a testing phase. We are testing the game, checking whether everything is fine as I said, there are improvements and changes in general systems which can interact with many other systems.
We have to truly test the game to be sure more than ever that what we are releasing is well-polished. The next question is from Michał Wojciechowski, IPOPEMA Securities . When exactly in 2022 you expect to start simultaneous full production of two AAA games? Our answer, actually it's already started, but still we are in R&D phases. We have two groups of. I mean, we have a group of developers working on the next AAA, but it's not capitalized yet. In early next year, there will be stronger. After releasing next-gen edition, actually, it will be the right moment to say that, "Yes, we are producing AAA content within two franchises at the same time." I'll take the next one from Piotr Poniatowski, mBank. How many developers worked at Spokko at the end of Q2 2021? The answer is simple, around 50.
Next question from Marek Kaźmierczak, VIG C-Quadrat TFI. Cyberpunk 2077, we have not heard anything about online or multiplayer. Could you elaborate on that?
Yes. I know I can add some color. The plan remains the same. We are planning to add multiplayer functionalities in the future to both franchises, including Cyberpunk gradually. We are not revealing when which franchise will get the first multiplayer functionalities. The first attempt will be something we can learn from, and then we can add more and more. Step by step, we want to open our single player experience. We want to open doors to multiplayer, but adding some multiplayer activities gradually.
The next question is for Kacper Kopron, Trigon. Have you considered implementing Cyberpunk into a subscription service like Xbox Game Pass? Can you discuss the advantages and disadvantages of such cooperation from business point of view?
I can answer. We always consider any business opportunity, but this kind of subscription model is good at a certain moment of the life cycle of the product. Not too early. But Witcher 3 or one of the Witchers was for some time in subscription. We have to weigh the benefit and cost each time, so we have to compare it to sales. It's a rather a decision based on data. It's way too early for Cyberpunk, definitely. As I can see, this is the end. I mean, it's close to 7 P.M. here in Warsaw. Thank you very much. If you have any further questions, please contact our IR. We are glad to help you.
Thank you very much. Have a nice evening.