Interim Report - Q1 | Paradox Interactive

Añadido: 2026-05-07

[00:00:01][music] [music] [music] [music] [music] [music] >> Hello everyone and welcome to the quarter one interim report stream for Paradox Interactive with me Fred and I'm Alex Bricca, the CFO.

[00:01:21]Perfect. So as always we start by going through all the projects that we released or the releases for Q1 and then we go over to the numbers which Alex will present to you and then we'll do a Q&A and we even got our first batch of AI generated questions for this stream. So we're super happy to see that we're in the AI age finally.

[00:01:43]So that's me and we move on. Um it's a balanced not say a bit boring first quarter with a very few releases.

[00:01:53]Worth mentioning here like Alex will probably mention as well is that we have a small small growth on revenue.

[00:02:01]If we take foreign exchange into account because we see a bit of a weaker dollar compared to the same period last year.

[00:02:09]But overall stable revenue stable operating margin and stable cash flow.

[00:02:16]So uh 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 and if opportunities should arise we're well prepared to take care of those as well.

[00:02:32]Uh 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 and it impacts the sales with in a good way. So we're super happy with that. Our studio in Tampere Iceflake has made a great job of um gathering the community and releasing a string of patches that has improved the the quality of life on the product.

[00:03:03]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.

[00:03:13]And as I mentioned where it is a bit of a calm release quarter gearing up for the year to come. Last year we released in Q4 released DLCs for all our major products and in Q1 it's the only big DLC we had was for Age of Wonders 4 which is a good game good stable game and community but one of our smaller smaller franchises.

[00:03:36]Uh so we have a lot of stuff lined up later this year. So like I said right Rise from Ruin for Age of Wonders 4 was the only big DLC then we did some releases for Hearts of Iron 4 for Cities: Skylines 1 and that's it. Cities: Skylines II obviously Office Evolution and City Stations.

[00:03:57]Um so overall calm and controlled.

[00:04:03]Uh I posted this on LinkedIn a couple of months ago and it was picked up by a few people but I I think it's worth mentioning so you can see how we see development from the inside. So 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. But 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 daily peak users for all our games combined. So we have more or less quadrupled the number of gamers that we have and 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.

[00:04:53]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 content creator packs and whatnot. So keeping a healthy growth and pace of concurrent users is absolute key to our business.

[00:05:14]And of course we look forward to adding more games to the already seven 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 good sake.

[00:05:30]So we build games that players value for a long period of time as well. Stellaris and Hearts of Iron 4 both turn 10 this year in May and June. So you can easily see the longevity on our franchises once we have a hit.

[00:05:47]And of course we have the ambition to grow so we're kind of taking aim here or or preparing next sprint in the life of Paradox. So those are the seven 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 seven key franchises.

[00:06:11]And here we focus on fine-tuning the player experience and making the player experience better while building our strategic moat for each game.

[00:06:22]Also we're going to focus more on improving the player services around the games if you want to call it meta layer or meta game or however you put it.

[00:06:31]What we used to say seven games in the pipeline is now eight 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.

[00:06:43]Uh yes some maybe even sooner than that we'll see. But 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's currently looking for funding. They might have gone halfway through or 75% through on the project and and they might need funding. So a partner like Paradox might come in handy there as well.

[00:07:07]But our focus remains on strategy and management games so that's where our sort of our key efforts will still be focused.

[00:07:16]So Alex I'll let you go through oh go through the numbers. Thank you Fred.

[00:07:20]Right. So so you mentioned it a bit revenues came in at 431 million in Q1 this year compared to 464 million in same quarter in last year. So that's a 7% decrease.

[00:07:33]Uh as you know if you follow Paradox you know that we have two things that that drives our revenue from quarter to quarter. It's what we release in the quarter and currency impact. Let's start with currency impact since you touched upon it.

[00:07:46]I think the dollar is down 14% if you compare Q1 this year compared to Q Q1 of of 2025. Euro a bit less 5% pound eight Chinese yuan 10. In average it's about 10%. Yeah. So so take away 10% that's 40 to 50 million from last year's revenue.

[00:08:09]So that means that we have grown two three percentages organically this year.

[00:08:15]Not spectacular but still No and it doesn't make the most sense to do this do this comparisons because we we don't have a stable release pattern from quarter to quarter. So the next thing is therefore to look what have we released Q1 tends to be slow.

[00:08:33]Uh and it's no different this year. As you mentioned Fred 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 that made the the only big expansion release.

[00:08:50]Uh so where is it down? Uh 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. So therefore we're a bit down this year.

[00:09:05]Uh Stellaris didn't have a release last year but they released expansion passing Q1. So that So when we release expansion passes it generates a lot of sales but we don't put that on to the as revenue. We don't recognize it as revenue until we actually release what is in the expansion pass. Right. But even so when we release an expansion pass it 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. So that happened in Q1 last year when we released the Stellaris expansion pass.

[00:09:39]Now that this year it comes in Q2 instead I think. Right. So we didn't have any big [clears throat] Exactly. items on the balance sheet that we could we could count in for Q1 this year.

[00:09:50]Uh well we didn't release any we didn't announce or release an expansion pass on Stellaris So that will come later this year.

[00:10:01]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 and I think worth mentioning even though it's flat fairly much is Cities because last year when we released the the content creator packs and radio stations on Cities 2, that was part of the premium edition. So and when we release premium editions with the original base game on our most successful titles, we sell a big chunk of premium editions. So a lot of the money is sitting on the balance sheet and when we release the content, we release and recognize revenue and that happened in Q1 last year. Right. So therefore Q1 for Cities last year is a very tough comparison due to this. But still we managed to make very similar revenues this year and that has to do with the fact as you mentioned Iceflake has been able to turn around the sentiment on the product. So so the sales levels now is looks very good.

[00:11:07]So that I think is one of the highlights of the quarter.

[00:11:12]Yeah.

[00:11:13]Top revenue contributors is the same as always.

[00:11:18]It's our big seven franchises as you mentioned plus Bloodlines this quarter.

[00:11:24]I'm afraid it's going to have a diminishing impact on the top line quarter by quarter but Q4 it has had a big impact of course still significant impact in Q1. Let's see what happens in Q2.

[00:11:38]Yeah.

[00:11:39]Operating profit 101 million compared to 147 million. So so so it's down 46 million SEK compared to last year. It's effects on top line and it's amortizations. We have higher amortizations this year. We will come back to that but that has to do with the fact that we released big games in Q4. Bloodlines Europa Universalis 5 but also Surviving Mars and with our degressive amortization model we take a lot of cost in the early periods most in the first quarter like Q4 but significant amount also in the second quarter like Q1. So that that pushes down profit. It also if you move on so profit after financial items 106 compared to 140 54 million last year profit after tax 86 compared to 124.

[00:12:29]Profit margin 25% against 33% of Q1 last year. It's the same there. It's effects and it's the the amortization of the base games we released back in Q4 that that that holds it down temporarily I would say in Q1.

[00:12:47]Equity asset ratio very solid company 80%. It's slightly down since since the year back and that has to do with the fact that we we renewed the office lease agreement here in Stockholm. So we put that on the balance sheet as an asset and as a debt. So therefore it decreases a bit.

[00:13:06]Average number of employees in the quarter 681 compared to a 596 one year ago. So it's a massive increase. Big chunk of that is Haemimont that has been added but we also increased Haemimont has continued to grow because they they are they have projects that are moving into later phases and that means that we add on people to the team. And also Iceflake took over Cities: Skylines.

[00:13:31]>> Iceflake took over Cities: Skylines 2.

[00:13:33]That's right and we see some smaller increases here and there in especially in the development studios. Right. Let's move on to the next slide.

[00:13:44]Right. That was my job.

[00:13:46]So so so this chart shows it's the standard chart as we have had before.

[00:13:52]Revenue and our three main costs.

[00:13:54]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 fluctuate with the releases especially selling expenses and COGS and you can see that in Q4 proportionally very big bumps and now in Q1 it's back to much more normal levels.

[00:14:23]Cost of goods sold 264 million this year's Q1 compared to 221. So it's up.

[00:14:30]We're going to talk we're going to deep dive a bit on that on the next slide.

[00:14:34]So let's take selling expenses there. We are down from 48 million last year to 41 million this year and that has to do with marketing on EU5 last year. We started to to take cost for the the launch already in Q1 and we had slightly more releases last year. So we spent more marketing on Hearts of Iron and Crusader Kings.

[00:14:59]Administrative expenses normally stays very flat.

[00:15:04]This time is up 6 million almost and that is one off items where of the biggest one which represents a little more than 50% of those almost 6 million has to do with the list change. Right.

[00:15:21]We can touch a bit more on that but but we are having fees for for applying for the list change to Nasdaq and also advisors to help us get prepared for a list change. So so that is something that is temporary and will go away as soon as we have completed the list change.

[00:15:39]So this is good.

[00:15:40]>> Let's go to the next slide. This is new, right?

[00:15:43]>> This is new. Yeah. So part of this has always been in the quarterly report number wise and part of it we have talked about during the stream. So so now let's also add a slide. So these are the seven kind of sub components of the cost of goods sold. So in total 264 million if you add everything together for Q1 this year compared to 221 million last year and 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 here but it's 120 million Q1 this year compared to 72 million last year. So that's a 48 million SEK difference. And if you take the three games that we released in Q4, Bloodlines 2 Europa Universalis 5 and Surviving Mars relaunch the amortizations on those three games alone in Q1 explains this 48 million difference and some more.

[00:16:43]So that means that the remaining games have slightly less amortization compared to Q1 of last year.

[00:16:50]So and this is also a temporary effect that will of course go down. We will see effects already in Q2 where the majority of the development cost for these games have been amortized.

[00:17:03]Write downs zero in Q1 this year and zero Q1 last year.

[00:17:09]Then we have amortizations of licenses, trademarks and similar rights. So this is this is amortizations of acquired businesses and assets. So we we have this year we have taken 8 million SEK as costs and last year we took 16. So this is acquisitions so this year it's the acquisition of Haemimont and the acquisition of the game Stranded Alien Dawn both we we made like one year ago. Yeah. And why does it go down? Well because in 2020 we acquired Playrion and then we we we amortize these acquisition costs for Playrion we did it linearly over five years. So that meant last year it was fully amortized. So then we don't have any amortization left.

[00:17:55]We we we do this quite I think prudent not to say aggressively. So so we like to to allocate when we acquire a company like Haemimont we like to attribute the the the acquisition price to assets that we can amortize over time.

[00:18:13]So if you read the notes from the acquisition, I think we we spend roughly 10 million euros as a fixed amount for acquiring Haemimont and that we are amortizing in in different ways and then we have roughly 10 or 11 million more in earn out that we are also taking. I think in 2025 we took 32 million SEK as costs. So that pushes down the the profit and loss temporarily because we think the value of Haemimont for example is not decreasing. It's it's probably going upwards if if we're doing the right things together. Yeah, for sure.

[00:18:54]>> But but as we recognize it, we we take it as a cost over the initial years. So it's a very prudent way to do it.

[00:19:03]Let's move on. Non-capitalized development costs. So this is uh 72 million this year compared to 75 million last year. So it's it's not a big change.

[00:19:17]So this is development costs that we have for project that we don't capitalize. Early stages for some of prototypes. Yeah. So so it can be either prototyping for all projects like even the the low risk projects that we do in house. The prototyping stages we don't capitalize. But for the more high risk projects everything that we have released under Arc, there we wait even further until we start capitalizing. So so 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 uh this instead.

[00:19:56]So this is another I think prudent way to handle development costs.

[00:20:03]So let's move on to the what's the sixth one? Development support operations and maintenance of game.

[00:20:12]So so this is tech cost that we have in publishing. So it's development of more generic tech.

[00:20:21]So it's not game development. So this is development and maintenance of the launcher, the mods tools, the forums, everything regarding that.

[00:20:30]Everything that is not the game, but still tech related. Yes. And that also stays fairly flat. So let's see, it was 24 million this Q1 compared to 22 million last Q1.

[00:20:41]Finally, royalties and revenue based earnouts, 34 million in Q1 this year compared to 29 million in Q1 last year. It stays It has over the last year stayed at this level more or less.

[00:20:56]So it's mainly royalties of Cities and earnout on the Triumph acquisition. So it means it's based on revenues from Age of Wonders 4.

[00:21:09]Now and it goes up from Q1 last year because Age of Wonders 4 released an expansion this Q1 which generated more revenues and therefore it generated more royalties.

[00:21:20]Now that that agreement ends today.

[00:21:23]So so April is the last month that we pay this earnout. So therefore royalties and well royalties will stay the same, but revenue based earnout that is included here will drop in Q2 compared to Q1.

[00:21:38]Right.

[00:21:39]Next one? Yes, that's it about COGS. All right, so then then we have if you look in the P&L, we have four more items. We have other income and other expenses to start with.

[00:21:50]So if you add those together, it's a positive impact of 6 million this Q1.

[00:21:54]Last year's Q1, it's a negative net impact of 23 million.

[00:22:00]And this is mainly currency movements within the quarter and it's especially dollar movements within the quarter. And if you might remember last year's Q1, the dollar went down significantly and that's why we had the negative impact during the quarter. But it was still higher than it is now, right?

[00:22:19]Yes. So yes, so this only explains dollar It mainly explains dollar movements in the quarter, but it's a good thing you're pointing out. If we compare Q1 in total this year compared to Q1 in total last year, then the FX movements have not been in our favor. That's how in total 10% on top line down. It's very good to point out.

[00:22:41]Then we have the other two two bars to the right, financial income and financial expenses. So that is It goes from net 7 million to 5 million. It's basically the interest deposit interest rate we have on our bank account. It has gone down because the interest level has gone down. So good news for homeowners, not so good news for our money in the bank, right? Exactly. Exactly.

[00:23:08]All right. And financial expenses explain self-explanatory, I guess. So we'll move on to the next one. Yes, let's move on.

[00:23:16]Right. So this chart shows rolling 12 months to to show you a bit more trend.

[00:23:22]Bar shows revenue. The yellow line shows profit or operating profit.

[00:23:28]What you can see if you look at the revenue trend, it has There are some some ups and downs, but the trend is very clear. It's very similar to the CCU chart you showed Fred earlier at the presentation. It is steadily going up back from the first North listing in in 2016 up until where today.

[00:23:48]So that's a very healthy trend. It's four times both on the CCU and on the revenue more or less. So uh it follows the same sort of chart which which shows us that the health of the company can be measured pretty much by the monthly active users or the like the combined CCU curve that we see. Yeah, good point.

[00:24:08]And profit on the other hand, that's that's much more volatile with short releases, good releases just as the revenue have, but also with write-downs of projects that haven't gone very well. And 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. But now we have a very clean balance sheet, I would say.

[00:24:44]Very focused titles with So we Well, we can't promise anything. We think it's going to look a bit better from now on. Yes. So so I think just as you said, in our balance sheet now we don't have any high big items on high risk projects anymore. So and that's a great foundation to start building a nice growth on yellow line as well.

[00:25:11]For sure. Okay, let's move on. Let's move on. I think that's the Q&A. I think you clicked the Oh, you double clicked.

[00:25:18]Yeah, yeah, yeah. You don't want to miss this. So cash flow? Cash flow.

[00:25:23]Green bars going upwards is cash flow from operating activities.

[00:25:28]There we made uh 309 million SEK in Q1 compared to 266 Q1 of last year.

[00:25:37]Not bad at all.

[00:25:39]And you shouldn't look at single quarters because there are movements between the quarters, but look at Q4 as well last year. So even stronger. So the cash flow in the company the last two quarters have been truly amazing.

[00:25:54]The yellow bar shows here if you have looked at our presentations before, it's it's worth pointing out we made a little change here.

[00:26:02]Now the yellow bar shows investments in capital development.

[00:26:06]Previously we also had investments, for example, when we bought bonds and when we bought companies. I think this shows better how the underlying company's performing cash wise. So there we we had very similar 121 million in in investments in capitalized development this year compared to 120 last year. So so very stable.

[00:26:32]Excellent.

[00:26:33]That I think takes us to the questions.

[00:26:37]for Q&A. So we've had some questions that popped in and as I mentioned, there might be some AI generated questions as well because 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. But don't do that.

[00:26:56]Try to come up with your own questions.

[00:26:58]Here we have a good one.

[00:27:00]How do It's for you, Fred. How do you aim to replenish your pipeline with new projects?

[00:27:05]That's a very good question.

[00:27:07]Um 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 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 and at the moment need a good partner that has strong finances and a publishing pipeline and that's where Paradox comes in handy.

[00:27:39]So we're we're actively scouting for new opportunities and we do have space for more projects in the pipeline. Not a whole bunch because we want to do a great job for every project, but we we might fit one or two more projects in there. We'll see if we can find something. We're not going to pick up just anything, but something that fits with our portfolio, with our business model, with our way of working pretty much.

[00:28:03]All right, Alex. Could you please quantify the impact of FX on revenue development in Q1 26 versus Q1 25?

[00:28:11]Yes, touch up on that. Yes, I think we did, but it's worth repeating. So roughly it's a 10% headwind on the revenue. So revenues are held back some 40 to 50 million SEK due to the increased value of the SEK compared to dollars.

[00:28:28]>> that go directly all the way down to the bottom line as well, right?

[00:28:32]Well, that part goes directly down, but then of course we have we have some costs in in euros for our European studios.

[00:28:40]We have some costs in dollars as well.

[00:28:43]So we have a small natural hedge, but but we have some 97 98% of our revenues in foreign currency. Cost wise it's roughly 50.

[00:28:55]Uh Cool.

[00:28:58]Question to you, Fred. Can you give some more color on the internal work with Skylines 2 and your expectations on new content releases for the game throughout the year?

[00:29:10]That is a great question because I was I came home from Tampere yesterday. I visited the studio for 2 days. It was very um enlightening for me. I hadn't been there before and I hadn't thus seen the new office where Cities Skylines 2 is being developed.

[00:29:27]Um and they might had a flying start with Cities 2, you could say, releasing a string of patches that has had turned the sentiment on the game. So 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 revenues. So it's it's positive of the board. Um Obviously, bringing a new team and taking them up to speed where we want to be has taken some time, but we're going to start releasing um new content. Uh hopefully, we're going to announce something soon, but we can't give any direct promises on on what to do. But we we hope to very soon be up to, you know, the speed where we want to be and the release cadence that we want to have with the game. But the most important thing is that the game is in good shape once we start releasing this. So, we're not running into more problems, especially on the performance side. So, Cities 2 is is getting there slowly but surely and and it has shows all the right signs. That's what I can say in in in summary. And I can add without saying the numbers, but the revenues in Q1, if you add the franchise together, Cities: Skylines 2, console part of Cities: Skylines 1, UGC, it did great revenues.

[00:30:43]Great. So, this is from both of us. Do you expect a change in the level of non-capitalized dev cost versus last year? And would AI allow you to do more with less, thus resulting in less development costs? So, that's a two It's a double question, right?

[00:30:57]>> Yeah, so so let me take the first one.

[00:30:59]Do you expect a change in the level of non-capitalized development versus last year? Yes.

[00:31:04]That is so what we showed. So, non-capitalized development cost It's very little changed compared to last year.

[00:31:10]It's a big change if you go two, three, four years back. Where we capitalized almost everything. Yeah, yes. So so So, it's fairly flat and yeah, I think that's that's answered that questions.

[00:31:25]I think. Yeah, and touching on the AI side, I could do that probably. I mean, we think that first of all, AI is going to help us release more things quicker and better with higher quality.

[00:31:37]And the our aim with using AI tools is first and foremost to increase the cadence and increase the production quality of what we're doing.

[00:31:46]And we're slowly getting there.

[00:31:50]So, Alex, what's what's the timeline for the move to the Nasdaq Stockholm main market?

[00:31:56]Would you be open to buybacks in the near term 26 27?

[00:32:01]Right. [snorts] So, when we disclosed this, we said that we will make the move during this year. So, at some point during 2026.

[00:32:11]We sent in the application to Nasdaq at the end of February. And that means that it can't happen earlier than 3 months after that. So, so, the earliest theoretically possible time it can happen is is at the very beginning of June. And the latest, according to our target is is December. So, sometime sometime between June and December. And we do everything we can to to to make it happen as early as possible. December 2026.

[00:32:41]Slightly earlier, I hope.

[00:32:43]And what was the second question? Would you be open to buybacks in the near term? Well, so so 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. But that's a board decision.

[00:33:04]>> That's a yes. So so so whether the board will use that or not will have to be strategized by the board over the next 12 months.

[00:33:13]But the possibility is there once we have completed the list change and once the annual shareholders meeting have given the board the mandate. Mhm.

[00:33:24]Fred, Europa Universalis 5 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, on the total reviews, but the recent ones are 47 48 something.

[00:33:50]I just to to to correct.

[00:33:53]>> [clears throat] >> And what we did with EU4 Paradox Tinto, the development studio, was a lot of rapid changes after the game's release and it had different impacts on the game and the reactions from from the community was to certain extent negative. So, we're working now to still balance and and work with the issues that people have with the game. And it's going at a really good pace as well.

[00:34:22]And they're improving the game day by day. As you know, we work with very complex games, so it it sometimes it takes some time, but we think we're really on the right path of of fixing all the things we need to fix and 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 corner here in the beginning of May. So, you have a lot to look forward to all of you EU4 fans out there.

[00:34:50]So, Alex, 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 platforms as a part of the pipeline strategy? It's it's a bit of a both. So so if you look at one of the notes in the report, I think we made 49 million SEK of revenues in Q1 last year from console.

[00:35:14]49. And this year's Q1 we did 71. So, it's an increase. And the main explanation is Bloodlines 2. All right.

[00:35:22]So, Bloodlines 2 had of course zero last year and it has a significant share of its revenues coming from console as we expected.

[00:35:30]But also Age of Wonders Age of Wonders 4 released this this quarter and Cities: Skylines 1 where we came out with a DLC both on PC and console for the first time for some while.

[00:35:44]So, I I I think I think the the part of this the main part of this increase that is attributable to Bloodlines 2, that will decrease over the next quarter.

[00:35:54]Mhm. But where we where we have an upside is of course Cities: Skylines 2 because out of our core games, it's Cities: Skylines 1 that has had most of its sales generated from console.

[00:36:09]And there we haven't yet There we have yet to come out with the console version to Cities: Skylines 2.

[00:36:14]But apart from that, it's a decision that every game game team or we make game by game. Some games are we think are the right thing to to to seem shipped from the start.

[00:36:28]Some games are not. Some games there we can port to a console version later on. And some games are better just being a PC version. So, so it depends on the player base and the game. Yeah.

[00:36:41]Fred and Alex, let's see. You increased pipeline by one from seven to eight in the quarter. Yes.

[00:36:50]Is that related to note four? All right, subsequent events.

[00:36:56]Is this in line with the strategy for publishing mentioned in the CEO comment?

[00:37:01]I can answer it on the on the the formalities. Yes, in note four 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 seven to eight because we have added a publishing game. Yes.

[00:37:21]And it's a game we can't speak too much about that right now. We're going to come out with more information soon.

[00:37:27]But it's it's a game that fits our portfolio really well.

[00:37:32]That's all we can say at this point, I think. We will get back to you with more information.

[00:37:36]Yeah. We wished we could have said more though. Yeah.

[00:37:39]To what extent is Paradox currently using AI in its development process and how fast are you are you to adapt? Do you expect AI to dispro- disproportionately benefit smaller teams by improving efficiency compared to larger publishers? And more generally, how much of a threat do you see AI posing in to the existing games industry?

[00:37:59]Well, you you talked a bit about it. I spoke a bit about AI. So, 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 and music side.

[00:38:14]So, we're um a bit caution 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 or our own engine.

[00:38:34]I think AI will benefit smaller teams, yes, to a larger extent than 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 two, three, four years ago.

[00:38:50]And um 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. There's easier and easier to release a game for every year because the number of things you can number of tools you can use to make a game just increases for every year. Now, AI is a jump forward on that sort of trend line, but it's not going to revolutionize anything for us. I think in the short to medium term, this is a strategic strength for us because it's going to increase our mode, it's going to increase our release cadence.

[00:39:28]It's hopefully going to increase the quality of what we release as well. So, I see at least for Paradox, I see AI in the short to to medium term as a big strategic benefit rather than a strategic threat. But it's always hard to see where a tech trend is going in the long term, right? So, for the industry as a whole, sure, more games are going to 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. So, they get better games at a lower cost, pretty much. So, quality is going to increase.

[00:40:10]Sounds good. Yeah, it sounds like a good paradise, pretty much. Maybe it's not, but still step in the right direction.

[00:40:18]Perhaps one more question for you, Fred.

[00:40:20]>> Oh, yeah. Players in China and Western markets often want pretty pretty different things from your games. How are you handling that balance, both in how you design games and how you sell them?

[00:40:32]We We seem Our view of this is that we have gamers both in in in the West and in in China or or in Asia. And we see that China has been growing significantly for us in the past 6 7 years. So, we don't see the design component as critical to to address a certain market. It's It's more about how you charge for the games and the price levels and stuff like that.

[00:40:58]Um there are differences in in what type of content people prefer in different markets. In in our historical games, it has to do with um uh for example, what 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. So, of course, it's going to um be more attractive to Asian gamers.

[00:41:24]But, all in all, I mean, the marketing is 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. But, 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.

[00:41:52]So, Alex, is it possible to quantify how much the cost base could come down from Q2 given lower royalty fees from Asia One is foreign Q2 26?

[00:42:02]What was the non-recurring item cost in administrative expenses and how large?

[00:42:07]And what CapEx run rate should we expect for this year? Reasonable that it could come down as Bloodlines 2 in year five is out or do you have new projects filling the gaps? All right.

[00:42:19]>> That's a lot of questions. How much time do we have? Yeah. We have 19 more minutes, so.

[00:42:24]All right, I think we can do them fairly quick. So, the first one, how much could the cost base come down in Q2 or from Q2 in terms of royalty fees? So, there you see it. We had like 30 million in total royalties and revenue based earnouts.

[00:42:43]Uh I think Q2 will will will tell you pretty much because we will have one month in that quarter where we still have the earnout and two months [clears throat] without it. Uh so, I'm not going to forego that and tell you how much of this >> You will see in the next report.

[00:43:00]>> Yes. You you you you you will probably be able to do a fairly quick estimation going forward based on the next report.

[00:43:07]Mhm. Um Non-recurring item cost in administrative expenses. Yes. So, so so admin expenses went up from 25 to 31 and we said it's mostly non-recurring, so it's one-offs.

[00:43:21]And the the slight majority of that increase has to do with this change. Yes, so it's application fees to to Nasdaq. It's uh uh cost for advisors that are helping us to prepare the company.

[00:43:35]Uh yes. So, so so that's what what it is and uh it will come down, of course, once the project is done.

[00:43:46]More questions in the same question.

[00:43:48]What what CapEx run rate should we expect for this year? Reasonable reasonable that it could come down as Bloodlines 2 in year five four is year five is out or do you have new projects filling the gaps? Yes, so so there you see it. I I think I know we said when we presented Q4 we said that the investment in CapDev that is so in Q4 was probably at the good base level. That's probably where we'll be going forward. So, now we have come down slightly more from Q4 to Q1.

[00:44:26]So, maybe something between Q4 and Q1 is a good estimate on where we'll be in Q3 and Q4. Uh sure, year four is out, but but so yeah. Year five is also out.

[00:44:42]But, we still have investments to make in DLCs for that game.

[00:44:49]We're not decreasing the development on the game. Uh and then we have the other eight games in the pipeline where we increase on most as the projects are proceeding.

[00:45:00]We tend to increase. So, but that's So, I think Q4 Q1 uh are good levels. Maybe Q maybe closer to Q4 and Q1 if I'm going to guess.

[00:45:15]And that was the final question for the day. We want to thank you very much for watching this Q1 live stream with with me, Fred, and um Alex.

[00:45:25]And we hope to see you next time when we present the Q2 report.

[00:45:30]>> Q2 report.

[00:45:31]>> And that will be at the beginning of August.

[00:45:34]>> Beginning of August. Don't miss it. It will be a lot of fun. See you next time.

[00:45:38]Cheers.

[00:45:38]>> Bye.

[00:45:39]>> Bye.

[00:45:43]>> [music] [music] [music]