Earnings Transcript for PDX.ST - Q2 Fiscal Year 2023

Alex Bricca: Hello everyone and welcome to the Paradox Interactive Quarterly Stream. Hopefully you can hear me this time. We are very sorry about the delay. We have experienced some technical issues here in the studio. This morning we released our quarterly report for the second quarter and we are here to present it to you more in detail. I am Alex Bricca, I am the CFO. And with us on link, we have our CEO, Fred Wester. Are you there Fred?

Fred Wester: I'm here. It's really good to be with you on this stream. I think I'm the one who's going to I'm going to start talking, right?

Alex Bricca: Yes. Please go ahead.

Fred Wester: Right with the first slide that only has my name on it, I think we can skip that one. We should be done with that already and explained. As you can see -- in the quarterly report we have delivered, as we say in the -- in my words from the CEO, we've delivered on the strategy that we set out a couple years back. And obviously, the results of the quarter is also driven by the release of Age of Wonders 4 that was well-received both by critics and in sales numbers of the -- we also released the line -- a line of DLCs for all our core titles. And also worth to mention here is a title from Paradox Arc called Mechabellum that released in the beginning of May, that's been doing fairly well with really promising retention numbers. We're looking forward to building further on whatever this game has for us in the future. And as we know already it will vary a lot between quarters and depending what we released even if the baseline of the company continues to increase. And we can see a steady movement upwards in both topline and volume as a result of that. If we move on to the next slide here we can see just a summary of the releases through the quarter. And as you can see it was especially a very busy May with Age of Wonders 4 releasing. We had Crusader Kings III

Alex Bricca: Thanks Fred. So, let's as always dig a bit further into the numbers. So, a record-breaking quarter if we look at revenues. We landed on SEK737 million for the second quarter of this year. That can compare to SEK459 million the same quarter last year, so it's a 61% year-over-year increase. And as it often is for us the revenue variations is driven by two things; one is the currency changes and when the Swedish krona is weakened against the bigger currencies, we are increasing sales. So compared to the second quarter of last year, the dollar, the British pound and the euro is up against the Swedish SEK, so that means that our revenues are increasing, thanks to that, but more importantly, our revenues is driven by what we release. And as Fred went through in detail, we have released quite a lot. It's for sure a record in the second quarter

A - Alex Bricca: This is a question for you Fred. How is Paradox adapting to the rapidly growing and shifting AI landscape in the games industry?

Fred Wester: Yes, man. It's a very broad question. And as we know and I've said it before that AI is going to in the long-term at least transform this industry into something completely different than it is today. And it's going to help us with a lot of things. That being said, in the short-term, we're exploring AI more as a tool for helping us out and being more efficient in game development. So I will say our main focus at the moment [Audio Gap] is testing AI from the core. Again just speaking long term improving game development in every part from programming coding into art and even game design as well so -- and writing stories obviously and -- but one thing with AI as well is we also need to be very careful about the technical and legal aspects and who owns what et cetera in this little environment that is AI. So --- but we're really forward leaning and hope to learn a lot more in the coming year and years on AI because it's very important to us. I'll take -- sorry.

Alex Bricca: Yes, no. Thank you. Go ahead.

Fred Wester: Yes. Next question Alex is for you. And have sales from console players been significant? And is it profitable to continue to port PC games to console?

Alex Bricca: Yes, it has been significant. This quarter it went up. We had almost SEK 100 million or perhaps even a bit more from consoles in this quarter so it's -- that's up to 15% of the total sales so it's for sure significant. And then you should remember that we don't -- we haven't ported all our games to console. It's, especially, Cities

Fred Wester: All we could -- Victoria 3 – hello? Alex, do you hear me?

Alex Bricca: Now, I hear you.

Fred Wester: Okay. Good. Some technical difficulties here in the middle of the forest, but so speaking about Victoria 3, overall, all-in-all we consider it a good release. It -- however to be included in our portfolio that we consider endless games, there are a couple of things we want to see from the title, retention numbers, DLC attachment rate et cetera, but the team is really focused on working together with the community to work on the things that has been challenging for the game since release. And we have good hopes for this game, and we hope to present a lot more during this fall and the coming year. So, it's getting there, but there is a little bit weak.

Alex Bricca: Thank you.

Fred Wester: And Alex looking at selling expenses should we view Q2 as a full marketing quarter? And should we expect selling expenses to increase further or rather stay flat in second half of the year?

Alex Bricca: It's a relevant question. So Q2 was kind of record high in terms of selling expenses driven by two things as I mentioned, and that -- so we had record many releases in Q2. That will shift. So in Q3, it's of course likely that we won't have the same number of releases so that part of the selling expenses is likely to go down, yes, but the part of the selling expenses in Q2 that regarded games to be released, I think that will continue to be at this level perhaps even increase like -- the closer we come to release.

Alex Bricca: All right, I don't see any more questions. No more questions. And as I said, please, if you have more questions continue to write at ir@paradoxinteractive.com; and we will answer them after this stream. Thank you very much for listening in. And again sorry about the technical difficulties. We will see you again at the end of November -- no at the end of October, when we release our Q3 report. And I hope to see you in the studio then Fred, so we have slightly less technical challenges.

Fred Wester: I will be there for sure. And looking forward to seeing all of you viewers as well by then. And until then bye-bye and take care out there.

Alex Bricca: Thanks everyone. Have a good day.