Paradox Interactive (PDX:Stockholm) reported a stable third quarter in 2024, with a slight revenue increase and improved profit margins. CEO Fredrik Wester and CFO Alex Bricca presented the quarterly financial results, highlighting the company's calm performance amidst foreign exchange challenges and a focus on quality over quantity in game releases. The company saw a 2% revenue increase year-over-year and a significant rise in operating profit, thanks to cost management and successful game expansions.
Key Takeaways
- Revenue for Q3 2024 reached SEK 434 million, a 2% increase from Q3 2023.
- Operating profit rose significantly to SEK 143 million, influenced by lower marketing and development costs.
- Profit after tax improved to SEK 120 million, with a profit margin of 35%.
- Game releases "Roads to Power" and "Cosmic Storms" contributed to the quarter's performance, while "Prison Architect 2" was delayed.
- The company experienced a negative currency impact of SEK 8 million.
- Financial interest income increased to SEK 8 million.
- Paradox Interactive aims to maintain profit margins between 35-40% and enhance its publishing portfolio.
Company Outlook
- Paradox Interactive plans to focus on capitalizing core titles and managing costs effectively.
- The company has a strong pipeline for upcoming titles, with a cautious approach to release timelines.
- Future investments will gradually increase, concentrating on core games.
Bearish Highlights
- Operating profit was affected by write-downs from high-risk projects, including Life by You and Lamplighters League.
- Cash flow from operating activities was lower than last year due to the timing of Expansion Pass sales recognition.
- Cash flow from investing activities decreased due to reduced investments in bonds and game development.
Bullish Highlights
- Paradox Interactive has experienced a consistent revenue trend, averaging 35-36% annual growth since 2014.
- The company reported a strong project pipeline, described as the best in its history.
- Total equity has increased significantly over the years, with plans to continue this trend.
Misses
- "Prison Architect 2" release was delayed for quality assurance.
- Negative working capital outflow of SEK 81 million this quarter due to Expansion Pass setup for Stellaris and Crusader Kings III.
Q&A Highlights
- Expansion Pass 2 for Age of Wonders 4 includes several DLCs with a revenue recognition process that allocates revenue upon content release.
- The company does not provide specific revenue forecasts but anticipates growth in 2025 and 2026.
Paradox Interactive's Q3 2024 earnings call reflected a company navigating industry uncertainties while maintaining a commitment to growth and quality. With a steady increase in revenue and a focus on core titles, the company is poised to continue its trend of profitability and strategic investment in its game development and publishing operations.
Full transcript - None (PRXXF) Q3 2024:
Fredrik Wester: Hello, and welcome to the Q3 Report 2024 for Paradox Interactive with me, Fred and...
Alex Bricca: I'm Alex, the CFO. Welcome.
Fredrik Wester: Welcome. So we're going to take you through the numbers and the releases of this quarter a bit of an uneventful story this time.
Alex Bricca: Like Q3 often is for us.
Fredrik Wester: It is because we kind of -- we have a tendency not to release much in August because it's kind of vacation month, et cetera. So we only normally have two months to release stuff. So that's me. So it's a calm period. But like I say in the headline here it's not relaxed by any means. So like I said a bit uneventful, but revenue and EBIT is almost according to what we expected. But it doesn't mean we didn't do anything. So we released a couple of things and also a lot of focus on improvement. So we improved the quality and the standard of our game. We have strengthened our publishing part by moving a third-party into the new games team. So we have one team only Paradox Arc and new games to work with all our third-party studios which also means that our first-party studios get more focused as well in what they do. We also decided to delay the game Prison Architect 2 to ensure the quality of the game. So it's going to release when it's ready. So we're continuing to polish on the title going forward. We did have a couple of releases in this quarter. Most notable is the Roads to Power for Crusader Kings III, also Cosmic Storms for Stellaris. Console release that was Friends and Foes for Crusader Kings III and we did Millennia Ancient Worlds. Also the game Mechabellum went into 1.0 after having just over a year of early access release. So final release of that game that is going to see a lot of updates in the coming year we hope. And that's it for me. So that was short and sweet. So I'll leave over to you Alex. Go forward.
Alex Bricca: Indeed. Thanks, Fred. So let's dig into the numbers. Right, so revenues came in at SEK 434 million very close to last year's Q3 when we did SEK 426 million. So it's up 2%. And as Fred went through showing the releases it's as it often is in Q3 and not our most active quarters in terms of releases and that has its direct impact on revenues and profits as well. But we did release slightly more than last year's Q3. That's why we see an increase in revenue. Revenues increase would have been even higher if it wasn't for FX this year. So as – pretty much an exporting company we are very dependent on what the Swedish krona does performs in comparison with external currencies. And this if we compare Q3 this year compared to Q3 last year the dollar is down some 4%, euro 3% and pound 1% roughly. Historically, we have been favored by the weakened Krona over the years, but this year it has gone in the opposite direction. So minus 3%, 4% revenues due to that but all in all up 2%. Top five revenue contributors in the quarter. Cities: Skylines I and Cities: Skylines II both on the top five list. And then we have Crusader Kings III, Hearts of Iron IV and Stellaris. Of course, we're encouraging to see both Cities I and II being on the list despite us not having up until Q3 we haven't released much paid content for a year. So that's very good. Let's move to operating profit SEK 143 million Q3 this year SEK 85 million last year. So even though revenues was fairly identical as last year we are doing much better profit. Last year's Q3 profit was held down a bit due to marketing events. We had a lot of marketing activities in Q3 last year for games that we haven't released. So we were doing campaigns for Cities: Skylines II that came up in Q4 or Lamplighters League, Life by You, Bloodlines 2 and in this year's Q3 we have not had that much activity. What else? Profit after financial items SEK 151 million. So it's up SEK 8 million compared to the operating profit and this is due to our positive financial items. So we have interest rates. Interest rates were more than SEK 1 billion I think it's close to SEK 1.2 billion on the bank accounts and that yields an interest. So it's a very favorable situation to be in these days. Profit after tax, SEK 120 million this year's Q3 compared to SEK 69 million last year's Q3. We have profit after financial items margin of 35% compared to 21%. It's not bad, but we think we can do better than 35%.
Fredrik Wester: Yes. We should be over a cycle hopefully 40%. We've been sliding down to even at 21% last year. But going for the new model that -- in which we operate, we think and hope that margins will be back in the -- at least 35% to 40% range.
Alex Bricca: Yes, employees, average number of employees during Q3 this year 584. That's 50 FTEs less than last year's Q3 when we were 634. This is mainly the closing down of the Harebrained Schemes Studio and the Tectonic Studio that has happened during the last 12 months. That has led to slightly a bigger increase than 50, but then we have increased staff in the studio here in Stockholm and the studio in Tampere. We can move into the other slide. So, here we show you quarter-by-quarter revenue on the green line and then our top three -- or main three cost categories, COGS selling expenses and admin expenses. Green line, we have already discussed the quarter's revenue, but what we can mention here is what you see. It's a very big fluctuation from quarter-to-quarter. And the ones of you that have followed us over the quarters know this the quarterly revenue varies quite a lot with what we release and it's very clear here. If you go back to 2.5 years, it's also clear that we seem to have entered into every quarter situation -- every second quarter situation. Every second quarter, we released a lot of things and we have high revenues and every second quarter it's fairly slow. So it's Q1 and Q3 that has ended up being fairly slow in Q2 and Q4 quite hectic. So let's hope it's continued like this for at least Q4. And then it will be good if it could smoothen out a bit, but I think it's going to continue to fluctuate like this for quite some time.
Fredrik Wester: Especially when it comes to full releases which kind of drives revenue in the short term as well.
Alex Bricca: Yes, for sure. And you can see that very clearly, Q4 last year when we had Cities, Skylines II, Lamplighters and so on where we did almost SEK one billion in one quarter. But let's move on and talk a bit about the cost items. So, our biggest cost item is cost of goods sold. So this is where we group all our costs that we deem necessary to make our games. So it's a cost for all our internal studios, our external development studios royalties to them as well, amortizations on acquired assets like Studios and acquired games and IPs. Also, the cost for our internal tech team that is not part of the Studios, but it's part of the Publishing business. So the COGS came in at SEK 217 million compared to SEK 255 million last year. Let's split it up a bit and go through the main items. So the biggest item is amortization. So it's -- we capitalize the development costs of most of our games and then we amortize it, when we release over 18 months. So amortization is in Q3 this year SEK 96 million compared to SEK 115 million Q3 of last year. And this is very much driven by what we have released in the actual quarter, but also the quarters that have come close by. So, what's the main difference between this Q3 and last year's Q3, it's not that big deviation, but it's Victoria III and Age of Wonders IV, because Age of Wonders IV released Q2 last year and had substantial amortizations of Q3. We didn't see that this year. So that's amortization. Another item is we mentioned it when we acquire businesses studios or assets in almost all cases, we choose to amortize those assets over five years sometimes 10, but that's rare. In most times five years.
Fredrik Wester: It's only been World of Darkness that has a 10-year period, right? So that's basically out of the books by the end of this year or -- maybe it's already zero, so.
Alex Bricca: Yes you're right. So World of Darkness when we acquired that eight years ago, it was before my time...
Fredrik Wester: 2015, I think so nine years ago.
Alex Bricca: Yes, nine years ago, yes. So one more year of that then that's out of our books. And this is I think it's a prudent not an aggressive way to handle it, because I think it's a very good example where the asset has increased in value we pretty much believe. But we have treated it as all the value has gone away in 10 years.
Fredrik Wester: Right, yes. We took it as a cost.
Alex Bricca: Yes. So that of course pushes down our costs -- sorry, pushes down our result, but it helps us be very prudent and healthy for the future.
Fredrik Wester: Yes, a more lean balance sheet.
Alex Bricca: More leaner balance sheet for sure. So the amortizations in Q3 were SEK 14 million. So the result was pushed down SEK 14 million. Last year it was SEK 20 million. And the reason why it's lower this Q3 compared to last year's Q3 is that some of the assets we acquired have just moved out of the five-year period and being fully amortized. One was Harebrained Schemes and the other is Prison Architect. So we acquired Prison Architect in December 2018. So a year ago it was still in its fifth year. So we took an amortization then, but now it's gone. So, therefore, it's less SEK 14 million. Then we have amortizations other amortizations which is SEK 7 million, which is the way we account for rent. So the rental contract is considered an asset that we amortize on as well so it ends up as amortization. Sometimes we have a cost item here in the terms of write-downs. In Q2, we had a big one. This year's Q3 is zero the same last year's Q3. So, no deviation there. So zero write-downs this quarter. Then we have royalties, SEK 20 million in Q3 this year compared to SEK 24 million last year. Royalties is mainly driven by the sales on Cities: Skylines 1 and 2 because we paid the external studio royalties on those sales. So that means that Cities: Skylines is as we said at the beginning of the stream both Cities: Skylines 1 and 2 is in the top five list. So it's good, but it's not as good as it was one year ago, so, slightly less royalties coming out of that. Then we have as the last item, we have non-capitalized development or last sub item within COGS non-capitalized development costs and the cost for our tech development in our publishing business. So that's SEK 80 million compared to SEK 86 million last year. So we are going downwards a bit not much. But this item has increased over the last two years, because three years ago we implemented this new system or method where we -- when we develop high-risk games, we take it as cost immediately. So, therefore this item has increased over the years. But now I think it has stabilized a bit at a decent level. So that's about COGS. Selling expenses SEK 44 million compared to SEK 66 million last year's Q3. We mentioned it at the beginning of the stream as well. We had increased cost last year, because we were preparing for the release of Cities: II and Lamplighters, but also Life by You and Bloodlines 2. Admin expenses tends to be very flat year-over-year SEK 22 million this year compared to SEK 23 million last year. So admin expenses everything else except selling and the development you could say. Other income or expenses that is -- to vast majority this is driven by currency during the quarter. So it's the dollar development during the quarter. If the dollar goes down, it gives us less money in SEK from our distributors and that ends up here on other expenses. So minus SEK 8 million this Q3 compared to plus SEK 2 million last year's Q3. Financial items we touched upon a bit. It's the interest rate on our bank accounts SEK 8 million this year compared to SEK 3 million last year. So that's where...
Fredrik Wester: In the next slide.
Alex Bricca: Yes. Let's go to the next slide. So this is just an aggregation of revenues and operating profit, but grouped together four quarters rolling 12 months in order to make the trend clearer. And if you look at the revenue there is a very clear and strong healthy trend of upwards going. We have increased I think if we start to measure from 2014, it's a yearly growth of 35% or 36% in average year-after-year. It doesn't happen every quarter. We're going to sit in next quarter and present Q4. Then it's going to go down of course because...
Fredrik Wester: It's a tough comparison quarter to last year obviously.
Alex Bricca: It's an extreme comparison quarter.
Fredrik Wester: If we look at the yellow line here the rolling 12 months of operating profit, it's also hampered a lot by big write-downs and other things that has been in high-risk projects, basically that we are either changing completely, the way we operate like we operate at a smaller scale to begin with to take less risk early in the project before we scale up or -- and in some cases we stopped working with things that are too far outside of our own core business. So hopefully, the yellow line there is going to go up as well together with the green TAMs that we see. So that's the plan.
Alex Bricca: That's the plan. And so the yellow line, if you look at Q3 2024, it's the last 12 months profit and we have two big write-downs Life by You and Lamplighters. So it's projects with almost SEK 0.5 billion in losses. So if you would not have those, it's clear to see where we would be.
Fredrik Wester: And as we always emphasize as well, we're not leveraged at all. So we have no loans money on the balance sheet instead. So the badly spent money was at least our own.
Alex Bricca: Yes, yes.
Fredrik Wester: It's a very -- it's a sad sort of comfort but still we didn't take a loan to make any high-risk projects.
Alex Bricca: Agree. Let's have a look at the cash flow, right. So cash flow from operating activities in green compared to cash flow from investing activities in yellow. Let's start to look at the operating activities. As you can see it fluctuates a lot from quarter-to-quarter. One reason is that the profit fluctuates between quarter-to-quarter. But then you have other impacts here as well. So if you compare Q3 this year to Q3 last year, you can see that we are actually having less cash flow this year compared to last year. However, when we went through the income statement and looked at the operating profit, the operating profit is higher this year's Q3 compared to last year's. So this has to do different things. This quarter is a bit particular because we generated a lot of profit from the CK III expansion. So that helped profit a lot. But payments for that expansion to a large extent, we received already earlier quarters when we released Expansion Pass.
Fredrik Wester: Yes, the Chapter 3 the Expansion Pass.
Alex Bricca: And Expansion Pass is something that we see is very popular among our players. So when we start like a new chapter of expansions and DLCs, we offer the players to buy all the next three or four upcoming DLCs and expansions for a discounted price. And we see that a lot of the players chooses to buy this one. So we get in the money early on, but we don't recognize the revenue or the profit until we actually release the content that is included in the Expansion Pass and that's happened now in Q3. We released a big expansion. We recognized revenue. It helps up profit, but it doesn't impact cash because the cash we had already received. Also Q3 is often low in operating cash flow a bit compared to operating profit because when we and our colleagues go on vacation, we get the salary, but we get that from a kind of a salary vacation reserve that sits on the balance sheet. So it doesn't impact the P&L, but it impacts the cash flow. So that's the main reasons why we see variances between operating profit and operating -- cash flow from operating activities. Let's move on to cash flow from investing activities. So that came in at SEK 115 million. If you roll back four quarters and look at Q3 2023, it's much, much more. It's SEK 359 million. That was extra high, because we invested SEK 198 million of our cash into bonds. That was at that point the best way to get interest on without risking the money. Now, this year we get better interest, if we just place some money on certain bank accounts, which were done. So we haven't reinvested that in bonds. Therefore, we have SEK 198 million less of investment this year. If we just look at the investments in game development that's also down a bit compared to last year, and that has to do with especially Lamplighters League and Life by You. In last year's Q3, we spent significant money investing in those two projects. This year zero. So that's why it's down. I think we have one more final slide before we can take questions. So this is our total equity in green. So this is pretty much our accumulated profits over the years less paid out dividends and that is increasing. It has increased a lot over the years. Our plan is to continue for the increase...
Fredrik Wester: Yes. That's the plan. And for the yellow bar there, which is total non-current assets basically games on the balance sheet, it's going to continue to go down with the policy that we have on how we start and how we capitalize our projects, if I'm correct.
Alex Bricca: Yes. You're completely correct. I think that's the slides that we have prepared. So let's see if we have any questions from the community.
Fredrik Wester: From the audience.
A - Alex Bricca: Yes. The first question. This one is for you I think Fred. Paradox has seen strong success with its first-party titles but results on the publishing side have been mixed. What strategic adjustments if any are being considered to strengthen the publishing portfolio?
Fredrik Wester: Yeah. Yeah. First and foremost, I would probably separate core what we already know and feel certain about. It typically has a higher level of success than when we take risks outside of the core that we feel certain about. But in this quarter, we have taken measures as I mentioned early on in the presentation to separate out everything that has to do with third parties. We have -- everything follows the same process and we follow the same procedures and processes in general. It -- so we have a dedicated team now that only works on third party. And we work -- we will start more projects and we will kill more projects that's how it's going to be. So the funnel is going to be bigger and we're going to evaluate more games and we're going to earlier on hopefully be able to evaluate which games to work with and then lead that game into a successful launch eventually. So I think that this is going to help us in many ways. Also that is not going to hit so hard on the results of the company every quarter because we take all the costs upfront as well. So there is a lot of different advantages of working this way. So that's only one of them. But hopefully, we'll see the results of this in the coming year in 2025 and the releases that are out there. Right, Alex for you the big negative working capital outflow effect in the quarter. Where does it come from? And is it structural or random? It's a good question very specific.
Alex Bricca: Probably from one of the finance persons in the audience. So, big negative working capital outflow. Yeah so it's a bit what I touched upon already when we discussed the cash flow from operating activities. So we have -- if you go to the cash flow statement there is a change in current liabilities. There's an item called change in current liabilities. That is minus SEK 81 million this quarter. So this is -- the big thing here is the Expansion Pass setup that impacts Stellaris and Crusader Kings III. So, we have sold a lot of Expansion Passes for Stellaris and CK III in the previous periods. We have received the money and we have put that -- we haven't recognized it as a revenue, but we have put it as a debt on the balance sheet. Now, when we have released part of that content that the players have paid for, then we recognize it as a revenue that impacts profit, but it doesn't impact cash. So the current liability since we're considering this as a liability towards the player to deliver this expansion that goes down. So the liability decreases.
Fredrik Wester: So once we release it the liability goes away?
Alex Bricca: Exactly. Exactly. So that's the main thing. Then we have -- and this is very popular as we have said the Expansion Passes. So we're going to see more movements like this going forward.
Fredrik Wester: On the working capital side.
Alex Bricca: Yes, exactly, where we will have a difference between operating profit and cash flow from operating activities between the quarters. Thanks to this. So this will continue to show up. Then we have another impact in Q3 and that's already mentioned, it's a vacation salaries. So that again it comes from -- it's part of this current liabilities and accrued expense.
Fredrik Wester: But it's typically a Q3 item.
Alex Bricca: It's always in Q3 because most people go on vacation in July and August.
Fredrik Wester: Right.
Alex Bricca: Then another Q3 item is, we have the profit share system in Paradox, where we share 5% of the profit with all the staff. That is paid out in June often, as it was last year's June. So that means that we have to pay social contributions and taxes on that now in Q3. So we have the tax payment coming up and that is the same in all of Q3. So those are the main drivers. Long answer to a short question. Let's go back to you Fred. Do you think, we can see more than one core title release in 2025 to 2026?
Fredrik Wester: The thing is that I've made a lot of not promises, but kind of forecasts and they always turn out wrong. So I'm not sure how to answer this question, but the aim is -- we did launch games when they're ready, right? So we can't really start pushing them into quarters or years anymore. But -- of course I mean our aim is to produce more and better games all the time. So the answer is no promises, but we'll do our best. That's a terrible answer. I don't know. I can't say much more. But I think we have like what we see in the pipeline I think we have a strong pipeline and I think we're heading in the right direction. It's just -- again, if you look at, I mean people want to have new games, right? And we want to make new games and everyone in the finance market wants us to make new games. But if you look at the trend time line with the revenues over time, if you go back to 2016, you see that -- if you believe that we can continue that trend, I think this is the company for you. If you believe we're already finished and we're on our way down probably the company is not for you, but I'm not on that side. I'm on the optimistic forward-leaning side, right?
Alex Bricca: Very good.
Fredrik Wester: Another terrible answer. But we'll continue. Right. So Alex, this is a fun one. You've made significant development CapEx reductions year-to-date.
Alex Bricca: Yes. Good.
Fredrik Wester: So we have. That's good news.
Alex Bricca: Yes.
Fredrik Wester: That's good news.
Alex Bricca: So is there a question as well or is it just a compliment?
Fredrik Wester: Yes, how much of that -- sorry I missed out on the second part. How much of that is driven by the shift towards not capitalizing certain titles on the balance sheet and how much comes from not continuing development on say Lamplighters League?
Alex Bricca: Yes. Good question. Yes for sure. So, we went through the cash flow from the investing activities. I mentioned it's lower in Q3 now compared to Q3 last year. And as we said then, not continuing development on Lamplighters League is a major impact on that of course. Then we also have not continuing development on Life by You. Now, we are continuing to place bets on high-risk projects as these two projects were. But as Fred described, we are doing it in a different way. And we are investing -- I think the most important thing is that we invest much -- or spend much less money especially during the early high-risk phases on the development phase. But the other thing is that during those high-risk development stages, we don't capitalize it. So it doesn't show up as an investment at all. We take them as costs directly.
Fredrik Wester: Yes. But -- and I know the trends. Some of the trends in the industry has been that people say we're going to make fewer but bigger titles. And I say, we're kind of in the opposite corner. I mean, we're going to make more, but smaller titles, but kill off probably a majority of them before anyone ever sees them or -- and also volume bumps in the revenue sheet. But how much further room for improvement do you see in your development CapEx levels? Just a follow-up to this one I guess.
AlexBricca: We will see one big change -- or one major adjustment coming up. And that is once we have released Bloodlines 2 because we are still developing on that game and it's a game that has had a high CapEx. So once we are completed with the development, you will see that the CapEx go down to a new low level. Then I think that we are at a good level. From there, I expect us to increase it slightly over the years because we are investing more in our core games. The core games are becoming slightly more expensive for every release. So we're going to -- step one we're going to come down and then we're going to from there increase slowly.
Fredrik Wester: But you can say the CapEx compared to revenues is going to be a smaller portion of the total revenues every year and it's not going to grow as fast hopefully after revenues. So that's another thing.
Alex Bricca: That's the plan. All right, Fred. How does the pipeline -- talking about pipeline, how does it look for Paradox Arc?
Fredrik Wester: It looks good. We're a bit secretive about the things we're doing at Paradox Arc. We released some bigger ones and some smaller titles. I mentioned Mechabellum releasing in the quarter in 1.0. We're leasing a smaller game today called an Aztec City Builder called Tlatoani. And we have a couple of others like Escape the Mad Empire and Starminer that has been getting some tractions recently. And we haven't given any release dates for those titles. We've just said that this is what we're working on at the moment. But we're looking at new games all the time and we're adding games to the portfolio and we're hoping to get at least a couple of them out in the coming year or 1.5 years. So hang in there. You'll see more exciting stuff coming from Paradox Arc. It's really -- we're really finding a good way to work there.
Alex Bricca: It might be worth repeating, but we state in all our quarterly reports, how many games we have in the pipeline. I think this quarterly report says 8. Those are games excluding Arc pipeline?
Fredrik Wester: Yes. Paradox Arc doesn't count because the kill ratio of the games is so high that it's hard to predict like exactly what's coming out or not. So Starminer Escape the Mad Empire not calculated into the eight main pipeline games, if you want to call that. So Alex Cities I and II were both among top five revenue contributors. How do you view this in the light of recent challenges. And also for the future, when you will release paid content for I guess it's Cities II mostly?
Alex Bricca: Yes. So we have been working a lot during the last year with Cities II. It's in a much better position now compared to a year ago. But we are still improving on the game. We have started to add content in the form of region packs, but we have chosen so far to not charge for it because we want to increase the player experience for Cities: Skylines II. Meanwhile for Cities: Skylines I in October we came out with some content creator packs because we have still a lot of players on Cities: Skylines I and they want more content.
Fredrik Wester: Yes. And also it's a good way to make something happen on console for the people who can't play Cities II on console. At least you get some new fresh updates for Cities I. So you can play around with that. Maybe a small comfort, but still it's something.
Alex Bricca: So how should we think about growth for full year 2025 and full year 2026? Given recent challenges, has your thinking about potential growth over the next couple of years changed?
Fredrik Wester: Well, do you want to start? I think I'm more bullish than you are. So you start.
Alex Bricca: Should I give our forecasted revenues for 2025 and 2026?
Fredrik Wester: No, we never do.
Alex Bricca: That's the point. We don't -- we never share our forward-looking statements. And as you have already said, we don't give promises about what we're going to release. And one of the reasons is that, it's very uncertain. Our ambition is to grow quite a lot always, but we also know that our plans are important to make but we never stick with them exactly, because we need to change and adapt as we go along and see how projects develop.
Fredrik Wester: Absolutely. But no, I think we're -- like I said, I think we have a very strong pipeline. I think we never had a stronger pipeline in the history of the company. So I tend to be a bit bullish. I'm not going to promise you anything. It's just that it feels very good. Third party, we've had some bumps in the road there. I'm the first one to admit it. I think we're on the right path at the moment when it comes to quality and how we control the projects. But overall, I'm optimistic.
Alex Bricca: Good. Yes.
Fredrik Wester: Maybe we should start doing forecast openly that would change things for sure. Okay, Alex, could you explain how you recognize the revenue streams and the dynamics in the Expansion Pass 2 for Age of Wonders 4; Herald of Glory and Ways of War is announced to be expected in Q4; Giant Kings in Q2 2025; and Archon Prophecy in Q3 2025? That was a super specific question. But this goes for all our Expansion Passes. So it's just as valid for Crusader Kings or Hearts of Iron.
Alex Bricca: Yes. So we have been very close to this topic already in the stream. But -- so when we sell the Expansion Pass, it includes -- let's say, it includes four expansions in DLCs. And let's assume that the value or the price point of those separate is $80. And then maybe we sell the Expansion Pass for $70 or $60 depending on how much discount you want to make. So then we sell it, we get all the money into the company all the -- let's say is $60.
Fredrik Wester: Cash flow happens early.
Alex Bricca: It happens directly at the sales point.
Fredrik Wester: But revenue comes in different ways.
Alex Bricca: Yes. Then we take the $60 and allocate that proportionally to the four DLCs and expansions based on their percent price point of the total package, right?
Fredrik Wester: Right.
Alex Bricca: So let's assume, we have an expansion that represents 40% of the value. Then when we release that expansion, we release 40% of the $60 and recognize that as revenue. And the rest we release and recognize once those DLCs are delivered. So cash flow has already come in for those sales but the revenue is going to come up when we release Herald of Glory, the Ways of War and so on.
Fredrik Wester: That said, I just started a new session actually in age of Age of Wonders 4. Yes, it feels good.
Alex Bricca: Do we have more questions? No?
Fredrik Wester: No. It seems like -- like we said uneventful quarter. We'll see what happens in Q4, but I think we've announced everything that we're going up with already. So you know what to expect, and it's going to be an interesting quarter as always, and we'll see what we have lined up for you in 2025 as well but that's for another story.
Alex Bricca: Yes. And if we didn't answer your question, we will go through the e-mail again and see if there is anything left, and we will answer you directly to your email. If you come up with questions that you haven't sent yet, continue to send them and we will answer you separately.
Fredrik Wester: And if you're lucky, we even answer on Twitter or X, as it's called these days. So sometimes I even answer questions there. We'll see. Do you have a Twitter account?
Alex Bricca: I do but I'm not very active.
Fredrik Wester: Okay.
Alex Bricca: So, [Technical Difficulty] to present the Q4 results?
Fredrik Wester: Yes.
Alex Bricca: Looking forward to that? And see you then.
Fredrik Wester: Yes. See you then.
Alex Bricca: Thank you for watching.
Fredrik Wester: Take care.
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