Paradox Interactive AB (publ) (OTCPK:PRXXF) Q4 2022 Earnings Conference Call February 7, 2023 6:00 AM ET
Company Participants
Fred Wester – Chief Executive Officer
Alexander Bricca – Chief Financial Officer
Conference Call Participants
Fred Wester
Hello. And welcome to the last Report for 2022, the Q4 and Full and Year Report. With me — Fred Wester and…
Alexander Bricca
Alexander Bricca.
Fred Wester
Good to have you with us. So we are going to walk you through a couple of other things that happened in the quarter. That’s my name by the way. If you click…
Alexander Bricca
Yeah.
Fred Wester
… my name is going to show on the screen.
Alexander Bricca
Let’s see…
Fred Wester
Right.
Alexander Bricca
… if it’s connected now. We are live with the presentation as well.
Fred Wester
There we go. That’s me.
Alexander Bricca
All right.
Fred Wester
So we are going to walk you through the most important events of Q4 and we are going to walk you — I am going to do that and then Alex will take you through the numbers as well with a few comments, maybe from me, if I have anything to add there.
So we are looking back at a good year, and by no means, perfect. But we have a great line up, strong sales and we can’t really deny that the weak Swedish krona has helped us a bit with some FX tailwinds.
We have — but we have also done some organizational changes leading to lower cost of goods, and most importantly, maybe not most importantly, but important for the EBIT and the profit margin is that we had very low write-downs, almost no write-offs at all — write-downs at all on game.
So we have done — throughout the year, we have had progress, we have been working with organizational realignment, and to first and foremost strength and quality of the releases also to get better cost control, mostly on the marketing side, but throughout the whole organization. And we have also, on the development side, worked a lot to get the release cadence up. So we can get more content out there properly.
Obviously, quarter four was dominated by the release of Victoria 3. That has done — in our opinion, it has done really well and some mixed reviews. But we have to remember that Victoria is also the smallest of our grand strategy franchises. So, all-in-all, it’s a good release with fairly happy community, I would say.
Alexander Bricca
Yeah. For sure.
Fred Wester
And going through, again, I come back Victoria 3’s big picture here on the left and we also released during the quarter, one of the DLCs for Crusader Kings III: Northern Lords on Console, Airport Simulator on Mobile and a couple of different things on the simulation and city building side with Cities: Skylines, Surviving the Aftermath and Prison Architect.
It’s worth mentioning that Cities: Skylines did a bit better than expected in Q4 as well really helping the results. And we also released the title the space colony builders, Stardeus through Paradox Arc in this quarter.
When it comes to community, we have always said that we have 5 million active users and now we are happy to say its 5 million to 6 million users, right? So it’s a bit above 5 million. We don’t dare saying 6 million yet, because we want to see a strict trend line where we know we can say, for sure, that we are going to be over 6 million, but we are approaching 6 million monthly active users on a steady basis, which is a healthy growth on the player’s side.
Obviously, the core focus on the marketing and sales side is to engage our community more and work more together with our players and make sure that we meet the people in the channels, where they want to communicate. So it’s more forward leaning community engagement activities to be expected in the future as well.
After the end of the quarter, we — as you know, we announced Age of Wonders 4. That was a really positive announcement as well, met by a lot of praise from the fans so far. It’s going to be released in May 2nd, which is next quarter from now. We went into Early Access with Surviving the Abyss from Paradox Arc and we announced First Contact, a new DLC for Stellaris.
And with that, Alex, I leave the word to you.
Alexander Bricca
Thank you very much. As always, let’s dig into the numbers. Record revenues in the fourth quarter and last quarter SEK580 million, compared to SEK391 million fourth quarter of 2021. So that’s a healthy 49% increase. It’s the first time that we are above SEK0.5 billion in one quarter. Last record was Q3 2020.
Fred Wester
Crusader Kings.
Alexander Bricca
Yeah. When we released…
Fred Wester
Yes.
Alexander Bricca
… CK III. So this is the first time we are above a billion — SEK0.5 billion and it’s with a good margin. So very good.
Fred Wester
Yeah.
Alexander Bricca
As always, it’s what we released in the quarter that drives our revenue and in Q4 2022, it was mainly Victoria 3. That’s made a big difference. We said — I think we went out to the press release after a month and said that we had already sold in 0.5 million units of the base game.
Fred Wester
Yeah.
Alexander Bricca
So quite successful. And as you mentioned Fred, Cities: Skylines was a big contributor in the fourth quarter as well, Financial Districts, the DLC released and…
Fred Wester
Yeah.
Alexander Bricca
… we did some CCPs, some content creator packs.
Fred Wester
Yeah.
Alexander Bricca
… one or two registrations as well.
Fred Wester
So we should be talking to the audience of Financial Districts right here.
Alexander Bricca
Yeah. Yes.
Fred Wester
[Inaudible] Tectonics.
Alexander Bricca
They probably are. And as Fred mentioned, a few DLC releases on some of smaller games Surviving the Aftermath, Prison Architect, Stardeus we released and the new mobile game as well…
Fred Wester
Yeah.
Alexander Bricca
… Airport Simulator.
Fred Wester
Yeah. Yeah.
Alexander Bricca
As we have seen in many quarters in 2022, we have had good benefits from the weaken SEK. So I think the dollar is up some 20% plus year-over-year. Euro not that much, but 8%, I think and British pound 5% and these are our biggest currencies in terms of revenues, so of course, when these currencies goes up, our revenue goes up as well.
Yeah, top five contributors are not the five years aspects, of course, because we have a new game, Victoria 3, and we hope that we will start to say six years or so aspects in the future when we report revenues that Victoria 3 will establish itself as a long-term main revenue generating title.
Profit, operating profit SEK244 million, compared to SEK148 million in the fourth quarter the year before, so that is up 65%. A new record profit wise as well and that’s the fourth quarter in a row that we break the profit record. Q1 was a record, Q2 new record, Q3 new, and now finally, Q4 fourth record
Fred Wester
Yeah.
Alexander Bricca
It is — and as we said also a record in terms of revenue. Profit after financial items or profit before tax SEK244 million as well, compared to SEK147 million last year and profit after tax, SEK194 million, compared to SEK116 million last year — last year’s Q4.
Profit margin 42%, it’s up compared to 38% last year’s Q4. It’s down a bit if you compare to the quarters we have had earlier this year. We had, I think, 45%, 46% in Q1, Q2 and then fantastically 48% in Q3.
And why are we down? Well, the most profitable thing we can do, we have said this many times, but that is to come out with the DLCs on our successful games. And Q3 was a great example of that, when we had DLCs on all our top five games and then we had 48% profit margin.
When we release a new game like we did in Q4, of course, the revenues becomes very high, but it comes with a lot of cost, especially amortization or development cost. So, therefore, we don’t see the same profitability even though we are successful with the game release.
So why do we release new games? Well, 42%, it’s not bad, it’s a decent margin, but our goal with game like Victoria 3 and with almost all our game — new game releases is that, some of them will establish themselves as a long-term game that can leave on for five year, six years, seven years, eight years, nine years.
Fred Wester
Yeah. Why not 10 years to 15 years?
Alexander Bricca
Exactly. And when it does so, it can — just as we have seen with Stellaris, with Crusader Kings, with Beverly Hills, then they can start to turn out DLCs with very, very high profitability. So that’s the target.
What more equity through asset ratio is increasing shows on our solid finances, employees at the end of the period 656. We were at our peak, when we ended Q3 in 2021, so five quarters ago, I think, we were at 742. Then we decreased roughly 90 back to, let’s say, end of Q2, so half year ago. Since then we have been very stable. I think we have increased with two or something like that. So I think that we are at a good level today.
Let’s move on. So this chart — this shows three lines revenue in green and our three main cost items in yellow, blue and red. The green shows very clearly what we have said. It’s a record quarter almost SEK600 million in revenues.
The cost of goods sold, selling expenses and admin expenses, all-in-all, SEK321 million, compared to SEK261 million Q4 2021. So it’s up SEK60 million and that is almost entirely driven by the release of Victoria 3 and especially the amortization of the development cost. But let’s dig into it a bit more.
Cost of goods sold, as you know, if you have listened to the streams before, this is the cost for our nine internal development studios, cost for our external development, royalties that we paid to external studios. We amortize licenses and brands when we have acquired studios and IPs. We amortize that every quarter and this also contains the development cost that we have for our risk projects, for example, that we run under our new games streams.
Fred Wester
Yeah.
Alexander Bricca
And also some of the development cost that we have, we have some tech development in our publishing business, which — that is not really game development, but still technical development. This is all under COGS.
And in Q4 2022 COGS was SEK253 million, compared to SEK196 million in Q4 of 2021. So it’s up significantly. And this is, as I said, it’s amortization of Victoria 3. Amortization — the amortization part of the COGS is SEK119 million, compared to SEK60 million the same quarter a year before. So it’s SEK59 million up.
So we have released Victoria 3 and as we have done with the several other games released during the last years, we have this digressive amortization method, where we take one-third of the development costs in month one and another third spread out during months two to six. So that means in Q4, we released the game in October. So then we took one-third and then November, December, we took another two-fifth — of another one-third.
Fred Wester
Yeah.
Alexander Bricca
So if you add one-third with two-fifth of one more third, that is, I have done the math before. I am not…
Fred Wester
45%.
Fred Wester
Yes. You are quick. 46%. So…
Fred Wester
46%.
Alexander Bricca
… 46% of the entire Victoria 3 development cost up until release has been taken as cost in Q4, so therefore amortization in COGS goes up.
Another part of COGS is what Fred talked about write-downs or write-offs due to game cancellations, we had zero in Q4 of that compared to SEK26 million in Q4 of 2021 and this is now the fourth quarter in a row, where we don’t have any write-offs or write-downs on game development projects.
We used to have this roughly 1.5% to 2% of the capitalized development was being written down every quarter due to game cancellations. But a year and a half ago, we did a big kind of a cleanup project, where we decided to cancel several game projects, where we were not happy with the risk reward ratio, you can say.
Fred Wester
Yeah. That’s correct.
Alexander Bricca
And we also changed the approach how to develop high risk games, where we let our new games team run them, they invest much less at the beginning during the riskier phases of the game development and during those phases we don’t capitalize. And clearly, this method has paid off, because we have now for fourth quarter in a row hadn’t had one single write-down due to cancellation.
Fred Wester
Yeah.
Alexander Bricca
This new games team still counts us quite a lot of games. I would say, in the same pace as we have done all the ways, but it doesn’t show up, because we have already taken the test cost.
Fred Wester
Yeah. We have taken as running costs basically.
Alexander Bricca
Exactly. And the costs are also smaller, because we invest much less at the beginning. So all that is good.
What else is part of the COGS? Well, SEK23 million is because we are — every quarter we are amortizing on our acquired businesses, so like Harebrained Schemes, Playrion, Prison Architect, The World of Darkness brands everything we — every quarter we amortize.
Fred Wester
SEK23 million.
Alexander Bricca
SEK23 million we take as costs every quarter. It was SEK20 million Q4 of last — of 2021.
Fred Wester
Yeah.
Alexander Bricca
It has gone up not because we have acquired more but because the FX rate has gone up, so…
Fred Wester
Yeah.
Alexander Bricca
… the amortization is slightly high.
What else is part of the COGS, royalty is one. Royalty has gone up, SEK31 million in Q4, compared to SEK16 million the same quarter a year before. And revenues up in this quarter because Cities: Skylines did a good quarter and that’s — there we pay royalties to the developer. And we have also had not huge, but still significant revenues from Across the Obelisk and Stardeus. These are two core publishing deals, which means that, we take the full revenue into our books, but then we share a significant royalty with the developer.
Fred Wester
Yeah.
Alexander Bricca
So, therefore, you can see the royalty going up in Q4 of 2022 compared to the previous year. Also — then we have a part left on COGS, which is non-capitalized development and tech cost from the publishing business, that part has gone up from SEK66 million in Q4 2021 to SEK87 million in Q4 2022 and this is what we have talked about the increase comes from these new games teams, the game development. So when we develop high risk projects, we take them as cost directly and that ends up as a higher COGS directly.
Selling expenses SEK45 million, compared to SEK43 million the year before. Perhaps, some of you have had expected this to be higher, because we have released Victoria 3. We have had significant cost due to no marketing Victoria 3, but compared to a year ago, we have also done good efficiency activities within marketing and sales, so that we are seeing the fruits of now.
Admin expenses — and regarding selling expenses, I think, it’s worth pointing out, yes, we did the market a new game Victoria 3, but this is — it’s a game in the middle of our core. We know the players. We have the players to large extent. So it’s very efficient marketing we can do. When we will release games that are completely new franchises, we won’t be able to do that with the same efficiency. So we will need to spend some more money on marketing when they come.
Yeah, admin expenses is staying fairly flat SEK22 million, SEK23 million.
Let’s move on. Revenues quarter-by-quarter and profit quarter-by-quarter, you can see here again that we are breaking the record is very clear here in terms of both the revenue and profit. You can also see — if you look towards the left of the chart, you can see that it’s very choppy, especially in terms of profit.
If you look to the right, it has been very steady for four quarters in a row. But I would want to point out that that — this steadiness is more of an abnormity for Paradox. Our normality is more that the profit and revenue changes a lot from quarter to quarter, because it’s so tightly connected with what we release and normally we don’t have a smooth release space. We can have some quarters where we release a lot and then one quarter where we don’t release pretty much anything.
Fred Wester
Yeah.
Alexander Bricca
So I think you should expect going forward still — you should still expect volatile quarters.
Fred Wester
Yeah. But you should expect like you have seen this graph to — us to grow over time as well. So even if quarters go up and down, the long-term effect and the long-term idea is that, we continue to grow and we see no end to that growth as we look at the moment, but we take a step-by-step.
Alexander Bricca
Yeah. And I think you can see that, if you move to the next chart, where we have lumped four quarters together. The trend — you see a clear trend here. If you kind of take out the big peak in the mid, in Q3, Q2 2020 and if you would remove the drop in one year afterwards of Q2, Q3 2021, it is fairly steady trend line trending upwards, both in terms of revenue and in terms of profits. So that is, of course, very good. We had 12-month revenue SEK1.973 billion. It’s a bit annoying that we didn’t reach SEK2 billion, but…
Fred Wester
We will do it this year.
Alexander Bricca
…it’s close. And the operating profit for 12 months is SEK887 million. It’s almost up 3 times compared to the full year profit of last year.
Cash flow, very strong cash from our operating activities, SEK344 million. Great, not the record, but very strong. If we look at the cash flow from our last four quarters, so our last year, cash flow from operating activities is SEK1.085 billion, and as always, we invest a lot of that cash flow into new game development, SEK251 million was invested in game development in the fourth quarter. And looking at the full 2022, we have invested SEK807 million in game development, so quite a lot.
So now if we look at the full year 2022, despite that we have invested SEK800 million in game development and paying off SEK106 million as dividends to the shareholders, so in total more than SEK900 million has gone out. We have still increased our cash position with SEK137 million.
So we have accumulated a substantial amount of cash and it’s more than we need at the moment. So, therefore, the Board has, as you have seen in the report, has proposed to the Annual Shareholders Meeting that we increase the dividend from SEK1 per share to SEK2 per share.
Yeah, I think, this is the final slide before we have the questions. So total equity is steadily going up and it’s — how much is it? It’s worth mentioning, I think, it’s almost all of these equity comes from our profit, SEK60,000 of — I think it’s SEK2.3 billion, SEK60,000 of that is comes from other things. The rest is profit minus dividends. So I think we are in a very strong position balance sheet wise.
And if you look on the yellow bar, total non-current assets SEK2 billion. There are the largest part is capitalized development. So this is games that are — that we are waiting to announce and release.
Fred Wester
Exciting.
Alexander Bricca
Yes. Exciting for sure. That’s it. I think do we have any…
Fred Wester
We have couple of questions?
Alexander Bricca
Yeah.
Fred Wester
We actually got a lot of questions.
Alexander Bricca
Okay.
Fred Wester
So let me thank you for sending those questions in and make sure to do it on time and next time as well. So we can take some time to reply to them.
Question-and-Answer Session
A – Alexander Bricca
Yeah. Well, let’s see what we can manage to answer. The first one is for you, I think, Fred, with all the hype around generative artificial intelligence tools coming to the market, what long-term impact you see for Paradox?
Fred Wester
I have said it before in an interview that, I have never seen anything that will impact our whole business, and I am not only talking Paradox, I am talking about the computer games business as a whole as much as AI and it’s everything from how you develop code to how develop written content to how you develop graphics.
That being said, I mean, at the moment, we are prototyping, we are testing new things, we are seeing how it’s going to impact us. And that being said, I think, in the future, we are probably going to be able to do things faster and smarter with the help of AI.
I am not thinking first and foremost that AI is replacing anything that we are doing at the moment or people that we have employee at the moment. It’s — but it’s going to — for sure, going to be a great tool for us to use.
So we are looking forward to digging deeper into what AI can offer. And then why I think, like I say, it’s a groundbreaking change that is about to happen to the whole industry and its super exciting to see.
Alexander Bricca
Very exciting. Good.
Fred Wester
Next question, how impact that is Paradox’s business during global recessions as to one that has been predicted this year?
Alexander Bricca
Well, it’s difficult to say. Of course, I think, global recession hits everyone. So we need to be prepared and mindful, and have respect for that going forward as well, of course. But if we look historically, we can clearly say, what impacts our financials more than anything is the content we release. If we manage to release ex-DLCs or ex plus one DLCs, that difference makes much more impact than any financial sentiment on a global scale I think.
We also know that our players are very loyal. They spend quite a lot of time in the games. So if you split up the DLCs that we released in a year on your favorite game, the cost per hour of entertainment is very low regardless with — regardless what you compare it with.
Fred Wester
Yeah.
Alexander Bricca
So…
Fred Wester
That’s true.
Alexander Bricca
So we think we are in a strong position. What else can be said about the recession? Well, it’s — we are in a strong position financially. We have a good cash flow. No real debt on the balance sheet.
So this also puts us in a position where we can act opportunistically if good opportunities come up. We have for a couple of years been looking at IPs, studios that we would think would fit in greatly with Paradox. But, historically, we think the price on those assets have been high.
Fred Wester
Yeah.
Alexander Bricca
Now it’s probable that the prices are coming down. We have already seen that come down. So maybe that can open up some interesting opportunities for us.
Fred Wester
That’s for sure.
Alexander Bricca
Question for you Fred, any studio — well, on that subject, any studio acquisition targets for the year?
Fred Wester
Those of you who have followed us for a longer period of time know that we are not very prudent to make a lot of acquisitions of studios or — that being said, we have acquired a handful studios and we also acquired, for example, World of Darkness even before we listed the company.
So we are more opportunity based on this, and if you invest in Paradox, like, you know that our main source of growth is not going to be from M&A activities. It’s going to be from us growing our business organically and that’s going to be the goal going forward as well.
That being said, if we see something of an opportunity for an IP, a studio, a game that is worth looking into for us, we might do something. We would like — Alex mentioned that, we are in a good financial position. We have money in the bank. We have no loans. So we are in a good position to do M&As. But it’s not what’s going to make this company fly in the coming two years. There are other things that will help us do that.
Alexander Bricca
Yeah.
Fred Wester
So, Alex, the FTEs, the number of employees seems stable, are you satisfied with your ability to retain employees?
Alexander Bricca
Good question. So in 2021, but also in 2022, we have seen significant increase in turnover. Many good reasons for it I think. The work-from-home situation was one. We could see that increase not only ours, but other company’s staff turnover.
A year and a half ago, we started to cancel several projects. With that, of course, came people involved in those projects leaving and we have been very conservative in rehiring, not only for those projects, but in general.
Now, we are — so I mentioned earlier that we have decreased our staff from 742 to 6 — I think it was 656 or 665 at the end of the year. I think we are at a level which is very good now. So I am satisfied in that sense with our ability to retain employees, but even though I am happy with the level of staff, I would be even happy if the turnover was slightly lower.
Fred Wester
Yeah.
Alexander Bricca
We are suffering sometimes from having to train new employees. It takes a lot of time, not only before they can become productive, but it only — also takes productivity away from our existing employees.
Fred Wester
From next period [ph].
Alexander Bricca
Yeah. And if we could get that down a bit, I think, we would be helped. But then, of course, some turnover is unavoidable and I think it’s even good to have a certain level of turnover.
Fred Wester
It’s healthy sitting up there [ph].
Alexander Bricca
Fred, Victoria 3, you were experimenting with new design elements, not always welcomed by the fans. A few months after the release, what is your opinion on the games performance with the players?
Fred Wester
Well, yeah, Victoria 3 released a bit of mixed reviews and it was a mix between different things, some game design decisions, for example, and overall, I am happy with the game’s release. I think we are all happy here at Paradox.
But if you by happy mean totally satisfied and we are not going to do any improvements in the game, that’s not the case. So we are constantly working to improve all our titles. I mean, basically if you want to look at it very specifically, the release version of the game is always the worst version that players ever going to see, from there we are going make the game better.
So we are listening to the community. We are developing the things according to certain guidelines that we think is going to make the game better and we are constantly improving on things that we think is going to make the game better. So we are happy now, we are going to be even happier in a year and it’s going to grow into a great — even greater product.
That being said, I mean, Victoria is one of our more niche experiences in the ground strategy portfolio, meaning that the target audience historically has always been a bit smaller as well. So it might be that some people who are expecting a more open like or broader approach, while I think, the core audience has been quite happy from the start, maybe to stretch to say that, but I dare to say.
Alexander Bricca
So we announced a month after release that we had sold 0.5 million copies.
Fred Wester
Yeah.
Alexander Bricca
If we look back to CK III, we did a similar announcement, six weeks to seven weeks after release when we have sold 1 million copies.
Fred Wester
Yeah.
Alexander Bricca
So it’s sold roughly half of CK III and that is in line with what we expected before the release.
Fred Wester
Yeah. That’s correct. Yeah. Yeah. We knew that Victoria has a smaller target audience and we knew that all along.
So, Alex, can you talk about the investment that went into Age of Wonders 4? Are they comparables of Victoria 3 or are they smaller or they larger? What’s deal — what’s the deal?
Alexander Bricca
What’s the deal? So I can say, in general, our investments both in our own games, but also in our — in games developed by external studios are constantly increasing.
Fred Wester
Yeah.
Alexander Bricca
They have been for the last five years, six years, seven years, eight years and I think they will continue for some while to do so. So even though Victoria 3 was, you could say, a smaller game than CK III, it’s still cost a little bit more to do, because it came two years later. Age of Wonders 4 developed by Triumph in the Netherlands, I would say, one of our most cost efficient studios.
Fred Wester
Yeah.
Alexander Bricca
So I expect the investments in Age of Wonders 4 to be slightly less than Victoria 3.
Fred Wester
Yeah. Yeah. Yeah. But normally we don’t disclose numbers, well, just as a general rule of thumb. I just spoke to Lennart actually, the — from Triumph friend. He said that, we concluded that by the end of next week, I am going to start playing Age of Wonders 4 as well.
Alexander Bricca
Interesting.
Fred Wester
I always wait until the game is like almost finish — like on the finish line. So you don’t have to experience too many bucks.
Alexander Bricca
Nice.
Fred Wester
It’s great. Looking forward to that one.
Alexander Bricca
Fred, with the shorter timeframe between the announcement and release for Age of Wonders 4, can we expect a shorter announcement to release timeframes for future project as well?
Fred Wester
In general, I would say, yes, to that question. A shorter timeframe between announcement and release is the way we are going to work in general. Age of Wonders 4, specifically, we think will gain from a shorter marketing cycle.
There might be some that have a bit of a longer marketing cycle, but in general, it’s going to be shorter than it has been historically with Paradox, because we don’t want to announce anything and then having to postpone the game time after time.
So when we know the release quarter, we will announce the game, and sometimes we will tell you what quarter we announce that in, sometimes we will tell you what date, like we did with Age of Wonders 4, which is May 2nd this year.
So, Alex, are there going to be any changes into Paradox monetization methods and models?
Alexander Bricca
I think we and the players are very happy with the current model, which is the DLC model, where we come out with new content and the players that wants to play that content pays for it. But we have also since almost four years now we have been exploring with subscriptions.
Fred Wester
Yeah.
Alexander Bricca
First Game Pass, I think they launched in June 2019 on the PC version. We have been there from the start with several of our big games. We have also experimented with our own subscription models. We have, I said, CK II, Iron IV and EU IV that we have subscription offer, where you pay $5 per month and can get all the DLCs.
Fred Wester
On Steam?
Alexander Bricca
Yeah. On Steam. So this is something we do also to learn how the player behavior is. But with monetization model it goes as with anything, I think, we want to make our games available to our players in the way they want to play them and consume them.
Fred Wester
Yeah.
Alexander Bricca
So if they would in the future prefer a different way to pay for the content, I am sure that we are happy to move towards that way whatever that is. But for now, I think, we and the players are very happy with the DLC model.
Fred Wester
Yeah. I think so.
Alexander Bricca
Fred, how many games is Paradox Arc going to release in 2023? Are you providing upfront capital for these games?
Fred Wester
Two questions in one. How many games are — is Arc going to release? It — I can promise you a handful. So it’s anything between three and six, I don’t know, somewhere around those numbers. We have a super interesting line up of a wide variety of different games. We are working on at the moment.
We normally take all the investments as direct costs as we go along and sometimes we offer upfront payment. Yes, sometimes the developers have already developed the game in such a way that we can publish it together. So the model on how to finance is different from game-to-game and depends on developer-to-developer as well.
I have a couple of favorites already in this portfolio, but I can’t wait to tell you more about that, it’s amazing. We have little chat group on one of the games, which goes wild every lunch hour. So and that’s always a sign that something is brilliant.
Alexander Bricca
Right.
Fred Wester
More questions. Alex, should we expect the 30% dividend payout ratio to continue to go forward or could it be higher given the excess cash?
Alexander Bricca
It’s — it will be a new decision each year. So 30% payout ratio, I think, it refers to that it’s 30% of the after tax profit that is being paid out.
Fred Wester
Yeah.
Alexander Bricca
That is similar to — that is what it is now, if we are going to go through to SEK as the Board has proposed and I think it’s close to 30% last year as well. So maybe it’s a good level, but it’s not the only thing that the Board and the shareholders will look at when deciding historic profit, of course, is kind of a limitation or as setting the frame.
But we also look at the current cash position and what we expect the cash flow needs and the incoming cash as well what is going to be for the upcoming years. So, at this point, we think 30% or SEK2 per share is a decent level. Next year we will see where we are at that point I think.
Fred Wester
Yeah.
Alexander Bricca
More questions. Yes. What should we expect in terms of number of new game releases in 2023 and new game announcements?
Fred Wester
Yeah. This question keeps coming back. So we can never provide like a big number of announcements that we make every year. But since I said, we also tend to announce closer to the game release now. However, it should be a couple, right? Can we say that much?
Alexander Bricca
Should be.
Fred Wester
Should be a couple. All right. Alex, you have 40% margins decent, what is FCF.
Alexander Bricca
Free cash flow.
Fred Wester
Free cash flow, of course, free cash flow coming up. You have SEK750 million of cash. Why are you only paying SEK2 per share, if you are not going to use the cash, why not return it to the shareholders?
Alexander Bricca
Only SEK2 per share, we just doubled it.
Fred Wester
We just doubled it. What do you guys expect?
Alexander Bricca
Well, I think, as any company, at the end of the day, you should pay out everything, all the profit should go to the shareholders. But we are keeping most of the profits, because we think that we can capitalize on it and invest it with high returns, and we have been in a growth situation for a long time and we will continue to be in a growth stage going forward as well. So during those stages, the majority of the profit will be reinvested in the company.
Fred Wester
Yeah.
Alexander Bricca
So whether it’s — so it’s SEK2 this year. I think…
Fred Wester
Yeah.
Alexander Bricca
Yeah. We will see going forward. But I think and the Board seems to think that SEK2 is the right amount this year and probably the shareholders think that as well. But the short answer is, we are not giving out more, because we think that we can use the cash for better.
Fred Wester
Yes. Good. Good answer. I like it.
Alexander Bricca
Good. No more questions?
Fred Wester
No more questions. That’s it for this time folks.
Alexander Bricca
And if you have more questions, if we missed to answer anything, we will go through the email and I will try to answer them during the day or later in the week. And if you come up with new questions, send them in. You have the mail address. Otherwise, see you in, I think, its end of April, where we will announce the Q1 results. Sounds good.
Fred Wester
Q1 report. It sounds great. And until then have a great time and we will see you soon.
Alexander Bricca
Thank you for looking.
Fred Wester
Take care. Cheers.
Alexander Bricca
Bye.
Fred Wester
Bye.
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