Embracer Group AB

STO:EMBRAC B

Earnings Call Transcript 2020-Q1

[Oscar Erixon, Financial Analyst]

Hello. Welcome to this Q1 presentation for THQ Nordic. We have the CEO and founder, Lars Wingefors here, as always, which is a pleasure. Solid Q1 numbers, I think, and I think a record amount of acquisitions as well, 6 total acquisitions, of which some, I think, are larger than others. But one of the more interesting ones, Milestone, of course. And I think we have someone presenting here today as well. So without further ado, I'll leave it over to you, Lars. Please go ahead.

[Lars Wingefors, Founder, CEO & Director]

Thank you, Oscar, and good morning, everyone. I'm happy to announce another stable quarter. Our revenues grow 36% to over SEK 1.1 billion. Our operational grow close to 200% to SEK 204 million. The cash flow was also stable with SEK 441 million in the quarter. Overall, the quarter was driven by a very strong back catalog sales with a high digital sales percentage. Titles that drove the back-catalog sales was Metro Exodus and Satisfactory, amongst many others. Also in the quite extensive Q1 report, I'm happy to say that we had record investments into our game development pipeline with SEK 356 million in the quarter, and that will drive our organic growth in the coming year and years. In total, we currently have 81 pipeline projects, whereof 34 of them have been announced by end of the quarter. Also happy to confirm this morning that we got at least 2 AAA projects expected to be released in the next financial year. Also happy to announce that we are continuing building also the parent company. And this morning, I assigned the duty of Group CFO to Johan Ekström from Värmland [ aricha ] and promoted my Co-Founder since 20 years, Erik Stenberg to Deputy Group CEO [ of this consortium ]. So looking more into the numbers. The net sales grow, as stated, 36% to SEK 1,142 million. The EBITDA grew 88% to SEK 390 million in the quarter and operational EBIT to SEK 204 million. The overall operational EBIT margin grew from 8% to 18% in the quarter. We're also disclosing a new alternative KPI, adjusted EPS -- earnings per share that grew in the quarter to SEK 1.53. Looking at the depreciation and amortization in the quarter. The EBITDA were as stated SEK 390 million. Our operational D&A were games development, SEK 162 million of released products. Furthermore, we had other intangibles, mainly films, SEK 17 million. That comes to the operational EBIT of SEK 204 million. And then we have the acquisition-related D&A and as you all remember, it's all written down on a straight 5 years basis. IP rights SEK 69 million, surplus values SEK 08 -- and furthermore, goodwill of SEK 46 million, coming into a reported EBIT of SEK 81 million in the quarter. Investments in total were SEK 378 million in intangible assets. External games development were SEK 225 million for our upcoming game pipeline. And our internal investments that were capitalized was SEK 131 million in the quarter. And as you can see on this slide here, our investments continues to grow quarter-by-quarter, and that will drive the organic growth in the future. Cash flow remained stable. Worth to notify that we did not use any forfaiting compared to the last quarter end. So the cash flow from operating activities after the change in working capital were SEK 441 million in the quarter compared to SEK 165 million in the comparable period last year. On the balance sheet, I always think it's good to run through the balance sheet because it's becoming bigger and bigger. As of end of June, we had intangible assets of the SEK 3.8 billion, whereof SEK 427 million end of quarter was finished, completed games that are under the 2 years amortization, [ 2 versus the first year ]. We have capitalized ongoing game development projects of 1 point -- close to SEK 1.3 billion. Other intangible assets, mainly films, SEK 163 million. And then we got the IP rights from acquisitions of exactly SEK 1 billion. The surplus values in the business areas of SEK 161 million. And furthermore, or finally, the goodwill of SEK 787 million. In the end of the quarter, we had over SEK 3.1 billion in cash and available liquidity of more than SEK 4.5 billion. So digging into the business areas. First of all, the combined games business areas. Looking at the net sales. The combined net sales in the quarter was SEK 641 million. And on a trailing 12-month basis, that's over SEK 2.5 billion. And the quarter had a 33% growth, both within THQ Nordic, Deep Silver, but also obviously by the addition of Coffee Stain compared to last year. The digital share of the revenues was in the quarter a record of 71%, but I would say it's more relevant to look at the trailing 12 months basis, and that are now at 58%. Also the own titles share are on a trailing 12-month basis continue to increase, currently at 75%. In the quarter, we did not have any strong own new releases. So the share of new leases in the quarter were 18% only compared to 75% in the previous quarter. So Deep Silver. Looking at the KPIs to start with, we had net sales in the quarter of SEK 373 million compared to the SEK 338 million in the same period last year. Had strong back catalog sales, driven by a number of titles: Metro Exodus, Kingdom Come: Deliverance, Outward and many others. We had a number of releases, 7 in the quarter. For example, we had Saints Row - The Third, a port on Switch, that did fairly well. We had Kingdom Come: Deliverance Royal Collector's Edition and the new and last DLC for that game. But also in the Q1 report this morning, I have given update of the Deep Silver business, and I think this is important. At our own studio Volition in Champagne, I'm confirming that they are working on a new Saints Row game, and they are well into that development. Also confirming that Dambuster Studios are now leading the development of Dead Island 2. I'm also confirm that Fishlabs is working on a new IP and a number of other unannounced projects out from their studio in Hamburg. Already last quarter, I confirmed that 4A Games are -- we have a new contract with 4A Games, and I'm very happy to have them as external studio within Deep Silver and they continue to work on the Metro franchise. And Warhorse are into the development of the next coming project, as I previously have stated. And finally, I'm confirming that we had Steve Ellis, one of the co-creators of TimeSplitters. TimeSplitters is an IP that we acquired last year. And he's helping us to plot the future of course of the IP, so stay tuned. Other than this update, they have a number of releases in the pipeline. Already confirmed earlier in the year, we have moved the Shenmue III release from this current quarter to November or our financial Q3. Looking at the Coffee Stain business area. They have continued to over-perform according to our expectation at the time of the acquisition. Satisfactory is performing well. It has had a steady daily sales, but as well they had a successful promotion on the Epic Games Store in the quarter, that also drove a lot of units. In the end of the quarter or early in July, they had a major content update called Trains and Nuclear. But they did not have any other new releases from the Coffee Stain publishing in the quarter. The other products continues to perform well, notably Deep Rock Galactic. At E3, they announced 2 new PC titles, Songs of Conquest from our partly owned studio in Gothenburg, and Midnight Ghost Hunt from external studio. Both was very well received, I'd say. And looking at the Partner Publishing business area, we had another stable quarter with SEK 501 million compared to SEK 354 million in the comparable period last year. The growth is mainly attributable to the earlier release of F1 this year than in the previous year. This year, it was released in June and last year in August. Notable other releases were from our friends at Sega, the Team Sonic Racing, the Total War : Three Kingdoms. And from our friends at Solutions 2 GO, the World War Z. Looking at releases in the current quarter, we have 2 products from our friends at Square Enix, Dragon Quest Builders 2 and Final Fantasy XIV, and from our friends at Bethesda, 2 Wolfenstein products. Also stating in the reporting this morning that, we have signed 2 notable agreements with independent -- major independent games developers for their physical partner publishing business. And one I mentioned this morning is Dying Light 2 from Techland. Also stating that we will have notably fewer releases in the current quarter than we had in the comparable period last year. Again, F1 was last year, but we also had Tomb Raider from Square Enix, for example, in the comparable period last year. The physical market in general has headwinds. But we see this as an opportunity to drive market share growth. And we increasingly see the outsourcing from other publishers or the need for that. We are still committed to the physical market. On the M&A side, we have been -- well, I was promising to have vacation, but things turns out that there were a job to do in the end of the vacation period, especially. So we have, I would say, in general, the M&A prospects look solid. We have a solid pipeline of companies and talents that we want to bring into the family, both within the current 3 operating groups, but potentially also candidates to become the fourth operating groups in the future. And this is everyday job that is taking place at the parent company as well as within the operating groups. We had 3 partner publishing acquisitions I'm proud of, to announce this morning in the reporting. One being 2 -- or 2 companies being -- 2 companies that I partly owned with my co-founder management that has been disclosed in the reporting. So the decision of these 2 acquisitions has been made by the independent part of the Board. One of them being Gaya, a leading European manufacturer of gaming IP merchandise and collectibles. And it fits well to the need for collectors' editions and merchandise. And we could obviously use all our IP portfolio against this business as well as working with other leading IP holders across the world. It's an entrepreneur-driven business, founded by the co-founders, Andre and Marko Schmitz; 29 employees, net sales of EUR 6 million last year, 2018. And I sold it for the record price of EUR 1. It's not generating any goodwill or bad will. And with synergies, for example, the consolidation of shipments, we're expecting this business to have profitability in the future in line with the rest of the Partner Publishing business. As proud and happy to welcome Game Outlet Europe, the origin of actually THQ Nordic, into the group. This is a business I founded when I was very young, in 1994, in Karlstad. It's a very -- today, it's a very stable business with about SEK 90 million in revenues and a healthy profit margin with SEK 9.5 million EBIT, 2018. It's well managed and well run by the CEO, David and along with the other team that has been in the business partly from the '90s. The price is SEK 10 million for 100% of the shares equivalent to the equity -- unrestricted equity, which implies 2.3x enterprise/ EBIT on a cash and debt-free basis. Their business is hard-core gaming, retro products, hardware, accessories, as long as value software business that are supplying e-commerce partners such as Amazon and CDON and others across Europe. So they don't carry full price new releases. So they are not in the competition with our other business at Koch Media. They are a complement to the Partner Publishing Business. And finally, we acquired within Koch Media in Germany, KSM Films that are focused on anime films, also stable business, founded by entrepreneur, 45 employees. EUR 17.5 million in net sales with a close to EUR 2 million profit last year. This will be a lot of synergies with the current film business. And we made -- or the management made a strategic review of the group's film business and concluded that we need to have a critical mass in order to stay relevant in the business and to improve the return of the capital. And this transaction is not either generating any goodwill. So we're actually paying the equity value of the film rights catalog. And it's a digital and physical business. So they are very welcome into the group. That was the Q1 presentation. I know you probably have a few questions, Oscar, this morning, but my plan is that we are continuing presenting the acquisitions and then some other things, and then we do all the Q&A in order to find -- have the time here. So that excites me the most this morning is to welcome Milestone to the group. And I would like to welcome Luisa, up on stage here. Hello.

[Luisa Bixio Bordonaro;Milestone;CEO]

Hello. Good morning, everybody. And...

[Lars Wingefors, Founder, CEO & Director]

Yes, please.

[Luisa Bixio Bordonaro;Milestone;CEO]

I'm Luisa Bixio, I'm Milestone's CEO. And I am very happy about this deal. And thanks, Lars, for the opportunity to be here with all of you.

[Lars Wingefors, Founder, CEO & Director]

Yes. Thank you, Luisa. I'm honored to have you here and to have you in the group. I would like to present the deal and this transaction with you and share the financial details, and then I will let Luisa to present the actual business. So in general, the business are impressive, as in impressive track record with more than 50 games developed, 8 million games sold. It's a leading racing developer, it's very efficient. It's stable, it's recurring in the sense of the products are coming yearly or biyearly, and they have an attractive business model that increasingly are becoming digital and you have a strong pipeline. You will tell us more about that in the future. But looking at the transaction, we paid this morning, and it was a close call to sign this in Rome this -- 6:30, but we made it, yes? Our notaries and lawyers. But the net-net -- on the net-net -- cash basis, debt-free basis, we're paying EUR 44.3 million this morning, whereof EUR 11.5 million is by THQ Nordic B shares. The company has a net cash as of yesterday of EUR 10.9 million. And then we have agreed potential earn-out of the accumulated adjusted EBIT levels over the coming 3 years in the current financial years of Milestone starting first of July. And we have set a business plan and a target that we both believe in. And if we are together hitting that business plan, the earn-out is EUR 28.9 million, whereof EUR 15 million are paid by shares as of this morning under lockup and clawback. Which if you reach below 70%, there is no earn-out, and you can increase the earn-out up to 130%. It will have a financial contribution. I'm giving a forecast of the period of first of July to end of June next year of net revenues of EUR 27.5 million to EUR 32 million on EUR 25 million, with the EBITDA of EUR 15.5 million to EUR 18 million, with the operational EBIT contribution of EUR 10.75 million up to EUR 12.5 million. So, Milestone, Luisa, the stage is yours.

[Luisa Bixio Bordonaro;Milestone;CEO]

Thank you, Lars.

[Lars Wingefors, Founder, CEO & Director]

You can click here.

[Luisa Bixio Bordonaro;Milestone;CEO]

It's this one? Milestone. Milestone has a long history in racing game, has been founded in '94 by a small team of developers, very passionate for games and for racing. And they have been soon noticed by -- from some of the major publisher at that time. And in a few years, they produced Screamer for Virgin. Screamer is one of the game that made the history of racing game. And they produced the SUPERBIKE Series for EA, and they started to grow up. After we work for Infogrames with Racing Evoluzione. We produced MotoGP for THQ and for Capcom. We produce the WRC series and SBK series for Black Bean [ always in racing ]. Till around 2012, we decided that was time to produce for Milestone. And we became, in 2013, developer and publisher of our title. We started to publish the MotoGP Series. And we entered, again, in 2013, in the Cross market with the MXGP series, that we produce clearly even now. In 2015, we released what is the most important Milestone IPs, is Ride. Ride is the most complete -- is considered the most complete bike game released. And until in 2018, when -- for the first time we published Supercross -- Monster Energy Supercross from an agreement with Feld, till arrive to the current release. Today, we publish every year MotoGP, MXGP and Supercross and we publish every 2 years Ride. Our goal for the future -- our goal for the future is, for sure, increase the value of our current IPs.

[Lars Wingefors, Founder, CEO & Director]

[ is your also ]

[Luisa Bixio Bordonaro;Milestone;CEO]

Thank you very much. For sure, increase the value of our current IPs, increasing the quality, the technology level, but on the same time, we are already working on 3 not announced IP that I consider very, very important. And I think there will be a key for the growth of Milestone business for the future. Who we are? We are 200 -- around 200 people. We are based in the very center of Milan. And in the same office, there are developers and publisher team. I'm very, very glad and proud of my team. If you come to see Milestone, you will see all people that is very passion for racing, very passion for game. But on the same time, we are the most important developer in Italy. And people is very proud to be in Milestone and very committed on what we are doing and what we have to do for the future. At Milestone, our culture is highly focused on processing day by day. So we give huge attention to process, to planning and efficiency. It's a key because we produce 3, 4 title every year, so it's pretty complicated. But on the same time, it's very important the value of each person in Milestone. Our door is always open to -- for new ideas, for new and -- a good atmosphere. I manage the team, not alone, clearly. Beside me, there are 5 managers. We have been working together for many years. And I'm very convinced they are the right people to manage with me the company, through the goal we set in the THQ family. Our history, again, is racing game since '94, 4 wheels and 2 wheels. Even if in the past couple of years, we decided to focalize our attention to bikes, 2 wheels, becoming the most important company worldwide in this segment. And I think that we can grow even more. Okay. Our current IPs are 3 annual franchise, as I told, MotoGP, MX and Supercross and Ride every 2 years. The strategy for the future is, for sure, invest in the quality of current IPs with the goal of consolidate our position and increase our market share in this segment. But on the same time, we worked a lot to find other IPs that are near Milestone DNA, but they are different, with a clear purpose to speak to a wider audience and to make Milestone business grow a lot. The result is that we are already working on these 3, not announced important IP that will be released all in '21. Okay. MotoGP. MotoGP is our historical franchise. We produced 9 MotoGP until today, 7 as a publisher. The last one has been launched June last year and has been very well perceived from the critic. We received around 8 Metacritic, but has been very well received from the community with lots of enthusiasm. MotoGP '19, I consider this game a step forward compared with all the previous one. The major highlight we -- of the game were a completely new online based on Amazon's server, that really gave lots of enthusiasm in the community. And even more important for me because it's a Milestone technology, for the very first time, we introduced, in a game, a new AI system for the single player experience that was based on neural network and machine learning on a technology we called internally, A.N.N.A, as artificial neural network agents, where in the single player experience, the AI agent compete with the player like a human being. That's the big difference in the gameplay experience. And Milestone has been the first company ever to implement a neural network AI in a game. MotoGP is a game, is a sport. Since 2017, we started the eSport Championship -- official eSport Championship, together with Dorna and has been a big success. We have more than 15,000 participants is the -- last one has been broadcasted by more than 16 broadcasters. And we have very relevant sponsor like Red Bull, BMW, Michelin and many others. MXGP. MXGP is our Cross -- has been the first Cross title [ is inspired ] today, official Motocross championship, licensed by Youstream and has always been highly appreciated from the community for the realism of the game. We are going to launch the new edition in a few days, the 26th of August. And this game will have many new feature inside. Supercross. Supercross is quite a new entry in our lineup. The first one has been launched in '18 and has been a huge success, mostly U.S. Supercross is the most viewed motocross sport in U.S. and we sold around 1 million units between the 2 edition, February '18, February '19. And the game has been appreciated U.S. but even Europe and Australia. Ride. Ride is our IP. And we like it very much even because it has been created from the studios with the desire to create the ultimate motor bike game. So Ride has always been very appreciated since the beginning. And the last one has been launched last year at the end of November and was featured with more than 300 official bikes, 1,000 of accessories, a very good livery editor. But what is most important for me is that we will launch the next Ride, Ride 4 in 2020. And Ride 4 will be a step forward, really. It will be featured with a new multiplayer system. It will have the new AI we use for MotoGP, but advance. And we are doing all the assets of the game that is very big in a very high-quality level to be ready for the new generation console.

[Lars Wingefors, Founder, CEO & Director]

Thank you very much, Luisa.

[Luisa Bixio Bordonaro;Milestone;CEO]

Thank you very much.

[Lars Wingefors, Founder, CEO & Director]

Very welcome to the group. Excellent presentation, yes. Thank you.

[Luisa Bixio Bordonaro;Milestone;CEO]

Thank you, Lars.

[Lars Wingefors, Founder, CEO & Director]

Okay. Next acquisition we announced this morning, also closed this night, were Gunfire Games from Austin, Texas. So I kind of feeling that Gunfire Games kind of already has been a member of the family, however, not owned by us, but we have been working with them since 2014. They are the creators and developers behind a number of IPs, and I will come back to that in a minute. They are the team behind Darksiders III. So that game was our first major release within THQ Nordic in Vienna, released in November. And previously, they've been working on Darksiders assets. They are a top development studio with a lot of talent. And we know, obviously, Dave and the management very well, and been working very well with them. But they've not only been working with THQ Nordic, they have been a partner to Oculus Rift and to Perfect World. And Perfect World -- together with Perfect World, they are releasing a new title next week called Remnant. We didn't disclose, as we normally don't do on acquisitions on developers, the purchase price, but we expect to recoup it within -- over the course of 3 to 4 years. It will financially contribute to THQ Nordic, mainly by the release of the content they are creating. And the management and the founders, they are committed to stay on board for foreseeable future. We will leave them with a lot of independence to maintain their creative freedom. And this is our first owned studio in Austin. Austin is the third largest game industry hub in the States, there are a lot of talents. So looking at the team, Dave Adams. He was the founder and the Head of Vigil Games that was part of THQ Inc., the previous THQ. And they have then created a number of titles, for example, Chronos, that was very, very well received on Oculus Rift. In total, they are 70 full-time employees, whereof 63 are developers. And in our organization, they will be in the family of the THQ Nordic in Vienna. And looking at the history of the studio, in the past years, obviously, I mentioned Darksiders 3, From Other Suns. They had their own IP, Dead and Buried, a license titled Oculus Rift. They [ made here ] Chronos released with a very well received Metacritic and then they worked with us on the current generation of Darksiders 2. And next week, they are releasing with Perfect World as stated Remnant. And finally, we announced the acquisition of Goodbye Kansas Game Invest this morning. Goodbye Kansas is a -- Game Invest is a team and a company we know very well since many years. And they are a very important part of the Nordic and especially Swedish ecosystem of games development and talents. And we were able to purchase this for what we deem to have an attractive transaction of SEK 42 million this morning compared to the historical invested capital. But foremost, we are building or acquiring a platform with 4 very talented people to both manage the current portfolio, including supporting and producing but also building a platform for us to continue making investments into exciting smaller game development studios across Nordics, but also to support that established teams to set up their own company with the support of Goodbye Kansas Game Invest. Also in the transaction, it was included some royalty rights for the game Biomutant that we own and are to be published by us. And Experiment 101 was a studio we acquired from Goodbye Kansas Game Invest. And they have 5 exciting studios in their portfolio. And in the respect of the studios, I will not go into the details of the studio, but I've been hearing and trusting the management of Goodbye Kansas about these companies. So I would leave this. I'm sure, Oscar, you have a few questions. The time is running, as usual. I have the last thing to announce this morning. And I stated already at the AGM and Capital Market Day last year in May, that we will -- our intention is to change the name of the parent company. And I will today announce the name, not a lot of details, but the name and there will be a proposal. So the reasons and the background to change the name of the public listed parent company is that one of the 3 operating groups are also named THQ Nordic. That has been a bit confusing to a lot of people, the industry, employees, shareholders. And just to clarify in order to avoid any misunderstanding, the 3 wholly owned operating subgroups we've got today, Koch Media, Coffee Stain and THQ Nordic, all will remain with the same current name. So it's just the parent company that are changing the name. And the rationale behind the proposal is to clarify the group structure and strategy with the parent company as a holding company. And on that account, the Board of Directors proposed the change of the parent company name to Embracer Group. Again, it's the THQ Nordic public that are changing to Embracer Group. The 3 subdivisions remains with the same name. This is a proposal by the Board of Directors through the AGM. So it's subject to approval of the AGM, September 17 in Karlstad. So you're very welcome as a shareholder. And there's a few other proposals coming out in the press release at this moment. A new website, a [ visual entity ] and a lot of other information to the Embracer Group name will be communicated September 17. Thank you.

[Oscar Erixon, Financial Analyst]

All right. So let's start the Q&A. But first off, I think a very fitting name for the group. So well done there. And I'll start off with some questions regarding the Q1 results, and let's start with Deep Silver. You mentioned that Metro -- you mentioned in the report that Metro continues to perform quite well. Can you say something about the digital and physical mix and potential contribution from other services and business models?

[Lars Wingefors, Founder, CEO & Director]

Well, as all products, the mix of the release are becoming more and more digital because the back-catalog sales are increasingly digital. I don't -- I wouldn't say we had notable digital revenues on Metro Exodus, it has been performing stable in the quarter on all digital formats. I mentioned that Satisfactory had successful games, for example, on the Epic Game Store as also Metro. So there is a number of channels on that. That's the color I can give you.

[Oscar Erixon, Financial Analyst]

All right. Perfect. And perhaps something about the Kingdom Come: Deliverance as well. You had 2 quite notable releases, DLC and also a combination pack. Are you happy with that release as well?

[Lars Wingefors, Founder, CEO & Director]

I'm very happy to have Warhorse and Kingdom Come within the group. There are -- the game is continuing to performing. It has been stable. It's not -- my expectations is not -- this is a game that's released last year. So there is a fan base you sell this new content to. And I think it was well received. And I think the game or the game continues to find new consumers, especially driven by discounts, for example, on the Steam summer sale.

[Oscar Erixon, Financial Analyst]

Yes. And want to touch upon THQ Nordic as well. I mean, it was quite a few releases in the quarter, but still, I think it grew by 27% or so. What drove that reasonably strong performance?

[Lars Wingefors, Founder, CEO & Director]

Yes. We had a number of releases within the THQ Nordic: Fade to Silence, Monster Jam, Titan Quest Expansion, SpellForce 3 expansion, Darksiders Warmastered on Switch. So there has been a number of new releases. None of them had any significant revenues. And I would say, for example, Fade to Silence did underperform according to my expectations, unfortunately. But they had a stable back-catalog sales in the quarter. And as I mentioned in the report, we had 1 license and IP deal with one partner of a mid-sized game that we didn't do anything with. So we had not done any similar deals before, but perhaps there is a market for this as well. So we have a lot of IPs within the group. I think it was counting 138 IPs, and there is no way that we could develop and handle all these IPs at once. So we need to work with partners over the coming years.

[Oscar Erixon, Financial Analyst]

Perfect. And I want to -- have to ask a little bit more about Satisfactory, which is quite an important game, I think. You mentioned that it's performing well, that it's exceeding your expectations. Can you say something about the effects from the large update now in June, I think it was, how that's affected sales?

[Lars Wingefors, Founder, CEO & Director]

I think all content updates are well received with the community, and the team are building a very, very long-term plan for this game. And I let the team to run and manage this. I'm more watching and learning, to be honest. And they are happily surprising me, so...

[Oscar Erixon, Financial Analyst]

All right. And finally, Partner Publishing, quite a solid quarter, I think, but perhaps some weakness in Q2 now, compared to last year at least, where you had strong releases. Is there something to be worried about there, that the market is getting tougher? Or is it more -- I'm not worried question of sort of scheduling as well?

[Lars Wingefors, Founder, CEO & Director]

No, I think key content is becoming increasingly important within the business. AAA titles, big titles are important to drive consumers to the retailers. And big titles will drive a lot of sales within the quarter. I'm -- overall, I'm not worried about the business. I remain committed. It's a stable business. It's an excellent team. We continue to consolidate. We are looking to add more content. But in this specific quarter, we are working with partners. And we will support the partner to bring out the products. But this quarter, there is not a comparable products to the last year.

[Oscar Erixon, Financial Analyst]

And I've asked this question before, but perhaps an update on it. Obviously, we have a console shift now coming where both Sony and Microsoft are expected to release new consoles in 2020, in Q4 likely, calendar Q4. What are you sensing in the industry in terms of scheduling releases? Are people hesitant to schedule releases for this console or what's happening there?

[Lars Wingefors, Founder, CEO & Director]

I think it's very early for us to say anything about that. And I would let the console partners to say. But in general, we are embracing the future technologies and platforms. And I'm sure our teams are working hard to make this transition in the future as good as possible for the group. A console shift is always a lot of decisions to be made about release date and timing and investments, and we will share more updates about this in the future with you.

[Oscar Erixon, Financial Analyst]

Okay. Great. And moving on to releases, some interesting announcements today. Let's start with Volition and the announcement there. You mentioned also that you will release at least 2 AAA titles in the next fiscal year. Does that say anything about releases this year, that there won't be any AAA?

[Lars Wingefors, Founder, CEO & Director]

I'm just saying that we're expecting 2 strong or, I didn't use the word strong, AAA titles next year.

[Oscar Erixon, Financial Analyst]

Okay. And I guess it's like...

[Lars Wingefors, Founder, CEO & Director]

There is a big -- there is a lot of opportunities to communicate. We used this opportunity today to communicate this update from Deep Silver. There will be more updates, for example, on Gamescom next week on various things. So I think that is the best answer.

[Oscar Erixon, Financial Analyst]

Okay. And you mentioned that Volition is quite far along with this development for its main game, upcoming title. Is that one that is likely for the next [ upcoming year ] ...

[Lars Wingefors, Founder, CEO & Director]

I think we used the wording deep into development. So they are deep into the development of Saints Row.

[Oscar Erixon, Financial Analyst]

Fair enough, fair enough. And moving on to Dead Island. I mean, that is quite a troubled franchise with a lot of changes of development studios and so on, now switching to internal studio. Dambuster, what is your comment there? And how does that affect the timing of the release?

[Lars Wingefors, Founder, CEO & Director]

I don't think we have used the word "switching." I'm not worried about Dambuster and their abilities, and I'm not worried about the development of Dead Island 2. So I'm excited. But I'm sure the team will share more details when they're ready.

[Oscar Erixon, Financial Analyst]

Great. And finally, did you confirm that 4A is working on another metro franchise? Or did I hear it wrong there?

[Lars Wingefors, Founder, CEO & Director]

I did confirm in the last quarterly result that we have signed a new agreement with 4A Games, and they are working on Metro because we are launching more content for Metro.

[Oscar Erixon, Financial Analyst]

Okay. I see. And before moving on to the acquisition --

[Lars Wingefors, Founder, CEO & Director]

It's important the wording, isn't it, Oscar?

[Oscar Erixon, Financial Analyst]

Very important, very important. So before moving on to acquisitions, which I have a number of questions on, do we have any questions from the floor to start with here? Okay. Then I will switch over to the acquisitions. And let's start with Milestone, that was presented here earlier. And I suppose you can answer most of the questions, if Luisa isn't here. But first of all, quite active with new IPs. What is the strategy of Milestone there? I guess it's a focus on what's called 2-wheel racing also going forward?

[Lars Wingefors, Founder, CEO & Director]

Yes. Well, I think Luisa played out her and her team's ambition, and I'm confident to execute. They also showed a pipeline here today. They have 5 games under development in various stages where one is releasing next week and definitely more of that -- in the future. And we shared a plan for a 10-year -- 10 games the coming 3 years. That's ambition. And I think it's a very ambitious ambition. What I've seen is -- has -- I'm excited, and they are very efficient, very focused, very dedicated to this, so stable.

[Oscar Erixon, Financial Analyst]

And compared to -- I mean, a similar company that you are cooperating with in the Partner Publishing business is Codemasters, of course, with F1. Could you compare sort of the dependency on certain titles? I mean, Codemasters relies on F1 to a large extent. Is it similar with MotoGP for Milestone, or is it less?

[Lars Wingefors, Founder, CEO & Director]

I think all the partners has a similar range of revenues. There is not one that are kind of standing out of all. But there is a difference. That's the color I can give you, is a difference, but all has its own business. And if it's less revenues there, the investments into that product is also less. So they make profit on these investments and products.

[Oscar Erixon, Financial Analyst]

And it's becoming a bit of a racing hub now, the group, with also Rainbow Studios and Bugbear, and now Milestone, is there any possibilities for cooperation and synergies between these different studios?

[Lars Wingefors, Founder, CEO & Director]

I think we're always trying to find synergies. But we are embracing autonomy and independence and trying to avoid forcing synergies. And I really believe in people and the people to make their own decisions. I feel that they are able to make their own decisions. There is a lot of synergies we could -- we can have in a group, including sharing assets, including sharing IPs. I'm sure the teams will find their ways to do this. But I'm not overly concerned about having hard synergies. That is not our strategy. I let people run their business.

[Oscar Erixon, Financial Analyst]

Perfect. And Gunfire Games, Remnant coming up quite soon, I mean, in less than a week. Can you say something about the expectations for that game and the initial feedback, I guess you've tested it or the company has tested it with critics beforehand?

[Lars Wingefors, Founder, CEO & Director]

I'm in general excited for Gunfire, and I like what they do, but I would let the publisher Perfect World, in respect of them now as a business partner, to talk for the product.

[Oscar Erixon, Financial Analyst]

Fair enough. And the other IPs that comes with acquisitions, anything that stands out, which you have hopes for in the coming years?

[Lars Wingefors, Founder, CEO & Director]

I think Chronos is a very interesting game, for example. Obviously, Darksiders is a IP they know. But they have the ability to create new IPs. They are very creative, efficient.

[Oscar Erixon, Financial Analyst]

And to sort of give some indication of the team, 63 employees, they worked on Darksiders 3, and now Remnant, I guess, in parallel, what is the sort of relation there? How many is working on -- how many was working on Darksiders and how many on Remnants, just get a sense there?

[Lars Wingefors, Founder, CEO & Director]

Oscar, it's a lot of good questions here. I can't give you full color on that, but I would say both game has sizable teams. That is -- they have been working on several products at the same time, and that is making a studio, as you've been looking at Milestone, more efficient that we have various stages of a product. That has been the case also with Gunfire. So that is the question -- answer to the question.

[Oscar Erixon, Financial Analyst]

All right. And quickly on Goodbye Kansas, the investment arm that you acquired for quite a low sum. What was the main rationale there? Is it the team, but also perhaps the Biomutant royalties that come with the deal? I guess that's an important game for you and now you increase the margin, I suppose, of that as well?

[Lars Wingefors, Founder, CEO & Director]

Yes, on a long-term basis, I am excited about the team and the position to -- not the position, but the ability to work with great talents and new companies to find upcoming great teams and products. I think it's important for us that we're having this infrastructure, but it needs to be kept a bit separate from our other businesses and publishers that are very focused on different things. So that -- I would say, is one of the key reasons. Obviously, I believe a lot in the 5 companies, but -- so it's a mixture of things. The royalties -- it's nice, but that is not the key reason for the transaction.

[Oscar Erixon, Financial Analyst]

Okay. Great. And finally, I want to touch upon KSM as well, the -- perhaps largest acquisition in the Partner Publishing business, which has some size and increases the scale of the film business, as you mentioned. But I have to ask, I mean, did you consider also divesting the film business instead?

[Lars Wingefors, Founder, CEO & Director]

There has been a lot of shaky -- [ straight ] decisions about things. But if you're having a business, you need to run it efficiently and profitable. And then you have all possibilities to consolidate or not. But in the respect of all businesses I have, we continue to invest in them. And I have to say, KSM are creating shareholder value because it's adding a contribution. It's a stable business. It's products that are well linked to our Partner Publishing business.

[Oscar Erixon, Financial Analyst]

Perfect, understood. And do we have any questions from the floor? Yes. Predrag?

[Predrag Savinovic, Research Analyst]

One question on streaming. You announced partnerships with Google a couple of months ago and then also with Microsoft on the Xbox Game Pass, where we saw Metro Exodus being one of the included games among then others. Has any of this been booked or notably booked in the quarter?

[Lars Wingefors, Founder, CEO & Director]

There is no notable bookings.

[Predrag Savinovic, Research Analyst]

And the royalties for Biomutant that Goodbye Kansas has, can you let us know on the percentage?

[Lars Wingefors, Founder, CEO & Director]

It's not notable.

[Predrag Savinovic, Research Analyst]

No? And finally, on Dead Island follow-up there when Dambuster takes over. They have not started this project now from scratch, but they're ...

[Lars Wingefors, Founder, CEO & Director]

No.

[Predrag Savinovic, Research Analyst]

-- but they're -- No. So it's going according to plan. Super.

[Oscar Erixon, Financial Analyst]

Any other questions? We're running over time. I can stand here all day. Do you have anything on the phone? Nothing there. All right. I guess, then that's it. So thank you very much.

[Lars Wingefors, Founder, CEO & Director]

Thank you, Oscar. Thank you.