Paradox Interactive AB (publ)

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Earnings Call Transcript 2021-Q1

[Ebba Ljungerud, Chief Executive Officer]

Hi, everyone. Welcome to the Q1 2021 report. My name is Ebba Ljungerud, and I'm CEO. Hello, Alex.

[Alexander Bricca, Chief Financial Officer]

Hello. I'm Alexander Bricca, and I'm the CFO.

[Ebba Ljungerud, Chief Executive Officer]

How are you?

[Alexander Bricca, Chief Financial Officer]

I'm good. How are you?

[Ebba Ljungerud, Chief Executive Officer]

I am also very good. I said just before we started that I will start by pushing your podcast that you did last week.

[Alexander Bricca, Chief Financial Officer]

Yes. I -- finally, after 3 years of being employed here, I got to attend the Paradox podcast.

[Ebba Ljungerud, Chief Executive Officer]

Was it fun?

[Alexander Bricca, Chief Financial Officer]

It was fun. Shams and Daniel are very good.

[Ebba Ljungerud, Chief Executive Officer]

Yes. If you are into what a CFO -- or if you're interested in what a CFO does, I think it's a good episode to listen to.

[Alexander Bricca, Chief Financial Officer]

Yes. And it was a bit of a deep dive about how it is to be on a listed stock exchange as a company.

[Ebba Ljungerud, Chief Executive Officer]

Which, of course, is why we're here today. So should we jump into it?

[Alexander Bricca, Chief Financial Officer]

I think so.

[Ebba Ljungerud, Chief Executive Officer]

So Q1, we had revenue during the quarter decreased by 9% compared to the first quarter last year. And it increased by 21% if you look at -- on a year basis -- or on the 12-month basis. And then profit before tax decreased by 44%. And for the last 12 months, it decreased by 2%. So that, of course, sounds quite depressing. We're actually -- from a financial point of view, we're quite happy with the quarter. It's -- as you know, if you've tuned in before, this varies every quarter, and it depends completely on what we release from time to another.This quarter, we have had some smaller releases than we did the year before. So it's natural that it fluctuates. We've also actually seen a quite a different exchange rate with the dollar. So the dollar has weakened, which affects us quite a bit. When it comes to what we've released, we would have ideally wanted to release a bit more. It varies a lot, and it's not always planned. We also ideally release when quality is reached, which means that this happens sometimes. But we would have liked to release more this quarter. I think it's fair to point out.Okay. And then if we move over to -- I wrote a little bit about in the report this -- so is it tightening or not shift so much as a slight turn...

[Alexander Bricca, Chief Financial Officer]

Adjustment?

[Ebba Ljungerud, Chief Executive Officer]

Adjustment to increase focus on our core games. And the reason for this is that we have seen year by year by year that our core games, they grow so much and they keep on growing. And we can continue to grow the core. And the core for us is very much this in Grand Strategy games. It's really in this strategy and management segment. So we also have a lot of games that are getting closer to being in the core, like Prison Architect or Planetfall or Surviving Mars, so our intention is to grow the core.And of course, then we also want to keep on investing in new types of games. This is very important. Many of the shifts that we've taken previously, when we've grown a big amount in a jump has been to actually look outside of our core. So it's super important to not stop doing that, but at the same time make sure that the core and our base games have the resources and the people they need, basically.So that's really what this is about, a good balance. And if we go into a slightly more detail around the balancing part. We've said before that we're trying to increase the content frequency in our core games. But of course, it's very, very important to balance that with quality. And I think it's also worth pointing out that we have had -- our last release was not received very well by our fans, which is a part of this that we can't push things out too fast. We have to make sure that the quality is there. And we are a growing company, we are growing. Our fan base is growing a lot. So it's also very true that the expectations from the fans has increased over time, and I think it's fair that it does increase over time.But it is a difficult balance. I think it will continue to be so, and we will continue to really invest time and effort into making sure that we find this balance going forward. One way of doing that is, of course, increasing capacity in our studios. So we have shifted focus especially, I would say, around the Grand Strategy games here, where we have turned both our Malmo studio and our Umea studio. So that's 2 cities, one in the south and one in the north in Sweden for those of you who are not familiar with Swedish geography, where both of these studios are now working together with all the PDS studios to get more content out on Grand Strategy games. And we have also established Tinto, which is our studio in -- outside of Barcelona, in Spain. And it's clear that we're already seeing some great contributions here, and it's also clear that it takes time to build this and to go from starting to build a game to actually pushing something out. So that means that we have grown -- we'll see later in Alex's slides that we have grown our staff quite substantially, and most of that growth is in the studio and in people who basically get the games out to you. And then last but not least, we are trying to focus a little bit more, which means that we have canceled 2 projects. This in itself is nothing unusual. We do it all the time, as you know. This time, it was 2 projects that were being developed by 2 external studios. And that just means that we can refocus and put the people who are working on this to other projects. So that's where we are. If we look at other things that have happened in the quarter. I would like to give a little shoutout to both Surviving Mars and Imperator. Surviving Mars -- both, actually, of the games reached their higher -- highest numbers of players in Q1, and Surviving Mars actually was over 5 million players, which is very cool. That's the first time. New content is being built by a new partner to Surviving Mars, so we're very excited about that. We'll see things come out in the year. Imperator is in a little bit of a hiatus, but we're hoping to continue to develop for Imperator as well because we think it's a great game, and we think it has a lot of long-term potential to grow and be a part of our core.We released 5 things in the quarter, 5 DLCs, if you will. Going Green for Prison Architect, also really, really good, and made Prison Architect reach new heights for us, which we think is exciting, of course. Megacorp and Lithoids for Stellaris:Console. We've talked about Stellaris -- sorry, Console many times, but it is clear to us that there is a strong player base who want to play these very complex games on console. So rest assured that we are continuously looking at what more we can do there. We did Heirs of Alexander for Imperator: Rome, which was also very successful and Northern Lords for Crusader Kings III. And I think one thing to point out around Crusader Kings III is that we're seeing a little bit of a shift in business model.We always do -- we do the premium model where we have a base game and then we have DLCs. We have increasingly started selling season passes. And actually, for CK III, when we looked at the sales initially, almost half of the sales were people buying season passes. So we are seeing a very big increase there, which we, of course, like. We're doing other tests as well around subscriptions and both with Game Pass and other distributors, but also on Steam, we're doing a couple of things with Europa Universalis and also Crusader Kings II, where you can subscribe to all of the DLCs. So that's something that we continuously work with. And then something else that I think is quite cool that happened in the quarter is that China became the second-largest market -- geographical market in terms of sales and partly because of the Steam Lunar sale that we had in the quarter, but it's also very much a testament that Asia is growing. And will -- of course, we're hoping continue to grow in the future.After the quarter, we still have corona, unfortunately. I had my first vaccine shot yesterday. Still feeling fine. But we are seeing more and more of our staff getting access to the vaccine. In our U.S. studios, most of the people have already managed to be vaccinated. In Europe, it's a little bit slower. If I generalize, our employees are quite young, which means that we come later in the queue. But of course, we are very eager to go back to the offices. We will look at slightly more flexible working setup, but it's super clear to me and to us that we are best when we are together. So that's definitely the plan for the fall here coming up.I've mentioned this before, but we have been very lucky from a sales point of view in this -- that sales for games companies and other home entertainment companies has, of course, been quite strong during COVID. But we are seeing some efficiency delays in -- when we come out with new games. So we're eager to come back to be able to go back to working closely together. We released 2 -- so far, we've released 2 DLCs. Nemesis for Stellaris and Leviathan for EUIV. As I said before, they've met with some criticism, so that's something we are working hard on making sure that we move in the right direction there. It's -- there might be -- it might always be different criticism to different things, so it's important for us to look at the whole -- the reasoning behind what is the problem where, so to speak. And then we have our Annual General Meeting next week on the 18th of May. That will be a fairly short affair. But after that, we will have an AMA, which means Ask Me Anything on Twitch, which will be with me, with you, Alex, and also with Fredrik Wester, who's our Founder and Chairman of the Board. So for any one of you who has questions, there will be opportunities to ask pretty much whatever you want. And we will focus on 2020, but I'm sure we can squeeze in questions about a lot of different things there.And then I think I only have one more slide, right? Yes. One of my favorite events in the year is PDXCON. This year, we were hoping to be able to do a "normal" PDXCON and meet up with everyone. We've realized that's not going to be possible. So we are doing PDXCON Remixed, which would be a digital event, Friday, the 21st until Sunday the 23rd of May. So it's going to be 3 days of streams. There will be lots of different things with an announcement show, an award show, late night show. I'm only participating in 2 out of 3, I realize now. And a lot of other things, and a lot of content created by our mods teams, by our great games teams, our staff, et cetera, et cetera. So I'm super excited, and I hope you tune in. You can check out the agenda on pdxcon.paradoxplaza.com. Yes. Now I think more details about the numbers. Right, Alex?

[Alexander Bricca, Chief Financial Officer]

Yes. Let's do that. So revenues for the quarter SEK 365 million that is compared to SEK 400 million in first quarter in 2020, so that is a 9% decrease from quarter-to-quarter. And for you who have followed us, you know that there isn't much seasonality in our business. So it doesn't make much sense to compare the quarters. But each presentation, we do it anyway, so let's do it this time again.

[Ebba Ljungerud, Chief Executive Officer]

Yes.

[Alexander Bricca, Chief Financial Officer]

So 2 main things, I think, has impacted the revenue if you compare the quarters. One is the FX impact. So the Swedish krona has increased against almost all big currencies. The dollar is down 13% from Q1 2020 to Q1 2021, and that impacts us a lot. We have 97% of our revenues coming in foreign currencies. And we have a little -- just a little more than the 50% of the cost in foreign currencies. So that is some kind of hedging effect. But on the top line, this impacts us quite a lot.The other thing that Ebba mentioned is the content that we released during the quarter. So it -- which was less in total this Q1 compared to Q1 last year, but not necessarily to a number of releases, and that's important to point out. It's not only the number of releases we make, but it's the size of the releases. I mean what are the price points? And equally important or even more important, I would say, is to what platform and to what games are the releases done? So Q1 last year, we had PC releases for Cities, Stellaris and Hearts of Iron and those are 3 of our main 5 games. Of course, that drives a lot of revenues. This quarter, we didn't have one kind of full-priced expansion for a PC game at all. So that impacted quite a lot. And the revenues, if you look at the top 5 grossing games, it's the usual suspects. It's Cities and the 4 Grand Strategy games. And they are -- if you go back, I think we have showed this in each quarterly report since we got listed some 5 years ago. And they are there, I would guess, 3 out of 4 quarters, with the exception of when we release a new game, then that new game is up there, but...

[Ebba Ljungerud, Chief Executive Officer]

And that's partly why we're even more -- I mean we've, of course, always wanted to develop on these games, but even more structured focus on these games.

[Alexander Bricca, Chief Financial Officer]

Yes, exactly. So operating profit came in at SEK 93 million compared to SEK 166 million Q1 last year. So that's a 44% drop, and that has to do -- I mean the profit decrease is more than the revenue percentage-wise. It has to do with us having quite a large part of our cost being fixed. They don't follow the revenues.

[Ebba Ljungerud, Chief Executive Officer]

That we're investing into the future, right?

[Alexander Bricca, Chief Financial Officer]

Exactly. I mean we are in the growth phase, which we have been for several years. So that means that we are building an organization. We are developing games a lot for the future, which we don't see the revenues of quite yet..Profit after financial items, SEK 92 million compared to SEK 165 million in Q1 last year. So that is a similar change. Profit after tax, SEK 77 million compared to SEK 128 million. Operating margin, 25% this quarter compared to 41% last year's Q1 and profit margin is 21% versus 32%. Equity versus asset ratio, 64% versus 62%.

[Ebba Ljungerud, Chief Executive Officer]

I think -- I mean with the past couple of quarters, we've discussed that the reason this has dropped is because of a shift in how we put the rents in our offices, and now it's balanced out.

[Alexander Bricca, Chief Financial Officer]

Yes. The equity for asset ratio, yes, it dropped a year ago because all our rental agreement is counted for as an asset and as a debt. So that kind of brought down the equity-to-asset ratio. But with every quarter and year that goes by, that debt and that asset decreases.

[Ebba Ljungerud, Chief Executive Officer]

So that's why it's moving from 60% to 64%, basically?

[Alexander Bricca, Chief Financial Officer]

Exactly. That's exactly right. Number of colleagues, 503 when we ended the Q1 last year. 696, end of March this year, almost touching 700. That's quite a lot.

[Ebba Ljungerud, Chief Executive Officer]

And I think that's also one of the reasons I'm so eager to get back to the office. It's a much harder journey to onboard in a company when you don't meet any of your colleagues. And I think from our -- from a company point of view, it's very important with the culture in the group, and that's also quite a lot more difficult to do when you never meet up. So yes, again, another reason for being eager to getting back.

[Alexander Bricca, Chief Financial Officer]

I agree. So let's -- the revenues we have talked about. So that's a green top line here. Let's discuss a bit more about the cost. So the chart shows our 3 main costs: cost of goods sold, which is our biggest cost item represented by the yellow line; and then we have our marketing or selling expenses on the blue line; and our all other costs, which we refer to as administrative expenses on the red line. So all in all, these costs amounted to SEK 285 million in Q1 this year. That can be compared to SEK 255 million in Q1 last year. So that is a 12% increase. So when revenues dropped with 9% and cost goes up 12%, that is where the profit goes down more. And these costs, this will grow with us kind of growing the organization, developing more games and preparing the publishing organization to release more games. So I think as long as we continue to be in a growth stage, we're going to see pretty much all these lines slowly go upwards. Good. So let's perhaps talk a bit more about the cost of goods sold, since that represents the largest cost item. For you who want to make a deep dive, we have -- I recommend that you read the report, and I think it's around Page 7 or 8, where we described our cost. There, we have started to specify what is within this cost of goods sold a bit more.But mainly, this contains all the costs for our internal studios. We have 9 internal studios. So all costs end up here one way or the other. Some of the costs we take is cost immediately when they appear. Some of the costs, we capitalize and amortize when we release a game. We also have all the costs for our external studios or games -- or the costs for games developed by external studios. That ends up here as well. And that ends up here by -- there, we capitalize everything and amortize it when we release a game. Ebba also mentioned that we have terminated 2 projects, 2 externally developed games projects that are under development -- were under development. Those we had capitalized. So that means that when we cancel, we write the capitalized development off. So that impacted the cost of goods sold item with SEK 34 million.Then we also have here the cost -- the amortization for our acquired assets. So when we acquire businesses or assets like last was Playrion. Before that, Prison Architect, Harebrained Schemes, Triumph, World of Darkness, brand catalog. We capitalize that or it comes in as an asset, and then we amortize it -- most of it over 5 years. So that, of course, impacts our -- even though we necessarily don't think perhaps that these assets becomes less valuable. But still, this is the way we do it. So this pushes down the quarterly profit with -- in Q1, SEK 20 million. And I think in Q1 last year, it was somewhere around half of that. And one thing about the write-downs of the SEK 34 million that we had in the quarter, that is more than we usually have in 1 quarter. But this fluctuates. So in one quarter, we can have the SEK 34 million and then in the next, we might have 0. So I think this -- but if we look back, if you go back, I think we did this exercise going back 4 years and looked -- and we found there is a ratio between the capitalized development in that quarter and how much we wrote off.

[Ebba Ljungerud, Chief Executive Officer]

And we look at it over years rather than...

[Alexander Bricca, Chief Financial Officer]

Yes.

[Ebba Ljungerud, Chief Executive Officer]

Because as everything else, we fluctuate so much on a quarterly basis.

[Alexander Bricca, Chief Financial Officer]

Exactly. So over a year, it's like 6% to 7% of the capitalized development that is being written off. And this is -- I think this can be expected to continue in this space as long as we keep a similar, I would say, risk appetite in terms of new investments. Anything else that should be mentioned regarding COGS? Yes. It includes royalties that we pay. That is the kind of cost that is mostly connected to revenues here. So this is, to a large extent, for Cities: Skylines, the revenues that we pay a certain percentage to the developer. And then the final cost item is the cost that we have for the part of the publishing business that works with technical development.So all our DevOps department, this is part -- that we don't capitalize effect.

[Ebba Ljungerud, Chief Executive Officer]

And I think it's worth pointing out that this is a very important part for us because of -- well, lots of different reasons. But one is that we -- our philosophy is that we want to sell our games wherever our players are, which means that we have a lot of different versions of the games and the DLCs that need to come out.That also means that we want -- that we have many, many distributors who have the direct contact with the players, and we want to make sure that we also have an ecosystem and can speak directly to our players. So a big part of this is building the whole ecosystem.

[Alexander Bricca, Chief Financial Officer]

Yes. That's right. So all in all, this went up compared to -- the COGS went up compared to Q1 last year. But you can see compared to Q4 last year, it went down significantly. And there are 3, I would say, 3 things that impacts that. One is the royalty. We had a bit less sales this quarter on -- from games that generate royalties. The other is the -- we have talked about this on a couple of streams before, the new -- the aggressive capitalization method, which means that we take more cost during the first month of the release of the new games. So, so far that has been done on CK III and Empire of Sin. And we are still in Q1 in the early phases. Meaning that we are -- so we take the biggest cost in month 1 and then fairly big cost month 2 to 6, and then lesser cost, month 7 to 18. And here, we have Empire of Sin and Crusader Kings III is still in the early phases. So we take more costs in Q1 for these games than we would have with the previous model, but less than we did in Q4. And the final thing here is that we have also started to capitalize on the internal development. Some of the cost that we have always capitalized for external games, but that we haven't done for internal games. So that is, for example, pensions and profit shares for the -- and yes, for the people.

[Ebba Ljungerud, Chief Executive Officer]

So they're more similar now.

[Alexander Bricca, Chief Financial Officer]

Exactly. For the staff that works in the studios with the internal development. So then it's -- the capitalized development of internal games will be more similar to the one -- the capitalized development of external games, which we think has a benefit. Selling expenses. That is -- it fluctuates a bit between the quarter. But it's going to go up, I would say, slowly, over time when we release more games and bigger games.Let's say, I think it was, how many millions was that? SEK 56 million in Q1 this year compared to SEK 47 million Q1 last year. And administrative expenses have been fairly flat, SEK 26 million this year compared to SEK 36 million in Q1 last year. So that has actually gone down quite a lot. Let's continue. Yes. So with this chart, we want to show -- I mean it only shows the quarter's revenue and profit that we have discussed already. But what we want to show with it is pretty much 2 things. One is that it fluctuates a lot from quarter-to-quarter, not all quarters. We had a couple of quarters last year where it looked stable for different reasons. But if you look a bit further back in time, the fluctuations have been fairly consistent, meaning that one quarter, we increased profit with 100% and the next quarter, we decreased it with 40% or 50%. So it goes up and down. And this is something we say that we don't guide what is going to happen in the future, and we don't, but we can guide this much. It's going to continue to fluctuate. It's going to go up and down for many, many quarters, I think, going forward.So to give you a bit of a smoother trend picture, we have grouped 4 quarters together, and there it's easier to see the trend, and that is a clearly upgoing trend. Now there isn't much seasonality in our business. So that means that it won't go up every quarter because it's not that we're going to beat the revenues or the profit from the previous year's quarter every time. For example, this quarter, it didn't happen. Revenues were less and profit were less compared to Q1 last year. So therefore, we see a slight drop.Cash flow. Not a record cash flow for the quarter in terms of cash flow from the operations. This is tightly connected to the profits. So with less profits for the quarter, we have less cash flow from the operating activities. And normally, there is Q4 where we had similar profits as in Q1, but more than double the amount of positive cash flow. And that had to do with all the sales we had on Crusader Kings III back in September that came in everything in October, so that made that quarter break the cash flow record.Cash flow from investing activities. There, it doesn't look like it, but in terms of investment into game development, it's a new record. We invested more in Q1 in share game development than in the previous quarter.

[Ebba Ljungerud, Chief Executive Officer]

Also something we say pretty much every quarter -- or actually every quarter.

[Alexander Bricca, Chief Financial Officer]

Yes. I think every quarter. So SEK 189 million this quarter. And if you look at the last 12 months, it's SEK 649 million that has gone into game development. If you look 1 year before, that it's SEK 478 million. So it's -- we are picking up pretty much every quarter, and the reason why the yellow bars are bigger on Q3 and Q4 is that those investments also, apart from game development investments, include the investments we did in Playrion and Iceflake. The equity through asset ratio, we have discussed. There, you can see what we mentioned that -- when was it happening? In Q3 2020. It shifted, so the total equity was a bit less than the total noncurrent assets. But since last quarter, we're back with having more equity than the total noncurrent assets.Awesome. I'm going to stop there.

[Ebba Ljungerud, Chief Executive Officer]

Yes. We have a bunch of questions.

[Alexander Bricca, Chief Financial Officer]

Great.

[Ebba Ljungerud, Chief Executive Officer]

So I'll kick it off. You wrote China is your second market after the U.S.? Is that in terms of distribution platforms or actual end users? No, this is in terms of end users and games sold in the market. And in terms of distribution, it's -- we sell through a few different distributors there as well.

[Alexander Bricca, Chief Financial Officer]

And the biggest market we can say, is the U.S.

[Ebba Ljungerud, Chief Executive Officer]

Yes. Yes. And has been for a very long time.

[Alexander Bricca, Chief Financial Officer]

Yes.

[Ebba Ljungerud, Chief Executive Officer]

Yes. Okay. Are there any plans to implement the subscription model for DLCs, especially already released DLCs, all the core games? Yes, that's how it works for both EUIV and CK II on Steam at the moment. CK II also has the advantage of having a base game that's free, so in that case, it's almost like a free-to-play with -- well, it is free-to-play with subscription service. And our intention is to continue to work with this and continue to try and test. If you look at Game Pass, that's a slightly different type of subscription where you buy a Game Pass subscription and then you get access to all the games there, but then it's the base game. So when you have our games through Game Pass, then you can buy the DLCs separately there in that case.How significant is the DLC subscription system in [indiscernible]?It's not huge, I wouldn't say. But I would say for people who -- it's very much a way for us to give access to the super-vast catalog of content that can be slightly overwhelming if you don't have access to any of the DLCs when you start playing. And we are aware that there is so much out there, so it's a good way to try. I don't think necessarily this is something for a core player who's been buying DLCs from day 1 or who's been playing it for many, many years. So it's more like what type of player are you and how would you like to play, and do you just want to try something, then it's a good way of trying.

[Alexander Bricca, Chief Financial Officer]

And there is also a second question there regarding the revenue, whether we get much revenues from the subscriptions. It's a significant addition, but it's not -- I would say it's not the main reason we do it to get more revenues in Q1 and Q2 and this year. We do this to learn the player behavior. How does it work? How does it impact stickiness and so on? .

[Ebba Ljungerud, Chief Executive Officer]

And I've said this in many interviews as well, but it's -- I mean the only thing we know is that change is constant, and change will happen in our industry as well. So it's quite -- it's very relevant for us to always try when new ways of buying the games or accessing the games, or new distributors or new -- I mean streaming is, of course, a huge one. When they come, we want to make sure that we know how it works, and we want to make sure that we can adapt to that so we don't fall behind and suddenly everything changes and we have not been on that bandwagon basically. So we will continue to do all of these tests and trials. Do you plan on having a universal subscription service for all the core Paradox games? I think this is a really interesting idea. It's -- today, it's a little bit more difficult from a technical point of view. So the -- right now, we don't have a plan. But it's definitely something that we look at how could we build that and how could we do it. And potentially, then we would have to use our own store for that, which is Paradox Plaza, which -- that could definitely be an option. So yes, we're looking into it.

[Alexander Bricca, Chief Financial Officer]

But we already have quite a lot of our games on Microsoft's Game Pass as a subscription model.

[Ebba Ljungerud, Chief Executive Officer]

Yes. Yes, that's true. So you can access. But then you don't have the DLCs.

[Alexander Bricca, Chief Financial Officer]

Correct.

[Ebba Ljungerud, Chief Executive Officer]

It's the base games. Yes. Then we have 2 questions about Leviathan. That's the latest release for Europa Universalis IV. And the first one is, will there be a patch? And we've actually already released 2 patches, and another one is coming on the 12th. So tomorrow, which I know that the first 2 patches have made a huge difference, and the third one will as well. And then the second one is what measures have you taken after the release of EUIV Leviathan? Any change in Paradox Tinto. I can tell you that the -- what's happened is we released it not 2 weeks ago, and the team has been working pretty much day and night to get the fixes out there. So right now, it's -- everything is about making sure that we get the DLC up to par with where we want it to be. That's the first step. And Paradox Tinto is a new studio, as we said. So of course, this is -- it's also clear that they need a chance to breathe and they need a chance to look at, okay, what went wrong? What are we going to change for the future? So what we do, no matter if it's a good release or a bad release or a mediocre release or anything in between, we always do what's called a postmortem, which is when we go through, okay, what was good, what was okay, what do we need to change for last time? And of course, this will also have a huge postmortem coming in to look at that. It -- I think it's very important to say that this is not something that we are happy with. And Johan Andersson, who is our Game Director on Europa Universalis IV, he's not happy either. We don't want to release bad content. We want to release good content that our players love, of course. So yes, it does mean that we will -- when the team has had a chance to breathe and when we have done all of these first fix patches, we're looking at how are we going to plan and how we're going to work with EUIV going forward to make sure this doesn't happen again. Have you perceived the rising demand for game developers over the last year? And has it noticeably impacted salaries? Yes, I would say.

[Alexander Bricca, Chief Financial Officer]

Yes. I mean as we show, we have grown from 503 to 696 employees in a year, and that, of course, needs -- means that we are fighting for a lot of competence, and a large part of those added colleagues have been in the studios. And I mean we have, I would say, a competitive situation, not the least in Stockholm.

[Ebba Ljungerud, Chief Executive Officer]

Yes. That's also one reason why we want to expand geographically, right?

[Alexander Bricca, Chief Financial Officer]

Exactly. Exactly. But then I think we have an advantage working with a product like a game that generates quite a lot of strong feelings because that has an upside, I think, in terms of retaining employees because a lot of us like to work with the products, like -- that we like to.

[Ebba Ljungerud, Chief Executive Officer]

No matter really where you work in the company. A lot of people are very passionate about our games. All right. Did you measure that your team's overall efficiency is higher when working in the office -- sorry, about -- basically, have we measured if the efficiency is higher when we're in the office than when during corona?I can tell you the measurement is that we see that the delays are longer and more, and that's a very clear sign that -- and we also -- I mean when we talk to the teams, it's very clear that it's harder to -- everything you want to discuss needs a meeting over Zoom or Hangouts rather than just turning around and discussing it, so it's more of those things. It's very -- I mean all of our teams, I think, are working super hard and being very, very diligent. So it's more about how easily do you discuss, and what's the time of the feedback loop. And how do you do -- like if you want to bounce creative ideas with someone, can you just turn around or do you need to book a meeting? Things like that. All right. Can you elaborate a bit on the investments in capitalized development? How much of this is going into core games and how much is going into other projects?

[Alexander Bricca, Chief Financial Officer]

It's not something we disclose. So the capitalized development just...

[Ebba Ljungerud, Chief Executive Officer]

See how I just like gave you that question?

[Alexander Bricca, Chief Financial Officer]

Yes. It surpassed SEK 1 billion at the end of Q1.

[Ebba Ljungerud, Chief Executive Officer]

A lot of money.

[Alexander Bricca, Chief Financial Officer]

And this is a mix between investments into expansions and content for live games, sequels on existing games and completely new games. And this balance is at the top of the agenda for many of us at all time, I would say. And I think this -- when we look forward in how we're going to have that mix, that is one of the things that we have adjusted a bit with this focus on the core.

[Ebba Ljungerud, Chief Executive Officer]

And then very much a question for you, Alex. What would be the best balance for equity versus assets?

[Alexander Bricca, Chief Financial Officer]

That's a very good question.

[Ebba Ljungerud, Chief Executive Officer]

Good question.

[Alexander Bricca, Chief Financial Officer]

I mean it's -- I'm very happy with our balance sheet. We only have -- I'm happy that we don't have debt. Or more correct, the only debt we have is debt that comes from running the business. So it's debt to the tax authority, debt to the suppliers and so on. But I don't see any need to change that ratio.

[Ebba Ljungerud, Chief Executive Officer]

Yes.

[Alexander Bricca, Chief Financial Officer]

But then you can -- I mean, you can take more risk by increasing the debt. I mean, we could finance the company, borrow money to invest even more. But we had -- when we ended the quarter, we had SEK 700 million on the bank accounts. So it's not anything that we are in need of at the moment.

[Ebba Ljungerud, Chief Executive Officer]

No, it's more a case of if we would ever need it. Fine, then we will reevaluate. But that hasn't been the case so far.

[Alexander Bricca, Chief Financial Officer]

Yes. Correct.

[Ebba Ljungerud, Chief Executive Officer]

All right. Are there plans of moving more PDX games to consoles? And if so, what are the challenges to doing so? Very good question. We have actually quite a few games on console now, and I would say all of them are performing well. So yes, we would love to have more games on console. It's -- it depends a little bit on the game. Some of the code is very, very difficult to transfer to console.So when it's older games, it's difficult. When we look at newer games, it -- I do hope that we will get more of them on console in the future. But nothing to share right now.Yes, that's it. PDXCON next week. What are you looking forward to?

[Alexander Bricca, Chief Financial Officer]

I'm looking forward to find out if there is any new game coming up.

[Ebba Ljungerud, Chief Executive Officer]

Yes, yes. I'm actually going to host the announcement show on Friday, the 21st, so tune in for that if you want more updates. Thank you very much.

[Alexander Bricca, Chief Financial Officer]

Great.

[Ebba Ljungerud, Chief Executive Officer]

See you next quarter.

[Alexander Bricca, Chief Financial Officer]

Yes. Thank you very much for watching.

[Ebba Ljungerud, Chief Executive Officer]

Stay focused.

[Alexander Bricca, Chief Financial Officer]

Yes. See you. Bye.

[Ebba Ljungerud, Chief Executive Officer]

Bye.