Paradox Interactive AB (publ)

STO:PDX

Earnings Call Transcript 2020-Q3

[Ebba Ljungerud, Chief Executive Officer]

Hi, everyone, and welcome to the stream for our Q3 2020 report. Hello, Alex.

[Alexander Bricca, Chief Financial Officer]

Hi.

[Ebba Ljungerud, Chief Executive Officer]

How are you?

[Alexander Bricca, Chief Financial Officer]

I'm good.

[Ebba Ljungerud, Chief Executive Officer]

Yes.

[Alexander Bricca, Chief Financial Officer]

How are you?

[Ebba Ljungerud, Chief Executive Officer]

I'm good. I'm a bit depressed. We had some new corona advice in Sweden yesterday, very strict. We're seeing -- we, as everyone else, of course, are seeing a lot of impact from this, but we are going to do our part. We try to sit far apart, for instance, and get over this as soon as possible. But that's now why we're here today. We have some great numbers, I think, to share with you.

[Alexander Bricca, Chief Financial Officer]

We do.

[Ebba Ljungerud, Chief Executive Officer]

So let's kick it off.

[Alexander Bricca, Chief Financial Officer]

Let's kick it off.

[Ebba Ljungerud, Chief Executive Officer]

Q3, the royal quarter, obviously, because we released our game Crusader Kings III. Our revenues were up 75% compared with the same quarter last year, very happy with that. And if we look at year-to-date, so that's January to September, 50% up compared to 2019. And profit, double in profits compared to the same quarter last year, and if you look at year-to-date, it's up by 77%. So we're, of course, super, super, super happy with these numbers and very proud. The profit year-to-date is close to SEK 1.4 billion. So I think that's -- we're seeing great progress there. If we move to the next slide, this is very much thanks to Crusader Kings III. A game -- a franchise, I should say, that we have been developing over many, many years, 16 years since the first one was released. And the third one was released 1st of September this year. We had high hopes for the game, very high hopes. We felt very good, but of course, it was amazing to, first of all, get a Metacritic score of 91. So Metacritic is the combined review score from professional reviewers all over, really, in our field. But even more fantastic, I think, is that our fans, who now have made almost 21 -- not quite, but almost 21,000 reviews on Steam. When we look at the average score there, it's on 92%. So that's, of course, fantastic. It's such a great reward to see that something that we love, it also loved by everyone who supports us and plays our games. So that means that a bit more than a month after the release, so early October, we crossed 1 million sold games on Steam, a very big milestone for us. And if we -- we have also launched the game on Game Pass with Microsoft for PC, and that was the first for us to do it on this scale with a brand-new game. A bit scary and very exciting. So we, of course, are also seeing an influx of players who have not been in as much touch with Paradox as the Steam players from before. So that's a really interesting part of this game for us. I should mention that this building franchises over time, which we've done in -- in the case of Crusader Kings, it's really something we try to do with everything. It's part -- it's why we think it's so important to own our own IPs and to build on our own IPs. Even a small and not always amazing release early days, builds towards the future and towards a franchise over time. And as we have such long games and want to support them for so many years, it's really key for our business model. So all in all, we're super happy with this release. If we look at what else is in the numbers for the quarters, we've started the quarter with the end of the Steam Summer Sale, a couple of days there in July. We have launched only one DLC this quarter, which was Distant Stars for Stellaris console. As you can see in the reports, we are -- we see a substantial contribution from consoles. We really -- we're very happy about that. So we are also looking at the future, what else we can do on console going forward. We have, of course, the next generations of both PlayStation and Xbox came out now. So that's also very exciting and drives interest for the console in general. A big part of course, of the revenues is all of our players, it's the only part of our release [ about ] players. We have 4 million active users and players of our games, and we have more than 14 million registered PDX accounts. And the accounts are important for lots of reasons, but since we sell our games through third-parties like Steam or Microsoft or Epic and many others, we want to have our direct connection with our fans, and we want to be able to communicate directly with them. So we've been building our ecosystem for a long time, and we will continue to do so, and this is really the foundation of how we build for the future, together with the games. And what we are also doing in parallel is, of course, trying to build services and features that help the -- that are interesting for the fans and help them to enjoy the games more. We had a cancellation of an externally-developed project. This happens every now and then. It's part of what we do, really. We think it's very, very important to be able to start projects and then also cancel them if they don't work out fully. It happens all the time. In this case, it was a game developed by a third-party studio that we had not yet announced that we canceled. So that affected the result with SEK 28 million bottom line.And that also brings us to the next thing, which is that we have, during the quarter, changed our amortization model. So we CapEx -- capitalize all the development for -- again, whether it's a first-party or third-party studio that's developing it, and that -- all that money is then depreciated over time once we release the game. And previously, we have done equal parts for 18 months, so 1/18 of the CapEx per month. But having analyzed for the past year or so, the structure of how revenues come in, we've decided to change this to better reflect how the revenues come in for the -- for a game.So for Crusader Kings and games that are similar going forward, we will take 1/3 of the cost, the first month; 1/3 of the cost month 2 to 6; and 1/3 of the cost month 7 to 18. So that means that it's a fairly different model, but also reflects revenues better. It's not -- probably not -- or it's not going to be for all games because the game, for instance, as in early access, does not have the same revenue stream and the same goes for mobile. But in this type of game, we will see going forward as well.Yes. I think that is -- I should also point out what I always point out, that the revenue fluctuates over quarters. We release -- we don't release based on a quarter. We release when we think a game or a DLC is ready, and that means that we don't -- you can't always compare quarter-over-quarter. So it's much better to look at us over longer periods of time, rolling 12 months, for instance, would be my recommendation.Other important things this quarter. We've mentioned it before. I'm wearing the jacket. But we have acquired 2 studios. First of all, Playrion Game Studio. Playrion is based in Paris. It's a mobile studio. They work on a game called Airlines Manager. And the reason we think that they are a great fit for us is that it's in the management segment. That's a very big segment for us. And it's also in mobile where we are always looking at expanding our skill set and the guys and girls at Playrion are really great at this. And the next studio, which is Iceflake Studio, and Iceflake is based in Tampere, in Finland, and we have been working with them for quite a while on the game Surviving the Aftermath, which is a management game in the survival world. It was released in Early Access on Epic a bit more than a year ago. And we actually released it in Early Access on Steam in October, and we're looking at a full release next year, some time quite early next year. So this studio is also, of course, an addition of talent to us in an area where we know a little bit more than in mobile, but still a place where we really want to grow. I mentioned COVID in the beginning. It continues to be a big topic. We still encourage all our employees to work from home in almost all of our locations. We continue to follow the recommendations from the authorities. We feel that taking care of our staff and making sure that people feel safe and healthy is key here. We do a lot of activities around -- we actually do a lot of both social and move-around activities, and we also have a lot of seminars for mental health and how can you work from home? And how can you lead from home? Because of course, this is also quite a big strain on managers to never see their teams. The long-term impact, I've said this before as well, but we saw -- especially in Q1 and Q2, we saw quite an uplift from COVID. It definitely normalized during Q3. We haven't seen any big bumps as before, but who knows, we will continue to evaluate this going forward, of course. And we are also continuously seeing an effect on productivity. It really comes from 2 parts: One is that it is tougher when you never meet the person, and the other one is also that we really -- we are recruiting so many people. I mean, we're still in a very lucky situation. So we're growing, and we're recruiting. And it's definitely more challenging to build company culture and build an inclusive environment when you meet so little as we do today. So we are, like pretty much everyone else in the entire world, hoping for this to -- for us to find a vaccine and also that it goes away soon, but we'll see. Last but not least, we have a really cool game coming up, Empire of Sin. We're launching Empire of Sin on the 1st of December. This is a strategy game, 1920s Chicago mob era during the prohibition. You take on a mobster role, and you will build your Empire in these times. The game is built by Romero Games. They're based in Ireland in Galway, and we are seeing some really cool and good previews on the game. So we're very excited about this, and really, really look forward to their release, 1st of December. That's it for me, I think, for now. Alex, over to the numbers.

[Alexander Bricca, Chief Financial Officer]

Thank you. Let's begin. So as Ebba mentioned, a new record quarter in terms of revenue. We managed to obtain SEK 495 million of revenues in the quarter compared to SEK 283 million the same quarter the year before. So that is an increase of 75%. As we have pointed out many times before, making this year-on-year comparison single quarters is not always relevant because our business is not seasonal. So you need to look what has happened in the quarters. And on paper, these 2 quarters, Q3 this year and Q3 last year, are very similar. I mean, we have released one new game in both quarters, CK III this quarter, and Age of Wonders: Planetfall, Q3 last year. But besides from that, no proper piece expansion, but this quarter one port to the largest console of DLC. And last year's quarters, one port to Stellaris' console and one to Cities' console. So looks kind of similar, but of course, the fantastic reception of CK III made a big part of this difference, the large part, of course. But in addition to that, we should mentioned collaborations we have with Game Pass or Microsoft regarding Game Pass as well as Epic for Surviving the Aftermath. That -- well, Game Pass had last year's Q3 as well, but not to the same extent. I think we had 3 games in the service at that point. Now we have much more and especially, newer games like CK III. So that, of course, generates revenues that we didn't see last year. So operating profit SEK 188 million compared to SEK 93 million same quarter last year. That is a little more than doubling 102% up. Very good, of course. And the same goes for profit after financial items, SEK 187 million versus SEK 93 million. And profit after tax is -- came in at SEK 149 million compared to SEK 74 million the same quarter last year. Operating margins, very strong, again, 38% Q3 this year compared to 33% the same quarter last year. And if we look at the full year, year-to-date, so far, we are 37%. And the profit margins after tax is 30% this year -- Q3 this year compared to 26% Q3 last year. So very solid and strong margins that we're very happy with. Equity through asset ratio, well, there, we have had the drop compared to last year. This is due to accounting standards regarding leasing. So it means that we take our leasing contracts as an asset and as a debt. And as you might remember, last year, we did quite a lot of moves in Stockholm, in Delft, and in Seattle and entered into new lease agreements, which meant that the assets went up and that the debt went up. So the equity-to-asset ratio went down a bit. Average number of employees, 596 through the quarter, and we ended the quarter at 606. And of course, we had a nice addition at the beginning of the quarter, which was, to a large extent, driven by the acquisitions of Iceflake and Playrion. So we were at 472 end of same quarter last year. So quite a nice additional colleagues during the last 12 months.

[Ebba Ljungerud, Chief Executive Officer]

And hence, this whole challenge of getting everyone on board and being a part of the bigger family when we're not in the office in the same way.

[Alexander Bricca, Chief Financial Officer]

Yes.

[Ebba Ljungerud, Chief Executive Officer]

But also great.

[Alexander Bricca, Chief Financial Officer]

Also great. So let's dive in a bit more into the cost side, but first, we can look at the topline, the revenue. Here, we see something that is a bit strange for Paradox. During the last 4 quarters, we have had a constant growth. So each quarter has been higher than the previous quarter for the last 4 quarters. And if you look a bit earlier in the years, you will see a much more fluctuating revenue, and I think that, that is more representative for how it will be going forward. So we were, of course, planning for a continued trend going upwards, but we will see, as we have had during the last 3 years, a much more fluctuating quarter-to-quarter development, I think, where we have a high increase one quarter and even some decrease in next quarter.

[Ebba Ljungerud, Chief Executive Officer]

It's basically a clear sign that we don't release based on quarters, we release based on when we think a game is ready to come out, right?

[Alexander Bricca, Chief Financial Officer]

That's exactly why it looks like that. So let's look a bit more into the costs. We divide our costs into 3 main types, cost of goods sold, selling expenses and administrative expenses, where cost of goods sold is by far the highest or biggest type of cost. Here, we have all the costs for our studios. Our 9 internal studios now all the cost for our external development partners. So we say a bit rough that some where around half of our games are developed by external studios. So will these costs come in here as well? We have royalties on this item as well. We pay external studios when the games are doing good. We pay royalties to the studios. We also have depreciations here on the games and intellectual properties that we have acquired over the years. So the latest one was Playrion where we got the rights to Airline Manager. The same, we acquired Prison Architect 1.5 years ago, BATTLETECH through the HBS acquisition, and Age of Wonders and also World of Darkness, we can't forget, of course.

[Ebba Ljungerud, Chief Executive Officer]

No.

[Alexander Bricca, Chief Financial Officer]

So that all adds up. And then also, we have quite a lot of tech development at our publishing unit here at PDX. That tech unit is, since the beginning of this year, spending almost all its focus on developing functionality that is very close to the games. So therefore, that is considered as the cost of goods sold now. If you look at all these 3 costs, they add up to some SEK 300 million -- SEK 303 million. And if you go back to Q3 2019, it was just below SEK 200 million. So it's a 53% increase, less than the revenue, which is an important thing. And this comes -- if we remain a bit on the COGS line, this has to do with the fact that we are growing our business. We are growing our organization and doing more things. But also, since we are recognizing costs for the development through the amortization that Ebba described, that means that when we release a game, the cost goes up because then we start amortizing on that game. Previously, when we amortized equal amounts during the first 18 months, it didn't have such a huge impact when we released the game. But from this quarter, and it's probably going to look similar to -- in future quarters, we will see a COGS, or cost of goods sold, that is following the revenue in a better sync, I would say. And that is part of the purpose why we do this. But we have changed this amortization method. We want to match the period of the cost and revenues for the same resource. Marketing costs and administrative costs. So marketing and selling expenses is all the cost we have for external marketing, for our internal marketing organization, our partner management and everything. So that went from SEK 40 million in Q3 last year to SEK 50 million Q3 this year. So -- and this cost, as you can see, it fluctuated between the quarter. So you shouldn't analyze the development of the costs by just looking at 2 quarters, comparing them. You need to look a bit more over time, and as you can see from the blue lines, it's growing slowly. Administrative expenses, that is everything else. Everything else that is not cost of goods sold and marketing. So it's part of the offices. It's...

[Ebba Ljungerud, Chief Executive Officer]

Us.

[Alexander Bricca, Chief Financial Officer]

It's us. It's HR. It's IT, and quite a lot of things. And that has been going down even compared to previous quarters, and that has to do, to a large extent, with the fact that we -- a big part of our tech people at publishing that previously used to work with administrative closer functions now work with -- gain closer functions. So let's -- I think we can move from this chart further. This shows revenues as in the previous chart, and here, you can see the same in the green bars. It has, during 4 quarters going up, but before that, it has been much more fluctuating. And you see the operating profit that has followed the revenues, and we will see the same or perhaps, even more similar going forward, where the yellow line will follow the green bars to a large extent. And again, it's seen -- especially, if you look at 2018 and 2019, there is quite a fluctuation of revenues and profits between the quarter. So if you want to analyze and understand Paradox and try to figure out where we're heading, don't compare just to single quarters even if it is compared to the last quarter or whether you use the same quarter previous year, it's much better to try to group it together as we have done for you on this slide. So this is rolling 12 months or rolling 4 quarters. And there, you can see a much clearer trend or -- and a much smoother growth, both in terms of revenue and on profit. Cash flow. Green bars show the cash flow from our operating activities. So that is pretty much all our kind of live games. What it takes to -- the revenues we get from the games and what it takes to support them, and the yellow bars is investing activities. So if we start with the cash flow from the operating activities, again, a super strong cash flow with over SEK 200 million added throughout the...

[Ebba Ljungerud, Chief Executive Officer]

But still a bit low, if you consider Crusader Kings or -- leading question...

[Alexander Bricca, Chief Financial Officer]

Well, yes, thank you. It's a good question. Yes, we had a fantastic Q3. So one could expect that the cash flow from operating activities would be higher, but we released Crusader Kings 1st of September. So that means that all the cash from our distributors from selling Crusader Kings III in September, we had not received by end of Q3. Instead, we got almost everything at the end of October. So we can expect a very good October from cash flow from operating activities. If we looked at the cash flow from our investing activities, that is a record. Normally, what we have here every quarter is the cash flow from investing into game development. There, we had SEK 154 million investing in Q3. That is a record, if we just look at investment into game development, but in addition to the SEK 154 million, we have also invested in Playrion and Iceflake by doing those acquisitions. So quite an important quarter in terms of building for the future.

[Ebba Ljungerud, Chief Executive Officer]

Yes. Absolutely.

[Alexander Bricca, Chief Financial Officer]

Total equity and total noncurrent assets, the total noncurrent assets is very close to SEK 1.5 billion. So this is mainly our capitalized development. It's also the intellectual properties to the licenses and game rights that we have acquired over the years and not yet depreciated on, and it's also all these rent contracts that I mentioned earlier. And as you can see from the green bar, it's almost 1 to 1 covered by our equity, and this shows that we have very little debt financing of our business. That is what I had planned to go through. So I know that we have...

[Ebba Ljungerud, Chief Executive Officer]

We have a million questions, approximately.

[Alexander Bricca, Chief Financial Officer]

We have quite a lot of questions.

[Ebba Ljungerud, Chief Executive Officer]

So I'll start reading, and we can try to keep the answers quite short. First, how many copies does CK III have been sold during Q3? I mentioned it, we passed 1 million just after the end of the quarter, early October. Super happy with that. We also shared some stats a while ago, for instance, 25 million hours played. I can't remember how many mergers. There is a lot of them and a lot of babies sold. You can find that information if you Google a press release from that. What are your favorite PDX games? Well, mine -- at the moment, I'm mainly playing Cities actually. I'm back to Cities. What about you?

[Alexander Bricca, Chief Financial Officer]

I need CK III, of course.

[Ebba Ljungerud, Chief Executive Officer]

Yes?

[Alexander Bricca, Chief Financial Officer]

Yes.

[Ebba Ljungerud, Chief Executive Officer]

Yes? Yes. Yes. Have you killed any babies?

[Alexander Bricca, Chief Financial Officer]

No, not yet. Soon maybe.

[Ebba Ljungerud, Chief Executive Officer]

Okay. Somewhat on a more serious note, does PDX plan on supporting more new releases with some kind of Season Pass? Alex, you want to -- yes?

[Alexander Bricca, Chief Financial Officer]

Yes. Yes, we do. So Season Pass is when we bundle different DLCs together and sell them as one. So this we did for Crusader Kings III, and we also plan to do it for Empire of Sin. And...

[Ebba Ljungerud, Chief Executive Officer]

And you can already buy it, if you preorder.

[Alexander Bricca, Chief Financial Officer]

Yes. Yes. Yes, you're right.

[Ebba Ljungerud, Chief Executive Officer]

And we've done it for quite a few games.

[Alexander Bricca, Chief Financial Officer]

Yes. And the port I mentioned, which was the only kind of DLC we released during Q3, that was actually part of the third Expansion Pass or Season Pass that we have for Stellaris console.

[Ebba Ljungerud, Chief Executive Officer]

Yes. True. That's really a part of that. Okay. Did giving away CK II and making it free to play have a huge positive impact on CK III sales? Yes, it's a very good question. It's part of -- going into a launch of a new game, there are lots of marketing activities that are being done, and they all -- at least, the intention is that all of them support each other, and giving away CK II for free was definitely a part of this. So it's very difficult to draw a straight line, but as we can see from the sales of CK III, we are super happy with all of the activities that build up together. And I also think it's a great way to ease in to one of our games, to look at one of the ones that are free to play. So it's -- I would try it out if you haven't already. Alex, how do you recognize the revenue from CK III or any game? Does it all come in the quarter? Or is it recognized over a period of time? Maybe cover both preorders and then -- yes.

[Alexander Bricca, Chief Financial Officer]

Yes. So this is a question we have received a couple of them during this morning. So it seems to be important. Well, so most of the games have been sold during September, meaning that the players have actually made the purchase during September. And for the revenues from those purchases, we recognized in September. So that is the base method. Then there are a couple of variations to that, and one is preorders that we have sold before September that the revenues of those preorders we recognize when we release the game in September. And then on the other hand, we have sold -- the previous question was about regarding Season Pass. So when we sell a Season Pass for -- that includes revenues from future DLCs, then we distribute the revenues from that Season Pass. Even though we have received the money, we distribute it over the original base game or the period when we release original base game and the upcoming periods when we plan to release the DLCs. And was it something about was -- yes. So yes, I can...

[Ebba Ljungerud, Chief Executive Officer]

Mention it before the cash.

[Alexander Bricca, Chief Financial Officer]

Yes. And I can mention...

[Ebba Ljungerud, Chief Executive Officer]

Revenue from Game Pass was the question, I thought.

[Alexander Bricca, Chief Financial Officer]

Yes. Because that is part of the revenues we have seen in the second quarter -- sorry, third quarter comes from the Game Pass revenues from CK III. So there, we get -- we kind of recognize the revenues distributed fairly even over the period where we have the game available on the service. So that is -- compared to the sales we do on Steam, the revenues are much more spread out over time. So it's not that kind of front loaded. So that's the way that we recognize Game Pass. And a little bit about cash. We talked about cash regarding Steam, regarding Game Pass, that depends on the contracts. Sometimes, we can get some upfront. Sometimes, we get it at the end. Sometimes, distributed over some time. So...

[Ebba Ljungerud, Chief Executive Officer]

So that affects cash flow, but not the results?

[Alexander Bricca, Chief Financial Officer]

Exactly.

[Ebba Ljungerud, Chief Executive Officer]

Because the result comes in the next month.

[Alexander Bricca, Chief Financial Officer]

The result and revenue is distributed over time.

[Ebba Ljungerud, Chief Executive Officer]

Cool. Okay. Are you satisfied with your game's performance on Xbox Game Pass? Can we expect more titles in the future? Short answer is, yes. It's always scary to go into a completely new business model, in this case, subscription. But we want to do it because we think a lot of people enjoy our games that way. It's important for us that we then work on onboarding to make sure that people understand what it is they're supposed to do in the game, even if they're not super used to our games. So that's something that we try to balance. And we've been on the platform since it launched for PC in June 2019, and we -- our plan is to continue to be on there. So yes, that's the plan. CK III, again, Alex, the -- the take rate on Steam, so basically, the revenue share, I saw that question in the chat as well. How -- how does the revenue split for Steam work these days?

[Alexander Bricca, Chief Financial Officer]

Yes. So it -- yes, it's a very specific question, but that is exactly what in regards. So when our distributors distribute the games for us, they -- we kind of pay them by them keeping a share of the revenue. And in the digital entertainment industry, 30% seems to have been the standard for many, many years, regardless of which platform you're on. And so on Steam up until 2 years ago, it was 30% flat, but starting October 2018, they have changed it. So once a game reaches $10 million in revenues, the revenue share drops from 30% to 25%.And for -- of course, a game like CK III that has sold that much already, we reached that lower take rate quite quickly. And then there is another takeaway to reach for, and that is once a game has reached $50 million, then it drops another 5 percentage points to 20%. And this -- when it's an internally developed game, this extra money comes down to the bottom line for us. So it affects results in a very nice way.

[Ebba Ljungerud, Chief Executive Officer]

I think one -- I saw it on -- in the chat as well. One additional question is, is the revenue share to Steam included in the topline? And it's not...

[Alexander Bricca, Chief Financial Officer]

Exactly. Exactly. And there are kind of different methods to do it. You could take the full gross number and then include the kind of fee to Steam and the other distributors as a cost, but we don't do that. We take the net as a revenue.

[Ebba Ljungerud, Chief Executive Officer]

Yes. All right. Next question. How did the experiment with Europa Universalis IV subscription pan out? So basically, we've had an experience for quite a while on Steam, where you buy the base game and then you subscribe to all the DLCs. It's going well. It was a quite small sample because we wanted to see if anyone wanted it. There are people who wanted it tend to stick to it. So we deem that it's successful. So we will continue to iterate on it and continue to have that option available for people, and we are also looking at if we can include other games in that setup as well. But I would say, it's mainly interesting for games that have a lot of DLCs, where maybe, as a player, you want to try out a couple and either continue that way or decide which DLCs you like exactly.Are you developing any new unannounced titles, Alex? How many externally-developed titles are in the backlog?

[Alexander Bricca, Chief Financial Officer]

Yes. Well, we -- yes, we are developing both external and internal titles. We always do, and we always try to develop more titles and bigger titles. But until we have announced them, we kind of haven't announced them, and we are not saying how many they are and when we plan to release them or when we plan to announce them. So you just have to keep waiting until the announcement comes.

[Ebba Ljungerud, Chief Executive Officer]

Yes. Keep your eyes on the prize, so to speak. Okay. What are your plans in regards to PDXCON in face of COVID-19 and the industry's trend to move to more digital event from it? Well, this has been a huge topic of conversation this year. We, of course, would have wanted to have a physical PDXCON. We love meeting up with everyone and having all the developers there and all our partners there, et cetera. Given that it's the 17th of November and you haven't heard anything, I think you can safely assume there won't be a PDXCON this year. I really, really hope to come back to doing something next year, but we still don't know. And we want to make sure that we have something to talk about, of course, but also that we can do it in a way that's good for us, but primarily also safe for us and you, and everyone who wants to join. Okay. I have a question about Stellaris: Galaxy Command. How much of an impact is it having to cash flow? If it's not doing well, is there a downside risk to overall earnings? So sorry, Stellaris: Galaxy Command is our mobile game from Stellaris. Might be good to point out.

[Alexander Bricca, Chief Financial Officer]

So at this moment, it does not have much impact to the cash flow. I mean, first, we have like a negative cash flow, as you could see from one of the previous slides during the development phase. And then once we start -- when we release a game, on like the cost side, we don't have much negative cash flow. But normally, when a game is successful, we have a very positive cash flow. This is mobile games. So the expected kind of take-up rate is different. So far, we are not seeing a huge cash flow impact from this game. The second question, if it's not doing well, is there a downside to risk to overall earnings. Yes, I mean we -- the plan with all our games is that they are going to generate a positive earning each game. So the games that don't contribute to that, don't contribute to the earnings. So that is like the main negative thing with the game, if it, at the end, doesn't deliver. And then, of course, if it doesn't even generate enough profit to cover its own development cost then we do these write downs. That is very rare once we have released the game, but it happens. It happened 2 years ago, the last time, I remember.

[Ebba Ljungerud, Chief Executive Officer]

The new CK III players, do you see them moving over to play other PDX games as well? I would say, it's a bit too soon to tell because people are sticking to CK III to a very large extent. But we do see a large influx of new players, not least from the Game Pass cooperation. So of course, we hope to see them move over into other games. And when we look historically, we can see that when we've had new games with big new influxes like Cities, for instance, or Stellaris or even further back Magicka. But yes, over time, yes, they move into other games as well and start to play them.We have an amortization question here. What's the effect in September with the accelerated amortization? Can you go into more detail, Alex?

[Alexander Bricca, Chief Financial Officer]

Yes, a bit in more detail. I mean, we don't disclose single games -- not revenues and not the development cost, but I can explain the model a bit more. So previously, we took 1/18 of the development costs, and now we take 1/3. So let's, only as an example, assume that the development costs to be depreciated would be SEK 50 million. Then in the previous method, where we take 1/18, it would be a little less than SEK 3 million per month to write-off or to amortize. Now with this new model, when we take 1/3, it will be SEK 17 million during the first month. So the difference is SEK 40 million. So if the game would be SEK 50 million, it would be a SEK 40 million impact of this new method. If it would be double, SEK 100 million, it will be SEK 28 million as an impact. Yes.

[Ebba Ljungerud, Chief Executive Officer]

What long-term growth do you plan for in the company as a whole? Well, we don't disclose that either, but we do disclose that we are on a growth track, then we intend to continue to grow. And I think you can look at our CapEx volumes to see that we are investing a lot for the future and build for that. Back catalog weakness in Q3 year-on-year in PC, excluding Crusader Kings III from Q3 and Age of Wonders: Planetfall from Q3 2019. Is there a big difference? And is this a result of like a new DLCs release in Q3 2020? Or is that the potential demand was absorbed by a strong Q1 and Q2?

[Alexander Bricca, Chief Financial Officer]

Yes. So 2 things here. Yes, all our quarters are very dependent on us coming out with the content for the games. So if we don't come out with expansions on certain titles, it means that those titles are not going to sell a lot. So if we have a quarter with no DLCs, we are not going to sell much. That goes for every quarter, and it goes for Q3 this year and Q3 last year as well. And neither of those quarters had any real expansions, but I would -- I don't know if there is some kind of conclusion here that the so-called back catalog sold less this year -- this year's Q3 compared to last year's Q3. Again, we don't disclose it on a per game level, but I would not confirm that conclusion, at least I can say.

[Ebba Ljungerud, Chief Executive Officer]

All right. Try to go through a few more questions here. Mobile, how's it going? We mentioned it before, we're investing for the future. Playrion was an acquisition in line with this. And it's not our biggest platform, and we don't think it will be in the future either, but it is important that -- as an addition to our games. Do you see any similar patterns in engagement from Q2 to Q4 if some lockdown measures are implemented, for instance, in the U.S.?

[Alexander Bricca, Chief Financial Officer]

I think it's too early to say. But I mean, in end of Q1 and throughout Q2, I would say, we had -- we saw huge uptake on the gaming -- on the consumption side. I think we should not take that for granted that, that will happen again.

[Ebba Ljungerud, Chief Executive Officer]

And Bloodlines, there's a question on how is that going? So Bloodlines is seeing -- definitely seeing impact from COVID-19. And it's a new genre for us, but we are continuing to build on this game, and it's definitely one of those areas where we build for the future. So we -- there will be more news about this at a later stage for sure. And does work from home also have an impact on DLCs? Or should we, for that reason, expect less DLC in the upcoming quarters?

[Alexander Bricca, Chief Financial Officer]

I think it impacts everything a bit, but perhaps, DLC production is not the part that is impacted the most. Perhaps, it's impacted a bit less because there you have a smooth team that has released on the franchise before. So you could say that it's later in the development stage. So I think the DLC production will be less impacted than the new game production.

[Ebba Ljungerud, Chief Executive Officer]

We have some questions on cloud gaming. How are we looking at cloud gaming? We are working with several of them. It depends a little bit on how difficult the tech is to move a game to their back end. For some, it's just -- it's the same game. For instance, for PlayStation's cloud version. So it depends. But we are available on multiple cloud bases, and we want to be as well. We -- as I said before, we want to be where our players are. So it's -- we tend to move to that.Why have we chosen to change our amortization schedule now? I think we responded to this, but...

[Alexander Bricca, Chief Financial Officer]

Yes. I mean, the timing -- so I mean, we see bigger and bigger games being released in the future, and then this becomes more of a topic, how you distribute amortization over time? If we look back over '18 and '19, if we would have applied the same model during those 2 years, it wouldn't have made much difference. But going forward, we see just a bigger games coming out to bigger development costs, and then this is going to have a bigger impact. So it becomes more important to match the revenues and the costs more detailed together.

[Ebba Ljungerud, Chief Executive Officer]

All right. We have time for 3 more questions. So Xbox has been mentioned a few times. What about the other consoles? We are on both the Switch. Empire of Sin, for instance, will be on Switch and also PlayStation. So we are definitely there. Alex, the cash spend on M&A seems a bit lower than I thought. How much of the payment is deferred? Or is it being supplemented by equity?

[Alexander Bricca, Chief Financial Officer]

Okay. No, I mean, if you look at the quarterly report towards the end of it, in one of the notes, you have a fairly detailed explanations on how much has been spent on each of the acquisitions. And it's -- we -- I can say, we pay all with cash and no shares.

[Ebba Ljungerud, Chief Executive Officer]

All right. And then last but not least, you have now sold 80 million to 90 million in 2019 and written down a substantial portion of your capitalized development. How does the pipeline look for '21, '22? When can we expect more information? Also, is it reasonable to expect the same amortization strategy for most big titles? So as we said before, yes, we see that we -- for similar types of games, we will do the amortization in the same way. And then when it comes to the pipeline, we will tell you when we are ready to tell you.

[Alexander Bricca, Chief Financial Officer]

And I would like to point out one thing. We have written down a lot -- what's the kind of opening to the question? Well...

[Ebba Ljungerud, Chief Executive Officer]

Actually, if you compare, yes...

[Alexander Bricca, Chief Financial Officer]

No. Yes, I mean, if we compare how big part of capitalized development that has been written down, I think we are at 3.7% year-to-date this year. Last year was 5.4% and the 2 years before that was 7% and 8%, respectively. So this just shows that this is a part of our business, and this is something that we need to kind of expect and actually to embrace because it's so important that we do this.

[Ebba Ljungerud, Chief Executive Officer]

We don't want to ever be in the situation where we have to release a game just because we couldn't afford to cancel it, basically. All right.

[Alexander Bricca, Chief Financial Officer]

Time's running out.

[Ebba Ljungerud, Chief Executive Officer]

Yes. Time's running out. I think we covered pretty much all of the questions. Thank you so much for tuning in. We will be back...

[Alexander Bricca, Chief Financial Officer]

We will.

[Ebba Ljungerud, Chief Executive Officer]

With Q4 2020, that's not until February, though. 23rd of February, I believe, is the date.

[Alexander Bricca, Chief Financial Officer]

Yes.

[Ebba Ljungerud, Chief Executive Officer]

So until then, if you have more questions, you can always contact us on Twitter or other platforms, and thank you.

[Alexander Bricca, Chief Financial Officer]

Thank you for watching.

[Ebba Ljungerud, Chief Executive Officer]

Thank you.

[Alexander Bricca, Chief Financial Officer]

Bye.