CD Projekt SA

WSE:CDR

Earnings Call Analysis

Strong Q1 Performance and Future Developments

In Q1 2024, CD Projekt's revenue surged by 30% to PLN 227 million, driven by Cyberpunk 2077 and Phantom Liberty. Net profit rose 44% to PLN 100 million. The company reduced selling expenses significantly but increased spending on research for new projects, such as Orion and Polaris. Trade receivables dropped by PLN 105 million, boosting financial reserves to PLN 1.45 billion. The team is now refocused on new developments, with no further expansions planned for Cyberpunk 2077 but ongoing major projects in The Witcher and Cyberpunk universes.

Introduction

The Company's recent earnings call highlighted strong financial and operational performance, driven primarily by the continued success of Cyberpunk 2077 and its expansion, Phantom Liberty. The focus was on the detailed financial results, upcoming projects, and strategic initiatives that were set in place to ensure long-term growth and stability.

Financial Performance

The company's group sales revenue for the first quarter of 2024 reached PLN 227 million, marking a 30% increase compared to the same period last year. This boost was primarily due to the successful sales of Cyberpunk 2077 and its expansion, Phantom Liberty. Despite higher amortization costs associated with these titles, the company managed to decrease its selling expenses to PLN 31 million, mainly by reducing maintenance costs for released products. Net profit for the first quarter stood at PLN 100 million, which is 44% higher than the previous year .

Operational Highlights

Following the release of Phantom Liberty, the team responsible for maintaining Cyberpunk 2077 was reassigned to other projects, indicating that the game has reached a stable state of maintenance. This allowed the company to focus more on early-stage works for new projects like Orion, Canis Major, and Hadar. Additionally, CD Projekt introduced a new line in their financial reporting to better capture research costs, reflecting the growing importance of such investments in their operations .

Cash Flow and Reserves

Cash reserves, including deposits and bonds, increased by PLN 137 million over the reporting period to reach PLN 1.45 billion by the end of March 2024. This increase, despite spending over PLN 50 million in development of new games and technologies, underscores the company’s strong financial health and effective management of working capital .

Upcoming Projects

The development of new games is in full swing, with significant progress made in projects like Polaris and Sirius. The company acknowledged the completion of the pre-production phase for the next Witcher game and plans to enter the production phase later this year. Moreover, CD Projekt is working on Cyberpunk 2077's sequel, Project Orion, as well as an innovative new game named Hadar .

Strategic Initiatives and Investor Guidance

CD Projekt's strategy remains focused on long-term growth through a mix of new development projects and maximizing the value of its existing game catalog. The company plans to maintain current employment levels and continue to utilize research and development tax incentives where applicable. The goal is to achieve PLN 3 billion in net profit over the next four years, aligning with their long-term financial targets. Investors can expect more information about upcoming games and strategic initiatives in the ensuing quarters .

Earnings Call Transcript 2024-Q1

[Michal Nowakowski, executive]

Good afternoon. My name is [ Michal ] Nowakowski, and I'll be your host during today's conference where we sum up the first quarter of 2024. I will be copresenting with Piotr Nielubowicz. After the presentation part, we'll invite you to participate in a Q&A session where we will be joined by Adam Kicinski.

After an intense 2023, the first quarter of 2024 was a period when the studio focused on the development of new projects, while also benefiting from the results of the tremendous work put into moving Cyberpunk 2077 and the Phantom Liberty, despite the expansion. All of that effort is appreciated by gamers. In May, the recent player reviews call for Cyberpunk 2077 reached 95% for the first time ever, which is the rating threshold for overwhelmingly positive batch on steam.

This slide presents the road we have traveled ever since the game debut at the end of 2020. We have put a lot of effort into patching, updating and adding new content while also making sure we continue to listen to our community.

As a result, the previous score has been progressively increasing. I would like to take this opportunity to thank our development team and all the players for their support and valuable feedback, which helps us deliver the best Cyberpunk experience ever.

Our effort is appreciated not only by the gamers. Recently, we have been honored with one of the most prestigious accolades in the industry. The studio's first-ever BAFTA award. Cyberpunk 2077 has won the Evolving Game category can [ critically ] acclaim for the hard work the team had put into developing the game over the past 3 years. Together with the Phantom Liberty expansion, Cyberpunk 2077 now boasts close to 300 awards from industry organizations and media outlets worldwide.

Our business strategy is built around long sellers. We constantly organize various activities to boost sales of gains from our back catalog. In March, we run a short by the incentive campaign to support continued sales of Cyberpunk 2077. In cooperation with Xbox and PlayStation, the game was made available to all owners of current generation consoles to play for free during the final weekend of March. This 3D trial campaign served as an effective tool in sustaining interest and engagement in Cyberpunk 2077, following last year's ultimate addition launch significantly bolstering our overall sales.

Things are happening also in The Witcher. Just a week ago, on May 21, we launched Red Kit, a moding tool which are free [ while ] hand. This tool allows fans to create their own adventures set in the Witcher universe and to modify -- directors, their appearance, were, locations, cut-ins and dialogues. The Witcher Free Red Kit was enthusiastically received by gamers, and we can't wait to see what kind of projects they will lead. We believe this will bring a new line into The Witcher Free on the [ EVO ] tenth anniversary.

Now let me briefly guide you for the current project engagement of our [ debt ] teams. The most visible difference versus the previous update concerns the team responsible for maintaining Cyberpunk 2077 and Phantom Liberty. As we finished fixing and updating the game, the corresponding category has disappeared from the chart and developers have been reassigned to other projects. The sizes of other teams have remained almost unchanged since the last update in February. This is in line with our recruitment plans for 2024, where we aim to maintain current employment levels. The Boston Hub [ remap ]recruitment targeted this year as we are still in the process of building the team that will deliver another fantastic experience in the Cyberpunk universe.

And since we're about to go into financials, let me hand it over to Piotr.

[Piotr Nielubowicz, executive]

Thank you, Michal, and good evening, everyone. Let's start with our consolidated profit and loss account on Slide 9. Our group sales revenue for the first 3 months of '24 reached PLN 227 million. That's 30% above the revenues of the comparative period. Again, Cyberpunk and Phantom Liberty allowed us to reach new high tides compared to past first quarters.

What is not directly visible here is that despite a very strong policy this year, both to the [ project Red ] and GOG.com enjoyed sales increases versus a year ago. Our cost of sales increased as well, mainly driven by the amortization of Phantom Liberty and Cyberpunk.

Moving on to operating costs. Our selling expenses decreased by PLN [ 80 ] million down to PLN 31 million. This was mainly driven by a decrease in the cost of maintenance dedicated to our released products. I will come back to this in a moment. As regards to administrative expenses, the increase in this category was driven mainly by expenses on early phase works on new products presented as research work [ higher ] costs. Driven mainly by Orion, Canis majorities and Hadar. This is a good sign confirming that we are progressing here. And while we are on the [ top ] of research were costs, recognizing its growing significance in our operations, starting this quarter, we will add a new line directly to the profit and loss account statement to present the value of research costs for reported periods. I hope you will find it useful.

Moving further to other operating income and expenses. As you may remember, the positive balance of nearly PLN 20 million during the comparative period was supported by the partial reversal and partial write-off of our development expenditures related to Project Sirius. This year, no such extraordinary transactions supported our results. The surpass for financial operations reported for 2024 Q1 at PLN 60 million came from usual drivers such as interest from deposits and bonds with nearly no impact coming from foreign exchange-related operations.

Moving further to our income tax. During 2024 Q1, we recognized an increase in the value of R&D tax release available to the company, which led to an increase in the deferred tax assets calculation. This, together with a decrease in deferred tax provisions together PLN 16.5 million exceeded our current income tax amount, leading to a rare situation where the total tax amount reported in the P&L statement is technically negative. What is worth mentioning here is that our current consolidated income tax included in the P&L calculation for the first quarter of 2024 amounted to a healthy PLN 14 million. All in all, our net profit for 2024 Q1 amounted to a nice around PLN 100 million, 44% more than what we achieved in the comparative period. The net profitability of the group also exceeded 44%, while for [ product ] grade alone, this factor was over 53%.

Let's now move on to the next slide, #10, our consolidated balance sheet. On the asset side, as usual, first, expenditures on development projects. The balance here increased by PLN 28 million during the first 3 months of 2024. The new developments, mainly Polaris and Sirius, were responsible for PLN 54.5 million increase, however, to the decrease coming from depreciation, driven mainly by the already released Cyberpunk and Phantom Liberty. At the same time, among current assets, our trade receivables decreased by PLN 105 million, thanks to collection of high post Q4 receivables this year. And last but not least, the total value of cash deposits and bonds, which are included in the 3 asset items [ smart queue and asterisk ] the total is summed up under the table and amounts to PLN 1.446 billion as of the end of March '24. I will have a separate cash flow slide to give some more insight on our main cash flow drivers this year.

Moving forward to the second part of the balance, Slide 11. The most noticeable check here is the increase in our equity, driven by the strong financial performance in the first quarter. Now please move on to the next slide, #12, to the prior -- expenditures on research works development cost of product maintenance presented [ few ] quarterly since 2023.

The chart [ nice ] illustrates changes in this year during recent quarters. At the end of 2023, we released Phantom Liberty as a result of which in Q4 last year, a visible part of our development team presented in blue was engaged in either initial maintenance of the game represented by the yellow part or further acceleration of research works on new products represented by the green part. And in the first quarter of this year, we were already able to significantly reduce our involvement in maintenance work which allowed us to increase our engagement in development of new games even more in research related to our subsequent projects.

And finally, our simplified flow on Slide 13. Cash-wise, the PLN 100 million in net book profit was supported by PLN 30 million depreciation and amortization for the period. PLN 89 million came from change in receivables, liabilities and provisions, mainly thanks to [ section ] of our past Q4 trade receivables during the reported period. At the same time, cash-wise, we invested over PLN 50 million in the development of new games and technologies. All in all, our financial reserves kept in cash, bank deposits and bonds increased by PLN 137 million over the reporting period, reaching PLN 1.45 billion.

For us, this is the high watermark since the past Cyberpunk dividend payout in 2021. I would also like to summarize and visualize our generation of cash deposits and bonds over the recent 3 quarters, which correspond to the release and through this window of Phantom Liberty.

Please go to the next slide, #14. At the end of the quarter, directly preceding the Phantom Liberty release quarter, the total value of our financial reserves amounted to PLN 230 million. This means that over the last 3 quarters, while spending around PLN 0.2 billion on development, research and maintenance of our products, we generated a net increase in our [ rental ] reserves of over PLN 0.5 billion. I'm super proud of the performance of Cyberpunk and Phantom Liberty. And as we progress with more Cyberpunk projects, I'm sure that this is still only the beginning for the franchise.

This is all from me for now. We can now move on to the Q&A session. Thank you.

[Operator]

[Operator Instructions]. Our first question today is coming from Ed Young, [ coming ] from Morgan Stanley.

[Edward Young, analyst]

I got 3, if that's okay. The first one that I wanted to ask is about Polaris development using [ unified ] the game engine and you've talked in the past about how that's going to be a relatively big shift to everyone involved. I just wondering if you have any updated thoughts on challenges there or opportunities there or if that really requires you to get into production before you really know.

The second is that there's been, obviously, across the industry, a lot of layoffs this year, potentially reflecting a more negative outlook on the consumer for video games. Is that something you share in terms of outlook? Or alternatively could actually help your opportunity for your recruitment efforts in Boston and U.S. in general?

And third, just updated thoughts on consolidation, again, there's some going around. You've given a view on this in the past, just an updated view on whether CD Projekt would benefit from being inside a bigger group or equally acquiring some capabilities for M&A?

[Unknown Executive]

This is [indiscernible]. I try to go for sure the first question, I mean let me refocus on the third one. So first, you ask -- and please correct me if I'm framing the question wrong. But the way I took it is you're asking how do we feel developing Polaris with Unreal Engine, are there any changes and how we perceive it and challenges and so on. So assuming this was the question, I mean, we feel good with Unreal. There's obviously still a lot of development, including development of some tools specifically for our game which, by the way, is something we would be doing with even using our own technology. And the collaboration with Epic is quite unique. It's -- and I think at this moment in time, it's keeping us exactly what we were hoping for. So there are moments where we collaborate on things together with them -- there are many moments when we do things on our own, but most importantly, like the very core foundation of technology is not something that is really our core burden, which was the case when we were developing our own proprietary tech and it gives us space to voice on creating content and figuring out how to tell the best stories for our games in the future. So we feel good. We feel, we're in a finding spot with [ Unreal 5 ].

Now the second question about layoffs. I mean layoffs are first and foremost, personal strategies for a lot of people all around the world in this industry. So it's hard to look at it as a positive at all in this regard. When it comes to our plan specifically, I mean, we don't really plan any special increases because of layoffs happening somewhere. I mean we do go by recruitment as was the plan as was agreed internally with us as fits the production schedule. So there's nothing special happening, are there any special opportunities that pop up because of the best fortunes happening around? Yes, there are sometimes, but it's not, I don't know, some special Christmas happening for us in the middle of [ June ], we think of the kind -- that's not even the way we would look at it. So I'd rather see it's going clear our plans, the positions we're [ plain ], and there's nothing extraordinarily special happening around that.

The third question was a belief about the consolidation and whether we would benefit from being at the larger group. So on that part, we do have goal and ambition to remain independent. That's always been the case, and I think has changed here, but we do not intend or plan to be acquired by anybody else. In terms of us doing the acquisitions, it's not a core part of our strategy. We're not like, let's say, on a [ proverbial ] hands to finance a target for the acquisition. Should we find people thinking the like that would be a good fit for a strategy going forward. Fix may happen, but there's nothing that we're like actively pursuing, trying to find anything of the kind. I hope that is.

[Edward Young, analyst]

Can I just come on the second one. I mean just on the -- on the layoffs. I think you understood it correctly, if there were some opportunities in that, clearly, the [ pro stagnize ] is sort of negative. The other part of the question was presumably that's in response to the industry recognizing perhaps a consumer demand going forward? Do you think that's the case? Do you recognize that in any of what you see?

[Unknown Executive]

When it comes to us -- and I can only speak of course, about us we don't see any threat or any weakness in terms of consumer demand going forward. What I could say is some sort of thing, not just in our industry, but in case of entertainment in general, there's a lot of content in general for anything you can think of. And that's true for games. That's true for the Hollywood industry for the streamers and so on. And the competition is just very, very fierce. So that's for sure that.

But we strongly believe if we're occupying a portion of the market that is quite unique, and we believe also we're able to come to the market with things with stories, what games are truly emotional or very unique what they offer as a value to the game to our consumers. So I wouldn't say we're, I don't know, we're worried about launching things in the future than we were 5 or 10 years ago. I mean there's nothing. In case of ours, the situation, there's nothing special about that the way we see that.

[Operator]

We'll take questions from Nick Dempsey from Barclays.

[Nick Dempsey, analyst]

I've got 3, please. So first of all, just should we expect the administrative expenses to reduce through the year through the quarters of the year and mean all capitalized development costs to increase as some of that research works spending moves into development expenditure? Or are we kind of fixed on this pattern for a few quarters now?

Second question, have you had any discussions regarding licensing your 2 big franchises to make a mobile game for someone else to make it?

And the third question, can I just confirm that you have no plans at all to release any further content for Cyberpunk 2077, obviously, before Project Orion?

[Piotr Nielubowicz, executive]

I will take the first question, Piotr Nielubowicz here, regarding administrative expenses and especially research work costs versus the development. Yes, that's true once we progress with the projects currently in research phase into the development, the administrative expenses should naturally decrease. However, the process we are not into guiding right now when 1 of the 3 projects currently in the research phase will move to the development phase.

[Unknown Executive]

All right. And I'll take the question about the mobile games. When it comes to mobile games, we are -- as we mentioned before, we are definitely interested in doing some licensing in that area, but we see there's nothing that we are ready to announce yet when the proper moment for that comes, you will definitely know about that.

Now the third question, I think, and please correct me if I'm wrong, was -- are we done with the development of the site of the bank? Was it a question or?

[Nick Dempsey, analyst]

Yes. So you won't release a surprise second expansion or any other further content despite the good reception currently for the game?

[Unknown Executive]

So basically, when it comes to an expansion, we are not planning any more expansions. We stated that I believe it was towards the end of the last year more or less. So we're done with that and are moving on to what the Cyberpunk future is in terms of the sequel when it comes to updates, there could be small things happening, some maintenance in but I mean we're not planning anything major. So it's pretty much done, more maintenance than anything else.

[Operator]

We'll now move to Alexey Philippov of JPMorgan.

[Alexey Philippov, analyst]

Yes. Good evening. Thank you very much for presentation. I have 3 questions as well. First one on taxation. Can you please explain the dynamics behind tax benefit in the first quarter and maybe guide for the effective tax rate for the full year. Basically, shall we expect any positive surprises on the tax front during the remaining quarters of the year? That's my first question.

And the second would be on marketing of The Witcher. So thinking about how you're planning to market and advertise The Witcher [ 4 ] just trying to understand the next milestones on what to expect from you in the next 12 to 18 months. If you can guide directly, perhaps you can remind how it was the first development. At point of the development process, did you release the first teaser or gameplay trailer for Cyberpunk. And the last question on incentive program. If I remember correctly, you are introducing next stage of the incentive program every month. Can you remind us when you will release the next target for your incentive program? I mean the next stage of the incentive program.

[Piotr Nielubowicz, executive]

So I will take the first question regarding the dynamics behind the taxation in the first quarter. So here, we were able to recognize additional or increased amount of the R&D tax [ relief ] available in the Polish tax region. And this was based on the calculation of past costs that was done this year. And therefore, right now, we were able to include it in our deferred tax calculation, which led to the increasing of deferred tax assets and therefore influenced the final amount presented in the P&L statement.

What I can say is that the situation where the effective taxation is negative in case of positive gross result. It is rather a rare situation and shouldn't be expected in the future. However, at the same time, I would like to draw your attention to the fact that the tax regime right now in Poland, especially the use of the tax release, either the R&D tax relief, our innovative employee tax relief are quite complex. And I wouldn't like to be giving specific guidance in this respect. What I can tell you is that we are still analyzing the loss, which are relatively fresh. We are asking for tax rulings. We get certain tax rulings and explanations from the tax authorities. And once we get them, we can apply them on our tax calculations. And therefore, this may in some quarters, improve the tax performance of the company. And such an improvement was also visible in the first quarter of this year. However, this should be the case each and every quarter from now on, is rather a rare situation that we were experiencing this year at the beginning of the year.

[Unknown Executive]

Okay. I'll take the second question on the marketing about The Witcher. So when it comes to Cyberpunk, we actually showed the first [ teaser ] about 8 years before the launch of the game 7, 8 years. So -- but I do understand it probably mean more what we have shown at the E3 back then, which was roughly 2 years before the launch of the game [ to ] in a bit. However, I would actually not look at Cyberpunk because the guide book of how it's going to be with The Witcher specifically. Having said that, and again, I'm not -- I cannot -- I will not guide on a specific moment in time when we will drop something whether it's 12, 18 or whatever months from now. So I will refrain from attaching myself to time, but you may expect us to do things like trailers, [ teaser ] trailers or informative trailers happening even before we start the actual marketing campaign, whereas as a marketing campaign, we understand the moment in time when we when it's getting actionable. So preorder or download something or things like that. I mean anything that's going to happen before is going to be more informative and it's going to be more [ PR ] oriented and so on. And that's something you can expect earlier than the actual kickoff of the marketing campaign, but I would really not necessarily look towards what happens and which one in time which Cyberpunk, that's not necessarily going to match with what we're going to do here.

[Adam Kicinski, executive]

And I'll take the third one, Adam Kicinski. So the question was about the next stage of the incentive program. So the next stage, the second stage is already public. We set the goal for year 2024 up to 2027 for 4 years. And the goal is PLN 3 billion net profit. It was released earlier this year. And the next stage 4 years, '25 to '28 will be released next year, Q1 next year. So each year, we'll be releasing stage by stage in Q1..

[Operator]

Our next question will be from Ali Naqvi coming from HSBC.

[Ali Naqvi, analyst]

Just regards to the Witcher Red market, is there a monetization strategy here? Or could you give us a view on how much that will cost you or how you're thinking about the cost structure? And is there any sort of [ pre-caster ] to a longer-term strategy about markets for Cyberpunk or future games? And then a slightly longer-term question in terms of phasing of game releases. Where do you think CD Projekt is trying to get to in terms of how future releases will be phased? Is it just 1 large title stop, 1 last title? Or how do you think about that, please?

[Unknown Executive]

Okay. I'll start with the first one. So there is no direct monetization strategy behind [ moding ]. It's available free of charge. It's available on PC. I mean, promoting itself is not something that you can do on the consoles. And when it comes to how we think about that, I mean, unleashing the creativity of the [ Red Kit ] is a big, big thing, especially at the scale that a game already has. We have more than 50 million copies sold as we have announced way back, and that's a great number of [ who ] and a lot of them want to have a job that's being a little bit more creative with setting they love.

And it has many, many benefits. I mean something that's maybe not a public knowledge, but quite a few for now we've acquired senior developers came from [ moding ] community. I mean, it came to the studio because they did something that we did notice that basically was approved of their skills of their capabilities and so on. So this is something.

Another thing is it reinvigorates community. It reinvigorates the interest in the game. It can actually translate even by word of mouth to additional cells and more cool things in general cannot create and not generate anything else than a lot of goodwill, a lot of fun and a lot of good groundwork for what's in the next -- or for the next, which again, will be in the series is how we think about that.

But to be very precise, there is no direct monetization. There is no need to pay anything and the company does not directly benefit from anything transactional. When it comes to any future things, Cyberpunk thing related. I mean, once we have something on our hands, we will definitely talk about that. But in general, I would indicate that community created content by means of mods enabled and powered by the well-prepared tools is something we are fond of and we do see value in that, in how we interact with the fans. And when it comes to the second question, could I ask you to repeat it because I'm not sure we are actually -- I actually got it.

[Ali Naqvi, analyst]

Yes, it was just to talk about longer term, how do you think about the phasing of your games? I mean, obviously, Polaris has got the most amount of developers, for example, currently working on it today. But then the phasing for Orion and Sirius and even longer term, how are you thinking about how CD Projekt will be looking to release games. Is it a case of just because of your bandwidth, you can only focus on one large game at a time? Or is there an opportunity to make it a little bit less lumpy, shall we say?

[Unknown Executive]

Yes. I mean so here, we can definitely comment. We already worked on 2 projects at the same time when we were working on the Phantom Liberty because this was a game size project that we -- almost 300 people were working on that project, which we have disclosed. And at the same time, we've been already working on the Polaris. So really have had an experience of working on more than 1 project. And we are working on more than 1 project at this moment in time as well. There is Cyberpunk 2 being developed in Boston, there is Polaris developed predominantly here in Europe. And obviously, we have other projects with other teams like Project Sirius also in Boston with The Molasses Flood. There is -- which are what we make done in cooperation with Canis. So you can definitely expect us to release more titles and the cadence of launches is something we definitely plan to increase, although I will obviously not comment on what is the space between the projects time-wise? And if there's anything more that I missed for the question, feel free to obviously guide me here, but now that will be my answer.

[Operator]

[Operator Instructions]. We'll now move to Sebastian Patulea calling from Jefferies.

[Sebastian Patulea, analyst]

I've got 2 questions, please. The first one is a bit more high level. do any recent games have any in-game mechanics or maybe highly cinematic footage or specific things that you admire and you think would go well in The Witcher universe? And secondly, Larian Studios, they just opened up a new studio in [ Warsaw ] and they're known for world-class RPGs. Do you see any particular stress here that they might go for one of [ CD Projekt ] developers or senior people? Thank you very much.

[Unknown Executive]

So when it comes to recent games that happened in mechanics footage or something that we admire, I mean, we -- we obviously were on top of being a studio of developers were also fans of games. So we constantly look at everything that is, that we like, and it doesn't necessarily have to be huge gains or fascinated very often [ work ], the creativity of smaller studio, small teams. And I don't think I can personally give an honest answer for the whole studio, which consists of many individuals with many taste many flavors. But I think we are inspired by a lot of creative output that is [ Unreal though ] created by peers by our colleagues in the industry. And I'm sure and hopeful that maybe we're in [ support ] or some of them as well.

But there's nothing super specific, like, I want to say, in XYZ did this, and we love it and we have to do it in the same way. So that's the way we look at it. Now when it comes to a larger and open up and [ new ] store more, the more the barrier to be honest. I mean, Larian are great people. [ it's ] a great guy, and that team is great, what they did for [ older gate ] is admirable. I completed the game, I loved it. a big fan of [ D&D ] as well personally from the old times, much time to play now there is.

Do we see any threats? I mean, to be honest, there's always a threat that somebody can even go over else. And to be honest, whether they have a studio in Warsaw or it's a job opportunity somewhere else. The difference is not that big. The world is a pretty small place and the developers, especially at a senior level are very often [ mobile ]. And if somebody didn't want to work on the project, but we really dream of working on somebody else, they will do it anyway. So to be honest, having Larian next door or not, does not change that much from our perspective, I think, and we wish them nothing but the best.

[Sebastian Patulea, analyst]

Thank you very much. So that has a very, very low joke. So CD Projekt managed spending 150 hours to play games instead of working [ hours for ]. So that's a little joke. Thank you very much. I appreciate it.

[Unknown Executive]

It took me a little bit less because I didn't really -- and it took me, oh, my god, it took me 7 months to complete it. So yes, I think that speaks a lot about my time for [ clearing ]. It's not -- it's not [ to wear ] -- that's a very long game on [ top ]. It took me a while.

[Operator]

[Operator Instructions]. We do not appear to have any further audio questions. I'll turn the call back over to your host to take any questions submitted by webcast. Thank you.

[Piotr Nielubowicz, executive]

So the first question comes from Gabriel [ Renfro ] [ step investor. How is work on the next Witcher game progressing?

[Unknown Executive]

Okay. So we -- as we have mentioned before, we are finishing the production phase. We are nearing the end of the preproduction phase this year, and we are planning to enter the production things later this year. So this is the kind of update that we can give here now.

And now for the second question, I mean where we are, I mean things are moving, things are progressing. And obviously, the big shift compared to where we -- we were even able to be last year, as you know, the ripe strikes happened that the active [ skilled ] strike happened so the Hollywood is way more relaxed and open to have compensation. So we're happy that this project is right now. And obviously, once we have any news, any information to share, we will.

[Piotr Nielubowicz, executive]

Yes. So just one more addition from our side. We can see the question, but we didn't manage to show the question may have already answered it. So the question to which Michal gave the answer as the second one was, can you please tell us a little bit more about Cyberpunk based movie TV series and the answer you already know.

So the next question comes from [ Kacper Kopron ]. Could you confirm or deny the Internet rumor regarding Polaris trailer that is supposed to be released June this year and that is supposed to be prepared by [ plate ] image.

[Unknown Executive]

So we don't comment on the speculations. It doesn't matter whether it's regarding the timing or who is working or not working on the on any possible potential teasers or trailers. So I don't fully have any specific comment here.

[Piotr Nielubowicz, executive]

Next question comes from Michal Wojciechowski from IPOPEMA Securities. Could you explain how you achieved relatively flat research, development and product maintenance costs in several quarters at the same time maintaining high salaries increased in recent years.

I'll take the question myself. The answer is pretty simple. So the -- especially the development but also to some degree, research costs include not only salaries but also outsourcing costs. like in case of -- which in case of finalizing the development, which was the case in Q1, Q2, Q3 last year for Phantom Liberty were always higher at the final phase of development. Just to give you an example at the final phase, we can see cost of external localization, translations, recordings, [ actors ], all this also cost of testing the game and they boost the expenses at the final phase. This was visible in the total I presented to you. In my part of the presentation and this part of external expense were not debt present in Q4 or Q1, Q4 last year or Q1 of this year, and that's the reason why you saw a small decline of the expenses, even though, in general, the salaries are on the increase.

Next question comes from Conrad [indiscernible] Bloomberg. Is Polaris concept is still pure RPG or there may be some changes versus [ Tier 3 ].

[Unknown Executive]

To answer that, so Polaris or the next Witcher game is definitely still a propane game. However, obviously, there will be some changes versus the Witcher 3. We don't want to be stuck in the same spot. We always wanted to push the boundaries and try to discover new worries and of telling the story. So we want to move in new directions as well you may expect new things in the next Witcher game as well.

[Piotr Nielubowicz, executive]

Next question comes from Piotr Poniatowski, mBank. Have you any Boston-related Orion costs and G&A already in Q1 '24?

The answer is yes. Even starting end of '23, when the Boston team was initiated and started to work on Orion we started recognizing costs related to Orion coming from Boston already in '23 and obviously, in 2024, they were continued and they were on the [ incline ].

[Unknown Executive]

All right. And since it seems we have no further questions. I'd like to thank all of you for participating in a call today. And of course, if you have any additional questions, do not hesitate to reach out to our Investor Relations team. And I hope you all have a nice seeking.

Goodbye. Thank you.