Cd Projekt Sa Unsp/Adr

Ladies and gentlemen, thank you for standing by and I would like to welcome you to CD Projekt third quarter 2025 earnings conference call. I will now pass the line to Michał Nowakowski, joint CEO of CD Projekt.

Okay, thank you and good afternoon everyone. My name is Michał Nowakowski and I'll be your host during today's conference dedicated to the Citi Project Group's financial results for the third quarter of 2025. I will be co-presenting with Piotr Snibobowicz. And after the presentation, we will traditionally invite you to participate in a Q&A session where we'll be joined by Karolina Gnasch, our VP and Head of Investor Relations. So starting off, I'm thrilled to announce that just on the eve of its fifth anniversary, Cyberpunk 2077 has just surpassed the 35 million copies sold milestone. This is not only a remarkable achievement for us, but also a powerful testament to the strength of the franchise and the effectiveness of our business strategy. We deliver high-quality, story-driven games that keep selling, supported by content updates that ensure our games continue to evolve and engage players for years. Staying on the Cyberpunk sales topic, let me briefly walk you through the game's performance on the PlayStation platform. As you probably noticed, in July, we introduced Cyberpunk 2077 to the PlayStation Plus Extra and Premium catalog. For the first time ever, we offered this game as part of a subscription service. Based on the data from the first four months of the game's availability to subscribers, we see that the interest in the Cyberpunk franchise on PlayStation remains strong. and that game continues to reach new groups of players on that platform. And just for the sake of clarity, the 35 million number that I mentioned on the previous slide included only direct purchases of the game. And anytime we're going to mention a number like that, that's also going to be only about the sales, not accounting for any downloads from the subscription catalog. Coming back to the subject, beyond the direct positive financial impact that the PlayStation licensing deal had on our queue-free results, we are particularly glad to see that many of these new players choose to buy the Phantom Liberty expansion and expand their adventures in the Night City. The upcoming Cyberpunk anniversary coincides with another important date for the company and the IP. Two years ago, we launched our Boston Hub and started building the team responsible for the next Cyberpunk title deck. We'd like to take this opportunity to give you a quick update and shed some light on our plans for the development of the Cyberpunk 2 team, especially in the context of the Boston Hub. Initially, this began with transferring the core team, which consisted of studio veterans previously involved in the development of Cyberpunk 2077 and the Phantom Liberty expansion to spearhead the project. This group has significantly expanded since then, joined by skilled industry professionals with a proven track record from well-known AAA projects such as GTA, God of War, World of Warcraft, or The Last of Us, and those are only some of the many examples. Currently, the Boston-based part of Cyberpunk 2 team consists of over 80 members, with more than 90% of them holding senior level positions. Having accomplished our goal of building a strong leadership team at its core, we are now shifting to hiring more mid-entry level roles to carry on with pre-production works. We plan to expand the Boston-based Cyberpunk team as the project progresses and double it within the next two years. We also intend to shift the split between the Boston-based team and the teams in Vancouver and Warsaw to around 50% in the coming years, as the Canadian and Polish team will be steadily growing in size as well. Establishing the Boston-based Cyberpunk 2 team enabled us to carry on with the development of two separate big AAA games at the same time. Despite introducing some geographical and operational complexity, it brought in a wealth of multi-layered experience, skills, and backgrounds. We strongly believe that this investment will pay off in the future, bringing the next Cyberpunk experience to a new level. Getting back to the topic of current recruitment, let me briefly walk you through the final slide of my part of the presentation, which discusses recent changes in the size of our project teams. Over this year, our recruitment efforts have shifted into higher gear, driven by the needs of our expanding projects. This trend was maintained over the past three months, with over 50 talented developers joining the studio and its teams. The majority of new hires are part of the Cyberpunk 2 team. As the project continues its pre-production phase works. And with that, I'll be ending. That will be all from me. And now it's time for Piotr and the financial part. So Piotr, feel free to take it.

Thank you, Michal. And good evening, everyone. Let's start with our consolidated profit and loss account on slide seven. Our group sales revenue for the third quarter of 2025 reached nearly 350 million zloty. That's 53% more than in the corresponding period last year. Naturally, most of this revenue came from sales of our own products, especially the Cyberpunk family. It's worth mentioning that regular sales of Cyberpunk 2077 and Phantom Liberty on PC, Xbox and PlayStation generated higher revenues in this year's Q3 than year before. On top of that, we booked income attributable to introducing the base edition of Cyberpunk to PlayStation Plus, extra and premium subscription services, as well as to sales of the Ultimate Edition of the game for the Nintendo Switch 2 and Mac platforms. Talking about the Cyberpunk product family, all of the above resulted in a more than two-fold increase in revenues compared to Q3 2024. At the same time, revenues from sales of The Witcher games were lower compared to last year, when in Q3 we had booked revenue from The Witcher 3 being also made available on PlayStation Plus Extra and Premium. Our sales of goods and materials reached 58 million zloty and recorded a 24% growth versus last year. While GOG's contribution to this line item was stable, despite a strengthening of the zloty versus the US dollar and euro, in the case of the teleproduct red segment, the figure reached over 14 million zloty, which is 10 times more than in the reference period. This was driven mainly by our sales of physical cartridges of Cyberpunk Ultimate Edition for Nintendo Switch 2. Our cost of products and services sold was lower in Q3 2025 compared to Q3 of the previous year, mainly for two reasons. First, due to applying a declining amortization model, and second, because we had extended the amortization scheme based on an estimation of the useful lives of our assets which happened at the end of 2024. The cost of goods for resale and materials sold grew in line with the discussed increase of sales in this category. Moving on to operating costs. In Q3 2025, they were slightly higher versus the previous year, especially with regards to selling expenses. Due to our promotional activity related to the Cyberpunk product family, including the Nintendo Switch 2 edition, As well as some expenses on our games updates. Administrative costs remained flat year over year. And finally, our net profit for the third quarter of 2025 reached 193 million zloty. This figure is two and a half times higher than the year before. The numbers speak for themselves. We are also very proud of our results for the nine consecutive months of 2025. Our revenues grew 21% and net profit increased by 40%, reaching nearly 350 million zlotys. Most of that was delivered by the CD Projekt Red segment. Please take a look at this segment's results in a broader perspective on the next slide. This year, we generated even higher sales and more profits than two years ago, which is when Phantom Liberty was launched. In recent years, we also recorded a steady increase of the net profitability factor, which for the first nine months of this year, reached 53% in the S&P red segment. As shown on the P&L slide, in the third quarter alone, this factor stood at an impressive 63%. Now let's take a look at the next slide, number 10, our consolidated balance sheet. On the asset side, first the usual expenditures on development projects. The balance here increased by 122 million zloty, driven by 137 million zloty in development expenses, less 15 million zloty from amortization of previously launched games. During the past quarter, the total balance of this line item exceeded 1 billion zloty. Out of this total number, 173 million zloty corresponds to our finished products, mainly Phantom Liberty, Cyberpunk and its next-gen Switch 2 and Apple versions. Works in progress account for 847 million zloty in development expenditures. Here the main share comes from investing in the development of the Witcher 4 series and Cyberpunk 2. We also have a few other capitalized gaming and non-gaming projects which differ in terms of scale and stage of development. We also continue investing in our local physical assets as evidenced by the nearly 19 million Zloty increase in the property plant and equipment line item. This was mainly driven by the investments at our Warsaw campus. Final touches to the construction and fit-out of our new office building, which since June houses the Witcher 4 team, as well as recently initiated work on our new performance capture studio equipped with two stages, which once finished will help us work faster and more efficiently on two projects at the same time. The total value of cash, deposits and bonds included in the three asset items marked with an asterisk is summed up under the table and amounts to 1,408,000,000 Zloty as of the end of September. As usual, I will have a separate slide to provide more insight on our main cash flow drivers during that period. Moving forward to equity and liabilities, slide 11. The most noticeable change here involves the increase in our equity driven by the strong financial performance of the recent Q3. In addition, we reported a 99.9 million zloty decrease in liabilities due to the dividend payout, which took place in July. Now, please move on to the next slide, number 12, to the project's expenditures on research works, development, and cost of product maintenance. presented here on a quarterly basis over the past seven quarters. We continue to increase investments in our projects, both public and unannounced, developed either internally or outsourced. The majority of what we present here in blue relates to capitalized projects, which reflects their stage of advancement as well as our confidence in their future economic potential. And finally, My favorite, our aggregated cash flow drivers on slide 13. The 193 million Zloty book net profit was supported by 32 million Zloty in amortization, depreciation, and non-cash costs of our share-based incentive programs. At the same time, 40 million Zloty was expensed on the acquisition of tangible and intangible assets. The overall change in receivables, liabilities, provisions and deferrals boosted our cash flows by 31 million zloty. Putting dividends, share buyback and investments into currently developed products aside, our ongoing business generated a healthy 221 million zloty in positive cash flows during the third quarter of 2025. During the same time, most of our team was engaged in work on new projects, hence the nearly 180 million Zloty outflow associated with development projects. And at the beginning of July, we shared with our shareholders a nearly 100 million Zloty dividend, which was later followed by a 22 million Zloty share buyback. All in all, after all the reported investments and financial activity related to dividend and share buyback, our financial reserves kept in cash, bank deposits and bonds decreased by only 19 million zloty over the reporting period and stood at 1.4 billion zloty at the end of September. Moving on. As the past quarter was a significant step in terms of our bottom line, I would like to show you where we currently stand in terms of achieving the goals of our share-based incentive program. Please move to slide 14. The earnings condition for 2023 to 2026 was set at 2 billion Zloty in cumulative net profit. After 11 out of 16 quarters, 700 million Zloty still remains to be earned to reach this target. Although it's a very ambitious goal, we believe that if things go according to our plan, we have a fair chance of reaching it. Given our current progress, there is a chance that new content hinted upon in recent calls and reports may see release in the coming year, having an impact on our results and increasing the likelihood of achieving the earnings condition for the first stage of the incentive program. That's all from me. We can now move on to the Q&A session. Thank you. Thank you. Thank you very much for the presentation.