Remedy Entmt Oyj

everyone and thank you for joining this Remedy Entertainment webcast. My name is Liisa Eloranta and I am part of the investor relations at Remedy. Today we will go through Remedy's business review for January-March 2024. With me are Tero Virtala, Remedy CEO and Terhi Kauppi, Remedy CFO. We will have a Q&A session after the presentation. Tero, the floor is yours.

Thank you. Welcome everyone. also on my behalf. So let's get straight to it. The quarter one of 24 highlights in the first quarter of the year our revenue was 10.8 million euro, which is clearly higher than a year ago. We still made operating loss of euro 2.1 million, but the direction is right. The loss is much less than it was in the comparison period a year ago. Cash flow from our operations was 3.3 million euro positive. And of course, a big event in the first quarter was that we acquired back the control rights from 505 Games. We are now in a position that we can freely decide on the future of both Controll and Alan Wake. Other than that, there aren't any major new news to share. It is just a bit over one month since we published our full year 23 results last month. Let's have a look at the status of our game and project portfolio. In Alan Wake 2, we are developing currently the DLCs and updates for the game. With Epic Games, we are, of course, at the same time supporting the sales of both Alan Wake Remastered and Alan Wake 2. Alan Wake 2 hasn't yet started to generate royalties for us, but it continues to sell on a fairly high price point. Code Name Condor, part of the Control franchise, moved to full production at the end of the first quarter. This is the final big development stage before the game one day will be launched. We just also in Condor recently carried out the wide internal playtest of over 100 people and based on the results of that playtest, got additional confirmation that the core game loop is engaging and the game does bring a unique remedy angle to the genre. And of course, from a wide playtest, we get a lot of good feedback that is then taken into account when the development continues in production. Control 2 team has focused on finalizing the proof of concept states in which we are proving that the direction with the game world, game mechanics and visual targets, they are the right ones for this game and that they are also doable. We expect production readiness states to start during the second quarter of 24th. We have been showing during the early part of the year Condor and Control 2 to potential financing and publishing partners and overall the reception has been positive. This is also a very good state to be presenting the games. Both of these games are already quite far in development. They play well, they look good. It is easy for everyone to see what are these games we are making. Max Payne 1 and Remake continued in the production readiness stage. It is a big game, development budget being similar to Alan Wake 2. Max Payne Remake is expected to move into full production also during the second quarter of 24. Codename Gestrel continued in the concept stage in which the team of 15 people works to refine the game concept. And in relation to these projects, as said, the acquisition of Control's full rights back from 505 Games was a key event in the first quarter. During the recent years, Control has been successfully established. It's gotten very good reception over the years. The game has sold over 4 million units, and via subscription services, we have had much more people that have gotten a chance to play the game. With Control's world gameplay, it does offer significant future expansion and growth opportunities. So our intent is to systematically continue growing control into a major gaming franchise. This aim, the actions required, back in the early part of this year and last year, we started to see we're not fully aligned with our partners' interests and abilities. So after negotiations in good terms with our partner 505 Games, February 24, we acquired all publishing, distribution, marketing and other rights back from them. The maximum purchase price that was agreed is approximately 17 million euro, which equals the amount that they have paid for the development of Codename Condor and Control 2 to that date when the deal was closed. And the deal allows us to then decide now what is the best way forward from this point onwards, both for remedy and control. And we see that it opens major growth opportunities in the mid and long term. Overall, we are very happy with this deal. It's a very good deal for us. And it also supports 505 Games in their situation and new strategies. we are now in a position that we truly can freely decide on the future of both Control and also Alan Wake. What we are then doing in relation to getting back the rights back from Control is that we are currently weighing self-publishing and related business models, financing models, as well as evaluating potential publishing partners for Condor and Control 2. So we are seeing three on a high level, three different options. We may go with the publishing by a partner. It would provide us major partner financing in which partner would then also lead the commercial actions. Of course, then the partner typically would regroup and the revenues would be shared after their regroupment. This would be a lower risk model for us. It would provide constant revenue during development. And of course, with the right partner, with right marketing and sales skills, it may end up game selling even more. That is then, of course, comes with the fact that we are serving the revenue. So in case of a bigger success, we are also serving big part of that with our partner. Co-publishing is another route that we are looking into. This was the model that we had also with 505 Games in which the financing would be shared. It would provide a bigger commercial role for us and both parties would typically then recoup their investments and after that revenues would be shared. And then we are also looking very seriously into potential for self-publishing. It would require that we are fully funding the development. We are leading the commercial activities. It does come with higher risks, but also higher upside when less or none of the revenues are shared with the partners. This would then self-publishing also require selected different financing options on how we would be able to fully fund the development and also marketing activities. But there are a number of rules which we are exploring on that front. We are now as a company in an exceptionally good position that we have different options to choose from and we will carefully consider and evaluate them. In any case, we aim to have a model and deals for Condor and Control 2 that are better for our future than what we had just six months ago. Another development that happened after the first quarter, we just announced last week changes to our core management team. First, Our Chief Operations Officer Kristoffer Schmitz has resigned and will leave Remedy at the end of May. The COO role has been a collection of different duties at Remedy during the past years. Chris has been helping in building the foundations of our multi-project model, developing our project leadership, and supervising selected support functions. At the same time, we have been growing as a company, and we have been developing well in many fronts. Now when we have more launch games already out there in the market, there are more games that we own and are thriving, and we have multiple games in development, We made management reorganizations already in 23, and now we have continued in 24. These include Markus Mäki taking full and focused responsibility of the Chief Product Officer role, and we have a new Chief Technology Officer, Mika Vehkala. Additional changes have also happened and development in their respective teams. And with all these developments, we see that we are now in a position where we can better manage and support our game portfolio and game development personnel overall. Therefore, now when Chris is leaving us, the different COO duties are distributed to other team members, and we are not looking for a replacement. Another important development is also that Mikael Kasurinen was appointed as Remedy's creative director. He shares the creative director responsibilities with Sami Järvi, that many know as Sam Laid. These two gentlemen are two very experienced creative leaders. They have complementary skills and they know each other and Remedy very well. Both of them continue in Alan Wake and Control in their respective roles in these franchises and then share the company-wide creative director responsibilities. With this arrangement, we can ensure good focus on Alan Wake and control and also the right type of creative guidance and support that all our game teams can benefit from in a way that is aligned with remedy strategy and priorities. And now, lastly, on this part, speaking of strategy and priorities, we said one month ago in the 23 results info that we are currently in the process of updating our strategy. Just to reiterate, in that planning process, there are certain topics that play a key role in defining our future direction. First of all, we are all the time evaluating on how to ensure sufficient focus and use of synergies so that we can step-by-step develop and commercialize games that become larger successes in the future. In relation to financial targets, which is one part of any game's planning process, the minimum target is to earn back at least double the money we invest into a game. We also have the unique ability to create and develop new IPs and brands that provide the basis for long-term expanding experiences and growing fan base that can one day become wider franchises. We now have established, created the basis for two franchises, Kontrol and Alan Wake. Key part of our future strategy will be on growing these two franchises into much bigger ones. And as we have done for the past six years, we continue to look for opportunities to strengthen our position so that our franchises would reach bigger success. And when that happens, Remedy would also succeed in a bigger way. So this is my part. I'll hand over to Terhi to talk more on financials.

Thank you, Tero. And good afternoon to everyone also on my behalf. So our quarter one this year, our revenues grew. They grew by 56% to 10.8 million euros. And our development fees were 9 million euros and they were significantly higher than in the comparison period. And that is due to the Max Payne 1 and 2 remake development fees received. And our royalty income from control was higher than in the comparison period. And also we had now the Alan Wake remastered, which started to generate royalties in autumn 23. And here is the historical breakdown of revenue. And when looking back 12 months, the overall trend in revenue development has been positive. And to say, like Tero also mentioned, Talonwake 2 hasn't yet filled its recoup and Dash doesn't yet generate royalties. But the royalties were clearly higher than in the comparison period, now in the level of 1.8 million euros versus half a million in the comparison period. And then in the profitability, it is clear that Dash It is impacted by higher revenues, especially the higher subcontracting revenues than in the comparison period. And operating margin then resulted in minus 19.3%. Yes, then some analysis of unnetted amounts of expenses. Our external work performed was on 23% higher level than in comparison period. It was 4.6 million euros versus 3.8 million euros. And the IFRS format, the netted amounts corresponding to these are 3.8 million euros versus 3.4 million euros. Our personal expenses developed so that we had a 1.5% increase in the expenses while the increase in our own employees was of about 5% to 360 people from 342 persons. Also affecting the personal expenses were costs recognized from option programs based on IFRS 2 valuation. They were on a lower level than in the comparison period. And also we had a change in the national unemployment insurance contribution rate in Finland, which was lowered to this year, 24%. Our capitalizations were clearly on 100% higher level than in comparison period and that is due to higher amount of capitalized expenses and higher capitalization percentage related to code name Condor and Control 2 as the publishing rights were acquired fully to remedy. And our operating cash flow in the first quarter of 24 was 3.3 million euros. And in the comparison period, it was 3.9 million euros negative. And reason behind this change is from two sources. We had due to higher revenue, also higher amount of incoming payments, but there was also timing related reason. as the comparison period, quarter 1-23, had a higher amount of outgoing payments overall, and the last quarter of 22 ended on a weekend, leading the month-end payments to be on the first day of the next quarter, meaning the quarter 1-23. Our total cash level was 28 million euros, including the 10 million euro investments, and our cash position was decreasing by 3 million euros in the first quarter. We made a payment of 3.8 million euros to 505 Games regarding the acquisition of publishing rights of Control Franchise. This was the first of three payments the rest of which will occur in autumn 24 and spring 25. And without this extraordinary investment payment, our cash flow would have been slightly positive during the first quarter. And clearly, our current profitability level is still impacted by increased own investments to product development. And again, also like Tere mentioned, when thinking about the future business models, balancing the risk and reward is the key. And currently for Condor and Control 2, the model is open after we have bought the publishing rights from 505. So that was shortly the final sales. Thank you for listening and back to Tere.