Remedy Entmt Oyj

Hello everyone and thank you for joining this Remedy Entertainment webcast. My name is Liisa Loranta and I run the investor relations at Remedy. Today we will go through Remedy's financial statements for January-December 2024. With me here are Tero Virtala, Remedy CEO, and Santtu Kallionpää, Remedy CFO. There will be time for questions and answers after the presentations. Tero, the floor is yours.

Thank you, Lisa. Welcome, everyone, also on my behalf. All right. Let's first have a look at the fourth quarter and after that, our full year, 24. In the fourth quarter, our revenue increased by 13% to 11.7 million euro. EBITDA and operating profit also both improved in comparison to last year. Santtu will in a moment go through the financials in more detail. In relation to key events in the fourth quarter, in October we announced FPC Firebreak, a three-player cooperative multiplayer first-person shooter set in the world of Control. The game launches this year and will be self-published by Remedy. We also announced and launched the Alan Wake 2 lake house expansion and the physical edition for the game. Big milestone of course in this last quarter was that Alan Wake 2 sales exceeded 2 million units and the game regrouped its development fees and marketing investments. So, on Alan Wake 2 in more detail. During the last quarter, we had a lot of activity around the game with our partner Epic Games. The Lakehouse expansion was launched and well received. Physical retail edition was released. Alongside the launch of the PlayStation 5 Pro, we launched a Pro-specific update for the game and also updates that overall improved the quality of the game even further in all platforms. Naturally, there were also selected marketing and sales activities around the game. As a result of all that, Alan Wake 2 sold well, especially in the holiday period. And at the end of the fourth quarter, Alan Wake 2 sales exceeded 2 million units, the game regrouped the development fees and marketing investments, and therefore, towards the end of the quarter, we started to accrue royalty income from the game sales. Looking at year 2024 overall, our revenue increased 49% to bid over 50 million euro. EBITDA was 2.5 million euro positive, operating profit still negative by 4.3 million euro. These are still clear improvements from the previous year, so steps into the right direction. On commercial front, early 24, we acquired full rights to the control franchise from 505 Games. In August, we announced a strategic partnership agreement with Annapurna Pictures. And in September, we made a 15 million euro unsecured convertible loan agreement with Tencent. And as said, in October, we then announced FPC Firebreak and that the game will launch in 25, self-published by us. Overall, I can say that year 24 was financially a clear step to the right direction towards growth and profitability. Behind the hood of all that, the steps that we took strategically, commercially and operationally were very successful. What we managed to do, we are in a strong position for this year and for the coming years. So overall, we had big and successful developments in 24. On commercial fronts, as I said, we acquired back full commercial rights for control, we formed a new partnership with Annapurna Pictures, and we made an additional financing arrangement convertible loan with Tencent. Why are these so significant? We have, for years, step-by-step strengthened our position in the industry value chain. We have built our publishing capabilities over the years, and now these strategic and commercial agreements we made this last year enable our transition to self-publishing our own future games. At the same time, operationally, we have systematically improved the ways we work. We continue to develop our Northlight technology and tools And very importantly in 24, we took into wider use technology and tools that had been in the making for a long time. These are providing us clear benefits in our game projects. People and team wise, we continue to have good retention with our top talents while making very targeted additional recruitments. Our teams are now more stable as talents have been with us longer and worked together previously with shows in how our projects progress. With all this, we now have games in development with significant potential. We are able to advance these game projects with clearly better development velocity than ever before. We have an outlook of steady release of good games for the upcoming years. Then let's discuss the transition to self-publishing. As a background, we have since 2017 step-by-step strengthened our position in the value chain. During the past years, we had advanced to a state in which our games were either published by a partner or would be co-published by us and the partner. Self-publishing had for years been a potential long-term goal as it would allow higher value creation and provide other benefits. but it would also require us to be able to take full responsibility of the commercial activities and an ability to finance both the development and publishing operations. When we early last year got back all the rights to control, including Firebreak and Control 2, we started to evaluate and discuss with potential partners on what the available future foods could be for us. Looking at the future value creation potential, our aim was to find a way to get partnerships and financing to move to self-publishing. However, early 24, economic climate was still difficult in gaming industry. It was definitely not easy to get big financing that would allow self-publishing and get that with good terms. Fortunately for us, there was good interest from potential partners towards remedy and control. And in the end, we closed good agreements with great partners that enabled our transition to self-publishing. In relation to these partnerships and financing, With Annapurna Pictures, we formed a true strategic cross-media partnership. Annapurna will finance 50% of the development budget for the upcoming Control 2. Remedy will publish the game. Annapurna will also focus on expanding Control and Alan Wake into film, television and other audiovisual mediums. And this is a clear opportunity to expand and grow our franchise's Control and Alan Wake. Out of this collaboration, Remedy gets a greater revenue share from Control 2 sales, Annapurna from TV and film sales. It's a very balanced win-win arrangement that builds on both parties' strengths. Then in September, we made a 15 million euro convertible loan agreement with Tencent. This financing supports us in making the games we have in development and successfully carrying out the publishing activities of our next self-published games. These partnerships and agreements are very good ones and support our strategy overall and especially our transition to self-publishing. Self-publishing, as a summary, it provides us higher financial upside, freedom to decide on how our games are commercialized, and the possibility for us to do all the actions that best serve that game and remedies needs overall. Of course, at the same time, moving into self-publishing is not the model that suits for all game companies. To be able to execute publishing successfully, sufficient funding is needed, and self-publishing requires right capabilities, people, and correct partnerships. It's therefore good to highlight that we are not moving from being a pure game development studio to self-publishing overnight. We have been involved in the publishing of our games since 2016. With each of our past games, we have had a role in planning and implementing some of the publishing operations. We have been learning, building the team step by step. This is the table that we presented in November in our Capital Market Day. It's not the full list of all the publishing responsibilities, but it does show some important areas and how at Remedy we have been building our capabilities and taken bigger publishing responsibilities over time. We are ready to successfully publish FPC Firebreak this year. Then let's have a look at our game and project portfolio. First of all, we now have three main games out in the market, continuing to sell and generate royalties, or now in the case of Control, direct sales revenue for us. Control has now sold over 4.5 million units. And still in year 24, for a game that is over five years old, it sold 600,000 units. This shows that in today's digital world, good quality games do sell for a long time. And of course, we don't just wait for the game to sell by itself. We are still doing selected support activities for the game, its community, and also seeking good ways to promote the game to new players. And as I earlier said, we had a lot of activity around Alan Wake 2 during Q4 with our partner Epic Games. Alan Wake 2 sold well, especially around the holiday period. By the end of the year, the sales exceeded 2 million units, and the game regrouped the development fees and marketing investments. With that, we started to accrue royalty income from the game sales. This is definitely a good milestone. And we have seen already in Control, good quality games have long-term sales potential, and Alan Wake 2 definitely is a great game. Then to our games in development. Simply said, they made good progress throughout the 2024. Many developments to our teams, ways of working, technology and tools are iterative in nature, and over time, they pile up into bigger positive changes. They take time to show the benefits, but when they do, the good thing is that the developments and benefits are robust, sustainable, that will carry on also to the future. In 2024, we still continued to make these production developments, and we also took into use some long-intimating technology and tool developments. Many improvements in our ways of working and teams also now then finally started to bear very concrete fruit and showed positively in how our projects were progressing at an accelerating velocity. When we look at ourselves and the project status at the moment, at the moment, FPC Firebreak continues in full production and has been advancing well. End of the 2024, Control 2 was finalizing its production readiness phase, verifying the velocity of the asset creation, establishing production pipelines, overall readying for full production. With Control 2 in January this year, we had our internal stage gate devaluation and the team and the game was ready to move into production. So just last week, early February, Control 2 entered full production. Max Payne 1 and 2 Remake is making steady progress in full production. On top of these, we also have a smaller team working on a new project. It's early phases, and we won't yet share any more info on that. Then a few words specifically on FBC Firebreak, which launches this year, 2025. In October last year, we announced the game in the Xbox Partner Preview digital event. A gameplay teaser trailer showcased this co-op multiplayer game. The game and its announcement got a good reception, which is a good start. Development-wise, in December, our team successfully conducted a close technical test with external players. We successfully tested the game's matchmaking and backpacking services, collected data and experiences that help in shaping the final product. FPC Firebreak will be self-published and as said, it's coming out this year. In summary, We are in good place both for 2025 and the following years. We have the ability to create and launch excellent games more regularly, expand our franchises to new games and mediums, grow our audiences, create games in development, games that advance better than ever before, On top of that, we now have the organization, teams and people to ensure that this good progress continues and just keeps on improving. We have now transitioned into self-publishing and have the capabilities, partners and financing to do that. We are in a very good position for the next years. This year, 2025, starts an era of sustainable, profitable growth for Remedy. We presented our new strategy in Capital Market Day in November last year, and as stated, by 2027, we aim to double our 24 revenue with an EBITDA margin of 30%. We have all the means to do that, and I'm confident that we will reach these targets. So at this point, I'll hand over to Santtu to go through our financials in more detail.

All right. Good afternoon. And then let's move to the financial update. So in the fourth quarter of 2024, our revenue was 11.7 million euros and grew 13% compared to previous year. Royalties were 1.5 million euros and they decreased 1.2 million from the comparison period. Development fees were 10.2 million euros, which is 34% more than in the comparison period. The development fees were from Max Payne 1 and 2 remake and Control 2. When looking back at our historical revenues, the revenue levels have been on a higher year-on-year level throughout this year. At the end of the fourth quarter of 2024, Alan Wake Q filled its recoup and started to accrue royalties for us, but the impact was still small. The main part of the Q4 royalty accrual was generated by control and older Alan Wake titles. In the comparison period 2023, a big part of royalties was generated by Alan Wake Remastered, which had sales boost from the launch of Alan Wake 2 during the same quarter. As an additional highlight, when looking at the other quarters of 2024, the development fees on the third quarter included a one-time payment regarding previously done development of Control 2 as we entered into a strategic partnership with Annapurna. The operating profit of the fourth quarter was 1.4 million euros negative, which means 11.4 million euros improvement compared to Q4 2023. The comparison period EBIT was burdened by 7.2 million impairment loss related to project one card, which explains also the difference between EBIT and EBITDA in the Q4 2023. Fourth quarter operating profit improvement was additionally driven by higher revenue and lower cost level. EBITDA of the fourth quarter was negative 0.6 million and it improved 3.3 million euros from the comparison period. Looking at the full year 2024, Remedy's revenue grew significantly compared to 2023. Full year revenues increased by 49%, ending up to 50.7 million euros. Revenue increase was driven by development fees increase, and they consisted of Max Payne 1 and 2 pre-make and Control 2 related development fees. Royalty income was mainly from the back catalog sales, and as said earlier, also small amount of Alan Wake 2 royalties. Looking at the full year operating profit, our EBIT was 4.3 million euros negative and minus 8.4% of revenue. EBIT was improving 24.3 million euros compared to previous year, and this was driven by the revenue growth. Additionally, in 2023, we had also 7.2 million euros impairment loss recognized from Codename Vanguard. and also expenses related to Alan Wake 2 development. Full year 2024 EBITDA was 2.5 million positive and EBITDA margin was 5%. Here we can see the analysis of unnetted amounts of expenses and capitalization, which provide transparency in our costs. In the fourth quarter, external work expenses were 4.5 million euros and on a 21% lower level than in the comparison period, when they were 5.7 million euros. As the external service usage level on our current projects remained on nearly the same level as last year, the comparison period had over 1 million more external development expenses related to Codename Kestrel and Alan Wake 2. Personal expenses increased year-on-year by 5.3%, while the increase in our employee amount was 4.3% from 352 to 367. The difference in personal expenses in relation to the employee amount growth was mainly by annual differences on work time and holiday accruals. Capitalized development expenses were on clearly higher level than in comparison period. The growth is visible already from the first quarter of this year and it is due to higher share of capitalized expenses related to FPC, Firebreak and Control 2 game projects. The capitalization percentages were raised as we purchased the publishing rights for Control franchise during the first quarter 2024. Regarding Control 2, the percentage was recalculated again as we entered into agreement with Annapurna. On the fourth quarter and over time, the depreciations have mainly remained on a stable level. On the fourth quarter, we started depreciating capitalized development expenses related to Alan Wake 2. We have said earlier that the main part of Alan Wake 2 related expenses paid by Remedy were booked as an expense in 2023. This means that we have only a modest amount of Alan Wake 2 on our balance sheet and the depreciations are currently scheduled to be made before the game turns three years old. Then looking at the other quarters in the graph, in the third quarter of 2024, we depreciated €3.4 million in expenses capitalized related to control franchise products. And as said already earlier, in Q4 2023, there was an impairment loss related to Codename Vanguard. The rest of the variation in game depreciations and impairments has been from Alan Wake Remastered, which became fully depreciated by the third quarter of 2024. Otherwise, looking at the intangible assets on our balance sheet, it has grown from 19.3 million euros to 39.8 million euros during 2024. Major part of the growth is from acquisition of publishing rights of Control franchise. Rest of the total growth is from activated game development costs related to Control 2 and Firebreak. Then cash flow, looking fourth quarter year on year, the operating cash flow was lower based on cash flow of development fee revenues. The payments of milestones are agreement based and outgoing operating cash flow was 1 million less than in the comparison period Q4 2023. Overall, the operating cash flow was 12 million positive in 2024, when in 2023 it was 16 million negative. Main reason was higher amount of incoming payments, including also the one-time payment from Annapurna regarding previously done development work for Control 2. Also, outgoing payments of operating expenses were less than in the comparison period. In the fourth quarter, our total cash level was 41.1 million euros, increasing nearly 10 million from the previous quarter. Main reason for the growth from the previous quarter was the convertible loan of 15 million euros. End of the year 2024, we had 20 million euros in cash management investments and 21 million in cash. Then let's end the finance part by looking still at the longer time period. Year 2024 profitability level was still impacted by our own investments to game development, which have increased during the last years. But at the same time, compared to previous year, profitability has moved to correct direction and improved and EBITDA is again positive. And the revenue board of directors proposes that no dividend will be paid for the year 2024. And now Tera will continue with Outlook. Thank you.