Remedy Entmt Oyj

Hello, everyone, and thank you for joining this Remedy Entertainment webcast. My name is Sanna Kantelinen. I'm from the Remedy Communications team. Today, we will go through Remedy's business review for January, March 2025. With me here, I have Remedy CEO Tero Virtala and CFO Santtu Kallionpää. Tero and Santtu will present the Q1 business review, financial results and outlook, and then we will have a Q&A after the presentation. Pero, the floor is yours.

Thank you. Welcome everyone, also on my behalf. So let's have a look at our first quarter highlights. Our revenue, 13.4 million euro, which increased by 24% from a year ago. The quarter overall was profitable, EBIT being 1.3 million euro, EBITDA 2.6 million euro. Gas flow from operations was 6.6 million euro negative. Santtu will soon talk a bit more on that, but that was mainly due to payment timings. Then during the first quarter, the acquisition of the publishing rights to control franchise was finalized. And with that, we got back all the remaining control rights. In practice, this means that practicalities like access to different game stores where control is, were transferred to us. Due to this ongoing transfer in the first quarter, we couldn't do all the sales activities and the quarter was sales-wise bit slower for control. Now, despite of this, having now also Alan Wake 2 bringing us royalties and overall seeing our royalties grow quarter by quarter is a good sign for the future. Now, when control is fully in our hands, we can again fully drive its sales as well. In March, we also announced that FPC Firebreak will launch in summer. Then last week, we gave more detailed info for our players and launch is in June 17th. Overall, I'm personally very happy on our first quarter. This is the start of our new strategy phase and we have returned to profitability. Also, we have now become a self-publisher. Self-publishing is now in full operation. As we have said before, this is not a completely new territory to us. We have been involved in publishing our games since Quantum Break 10 years ago in 2016. All the games after that, we have been collaborating with our publishing partners, learning and also building our own publishing team step by step. We have still made a few team additions during the first quarter, and we now have a publishing team of 25 professionals. Main focus of the team has naturally been on the successful launch or preparations for a successful launch of FPC Firebreak, and also preparing for the game's post-launch phase. In addition, the publishing team works with our already launched games to drive their sales and to support the player communities of these games. Importantly, the publishing team also works with our development teams, preparing the basis for successful future games as well. Now, our development team naturally has been busy polishing FPC Firebreak, and at the same time, our publishing team has had a big focus on the game, driving its marketing and making preparations for the launch. This is going to be our first self-published game, launching in less than two months' time, June 17th. As a reminder, let's at this point see what the game is.

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Alright, so that's FPC firebreak. Now last week, in our very first FPC Firebreak developer updates livestream, we showed the game to players in more detail and also revealed a lot of additional info. At day one, June 17th, the game will be available for PC, both Steam and Epic Games Store, Xbox Series X and S, and PlayStation 5. The game will also be available on Xbox Game Pass Ultimate and PlayStation Plus Extra and Premium. We are expecting that there will be a good amount of enthusiastic players from day one. The game will be priced 39.99 in USD and Euros, and we will also offer a deluxe edition for 49.99, which includes cosmetics and voice packs then to personalize player's gear and the squad identity. Also, the players who then, in addition to that, want more additional customization options, we will also sell premium cosmetic items. Overall, Based on the gameplay test, based on the development phase, we can already see that the game is fun to play, and I'm personally very excited on it. This is a game we are also very committed to, and we have already announced plans for ongoing support post-launch, including two new jobs, some might say missions, coming in 2025, and more updates will then arrive in 2026. Publishing-wise, we kicked off marketing campaign in March. In today's market, battle for audience attention is tough. We estimated that for a game like Firebreak, it's best to do shorter but more intense and impactful campaign. Alongside the trailer, in campaign kickoff, we had a series of preview events with media and influencers. Early reception for the game was very good. Game was said to look exciting, interesting, and in a positive way, have the Remedy look and feel. It definitely stands out from the other games in the market. And the player test we have done, they confirmed the same. We have a fun and promising game in the making. There is still one and a half months to go, and we keep on polishing and bug fixing the game as the case always is when launch is coming closer. And of course, marketing campaign continues with many activities. Our publishing team has also been active on Alan Wake 2. Late last year, end of December, we announced that Alan Wake 2 had reached a milestone of 2 million sold units, and the game recouped the development fees and its marketing investments made by our partner Epic Games. With that, we started to accrue royalty income from the game sales. This, of course, was a good milestone. As we have seen with Control, good quality games have long-term sales potential. After very good holiday sales period during Christmas time, early year is typically a bit slower period in relation to game sales. Alan Wake 2 in the first quarter has continued to sell in line with our expectations. And our publishing team continues to support, promote and sell the game actively with our partner Epic Games. As part of the publishing team, we also now have a group focused on supporting our existing portfolio of already launched games, a group we call Back Catalog Support. Their work includes, for example, releasing limited updates for older games. An example game they work on is Control. Control had sold over 4.5 million units by the end of 2024, and still in that year 2024 sold 600,000 units. As I said, in today's digital world, good quality games do sell for a long time, and we see Control still has good potential. Control rights now fully returned to us during the first quarter, and because of that, as I just previously said, we couldn't do all the promotions we would have otherwise done. Back catalog management for us is now just kicking off, but despite of it not being yet in full speed during the early year, we still saw good development in our royalties with Control and Alan Wake too. So I would say this is very positive to us, tells us that by active back catalog support, there are good opportunities ahead of us. To support our games, we are actively considering what sales activities, marketing and partnership opportunities there still are, and also serving the players, releasing limited updates for older titles and adapting them to new platforms. A good recent example is Control Ultimate Edition for Mac, developed in collaboration with Apple that was released during the first quarter. Then a few words of our games in development. As I have said in previous updates, many of the developments we did in the past years for strengthening the development teams and our organization overall, developing our technology and tools, ways of working, how we manage our portfolio of projects, all these together started bearing fruits in the early 2024. And since that, the good project progress has just been accelerating. we have had a good development velocity and that has continued also in the first quarter of 2025. This then naturally builds a strong basis for steady release of great games also for the next years. FBC Firebreak currently is in full production and the game will launch on June 17th. Control 2 moved to full production in February and is tracking well towards its next milestones. Max Payne 1 and 2 Remake has made great progress and remains in full production. Then we have the unannounced fourth project in its early phases and we haven't yet commented more on that. But with all this, we have very promising games in development with significant future potential. These projects are advancing with good development velocity. We will have a steady release of great games also for the upcoming years. So overall, having great games in development that advance well, having organization and skills to ensure that this good progress just keeps on improving, We have now self-publishing for the games we own, and we have all the capabilities to do it successfully. We are in a very good position for the next years. In quarter one, 2025, we have now started an era of sustainable, profitable growth for Remedy. The steps we have now taken in this first quarter, they have worked exactly as we have aimed at. We will continue on that path, and by 2027, we aim to double our 24 revenue with an EBITDA margin of 30%. I'm confident we will reach these targets. I'll now hand over to Santtu to go through our financials.

Thank you, Tero, and good afternoon. So let's start the financials part from revenue development. In the first quarter of 2025, our revenues were 13.4 million euros and grew by 24.1% compared to previous year Q1. Development fees were 10.7 million euros and higher than in the comparison period. Besides receiving development fees from Max Payne 1 and 2 remake in Q1 2025, we also received development fees for Control 2 as per the agreement that we entered with Annapurna in autumn 2024. Royalties and Remedy game sales were 2.6 million euros, being also higher than in the comparison period. The main source for growth in royalties and game sales were the Alan Wake 2 related royalties. Additionally, this was also the first quarter when we received the full sales regarding Control following the publishing rights returning to Remedy from 505 Games. When looking back at our historical revenues, the revenue levels have continued to be on a higher year-on-year levels. As said, the main part of the Q1 2025 royalties were generated by Alan Wake 2. In the comparison period Q1 2024, the main part of royalties were generated by control and older Alan Wake titles. As a reminder, the development fees on the third quarter of 2024 included a one-time payment regarding Control 2 developments done before we entered into a strategic partnership with Annapurna. The operating profit of the first quarter 2025 was 1.3 million euros positive, which means 3.4 million euros improvement compared to Q1 2024. The operating profit improvement was driven by higher revenue and lower cost level. EBITDA of the first quarter was 2.6 million euros positive and it improved 3.8 million from the comparison period. Here we can see the analysis of unnetted amounts of expenses and capitalization, which provide transparency in our costs. In the first quarter of 2025, external work expenses were 3.6 million euros and on 22% lower level than in the comparison period, when they were 4.6 million euros. In the comparison period, we still had external development expenses related to Codename Kestrel and Alan Wake 2. Personal expenses increased year on year by 5.9%, while the increase in our employee amount was 3.6% from 360 to 373. The difference in personal expenses in relation to the employee amount growth was mainly by annual differences on work time and holiday accruals, as well as slightly higher salary level in overall compared to the comparison period. Capitalized development expenses were on higher level than in comparison period. The growth is due to higher share of capitalized expenses related to FPC Firebreak and Control 2 game projects. End of Q1 also Control 2 was in production phase, which increases the amount capitalized expenses. 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 in the third quarter 2024. The depreciations, they remain on a stable level. On the fourth quarter 2024, we started depreciating capitalized development expenses related to Alan Wake 2, and as this continued on the first quarter 2025 for the full quarter, it is reflected in our total depreciations that were higher than in the comparison period and previous quarter. Then looking at the other quarters in the graph, in the third quarter 2024, we depreciated 3.4 million euros expenses capitalized related to control franchise products. And in Q4 2023, there was an impairment loss related to Codename One card. The rest of the variation in game depreciations and impairments have been from Alan Wake Remastered, which became fully depreciated by the third quarter of 2024. Then cash flow. Looking at the first quarters year-on-year, the operating cash flow was now lower due to revenue-related cash flows. This is also reflected in our net working capital compared to year-end 2024. Our trade receivables are 9.3 million euros higher in the end of Q1 2025 compared to year-end 2024. And this is related to revenue streams where the actual cash payments will follow later. The timing of development fee payments as well as some royalty fees are agreement based and there are differences in the timing of revenue accruals and the actual cash flow impacts. Outgoing operating cash flow was 0.6 million less than in the comparison period Q1 2024. In the first quarter, our total cash level was 28 million euros, decreasing by 13.1 million from the previous quarter. Besides the timing of incoming revenue cash flows, our cash position was affected by final instalments of 3.2 million euros to 505 Games related to the Control franchise rights acquisition. Additionally, we liquidated 3 million euros of cash management investments, which was transferred from financial instruments to cash and cash equivalents. At the end of the first quarter of 2025, we had 17.3 million euros in cash management investments and 10.7 million euros in cash. Then let's still look at the longer time period. After 2023, our operating profit margin and EBITDA margins have been improving. And now in the first quarter of 2025, EBIT and EBITDA margins were both positive. Then still briefly about the business environment. Recently there has been a lot of discussion regarding the tariffs and how they impact the economy. Impacts from these could be split to direct, shorter-term impacts and more longer-term indirect impacts. Potential tariffs could have direct impact on sales of physical copies of games. Share of physical copies of our total revenue is small and we don't currently expect notable impact on our game sales even if there would be new tariffs. In relation to long-term impacts, there could be potential impacts on economy and consumer behavior, like are consumers purchasing new consoles and hardware needed for gaming, and how the consumer spending on games is impacted. Though, by Remedy being successful in our current game projects, we have good prerequisites for profitable growth, despite potentially more gloomy view on world economy. Following the tariff discussions, we have seen weakening development in USD currency rate. In relation to consumer sales, what remedy has in the USD, weaker USD rate will have effect also on us. However, majority of our sales happens in other currencies than USD. Additionally, our current development fee contracts are in euros, and based on this, they are protected from the USD currency movements. And as a note, for the first quarter of year, we didn't have notable negative effects impacts in our revenue and P&L. Then Tero will continue with our outlook.

Thank you. Sorry. So, as has been said, we are in a strong position both for this year and the following years. The era of sustainable profitable growth has now started, and for the full year 25, our outlook is unchanged. We expect our revenue and operating profit to increase from the previous year and operating profit to be positive.

Thank you. That was all from our part and it's now time for the Q&A. So please type in your questions to the open field. There are a couple of questions already that I will pick up regarding expectations for FBC Firebreak. How has your expectations for FBC Firebreak developed since the beginning of the year after seeing feedback from players and the media on the trailer and other marketing material?

It's been of course very positive to see the reception that the game has had. We have known for a while that we have a good game in development, but getting the confirmation from outsiders who are first time seeing the game, it's always inspiring, it's motivating, it just validates what we have been doing and in that sense removes some of the uncertainty that there always is during the development.

Continuing with FBC Firebreak, how do you see the publishing window in June? What games are the main competitors in your point of view possibly taking attention away from FBC Firebreak?

Well, I think It's a good window that we have for the game. Gaming market overall is very competed, and there is no, in a way, wide window ever available for a game that we expect to reach a notable audience. There are, in a way, both certain co-op games that are coming out now in May that may take the attention But then on the June 17th, I think we have a good window because typically what also happens is that even though there would be a bigger launch, it's not that long period that the audience is fully focused on that game. and then at the same time from the past we have seen that typically June is a fairly good month overall to launch new games then the longer we go into the summer some games do it also there but then there comes the holiday periods and others different type of discounting periods why companies normally don't have that many launches in later July or early August. But overall I think we are quite well positioned also timing wise with our launch.

A clarifying question. Unless I misread, the Q1 webcast presentation did not mention Firebreak launching on PC Game Pass, which has been previously announced. Has the game been redacted from PC Game Pass?

No, no, no. The game is coming to PC Game Pass, so when I refer to Game Pass on Xbox, that also for us includes the PC Game Pass.

Will we have a first trailer or teaser for Max Payne 1 and 2 remake this year?

Max Payne remake will be published by Rockstar Games and all the communications marketing is in their hands and we are not commenting on that.

Some financials related questions then towards Santtu. Development fees in Q1, was there some extra related to Control 2 moving into full production?

Well, on general level, it can be said that the states in which the game development is, it's impacting also on the level of development fees. But we haven't usually been commenting on this detailed level, what is included in certain quarters development fees.

External development costs decreased a lot in Q1. Have you made some permanent savings or is this just related to development phase of different projects?

Well, I would say that also the external development costs, they reflect the kind of needs of the game projects. If we are, for example, comparing to Q1 2024 external development fees, then we had there still some Alan Wake 2 related external development costs and also some Kestrel related development fees. And now during the Q1 2025, all the external development is related to game projects what we have currently in development.

Do you see any needs to increase your OPEX in coming quarters?

Well, what comes to our organization, I would say that we don't have significant increased needs in our permanent organization. We can currently see the benefits of our multi-project model so that we are able to develop several game projects with our existing organization. Now, when we are moving to self-publishing, of course, there might be some self-publishing related costs like additional marketing costs that will come in the coming quarters.

And back to FBC Firebreak. Will FBC Firebreak support keyboard and mouse on console?

Well, the more detailed info on FBC Firebreak can be found on our web page and the communication that we are doing in relation to that. If some info is not yet visible, then that's based on the communication and marketing plan that we have for the game. So in a way, if some info like this is not yet available, then there is a communications reason and all the in a way more detailed information is coming later.

What is the business rationale of FBC Firebreak not being available for pre-purchase with an announced price and release date? From my understanding, the April development update mentioned that Deluxe Edition would only be available for purchase on launch.

We haven't yet commented on the pre-purchasing. And again, what I just said previously, we have a well-taught marketing and sales plan, and that's how we are progressing.

How have you made sure that FBC Firebreak will work technically in launch and not for example crash due to high influx of players?

Well that's in this type of game that's one key part of the development that we have been developing and also doing then both QA and also different type of tests to ensure that and it's a standard routine for this type of games that we are also following.

And how large is the team currently working on FBC Firebreak and how large will the team be on the game after launch?

Well, we have said previously that the, in a way, direct team size that we have had in the FBC Firebreak has been approximately 60 people. Now, when we come towards the launch, the power of the multi-project organization is that if there are additional needs, we have the possibility to allocate certain specialists to support in the loads of the game and that's also what we of course with every game we are finalizing are doing so FVC Firebreak is also taking advantage of that We haven't said exactly what the team size is going to be after launch, but we have already announced that we will be supporting the game with additional content also post launch. So that then means that we have a good focus on the game also after that.

And there is a question, how do you intend to expand your marketing strategy and extend your reach? I believe this relates to the back catalog. Is that something you want to comment on?

Well, that's something that we cannot publicly discuss. Now, when we have our own publishing team, we have our own games that we are self-publishing. Then, of course, the questions of, in a way, first of all, that we have a clear focus with our games. We have clear target audiences that we are intending to reach with these games. we have plans how we are doing that and then as we move in the back catalogue then we see that the games also have these secondary opportunities that they're necessarily the highest priority in the early phases and we have plans then how we aim to reach those but I cannot reveal in detail how we are planning to do that.

Regarding development costs, do you see lower external development costs in Q1 compared to comparison periods staying at this level or increase in the short and mid-term future?

As I said earlier, these external development costs, they depend on the needs of the game projects. And it's also good to note that we are activating these costs. So now when we are self-publishing games, we are able to activate also more costs, for example, compared to earlier years levels.

I believe that's it for the questions. Thank you everyone for joining the call. You see our contact information there. If there's anything further you'd like to ask and we will be back with the next earnings webcast for January, June in August. That's all for now. Thank you and have a great day.