CD Projekt S.A. (CDR) Earnings Call Transcript & Summary

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 Michal Nowakowski, Joint CEO of CD Projekt.

Okay. Thank you, and good afternoon, everyone. My name is Michal Nowakowski, and I'll be your host during today's conference dedicated to the CD Projekt Group's financial results for the third quarter of 2025. I will be co-presenting with Piotr Nielubowicz. And after the presentation, we will traditionally invite you to participate in a Q&A session where we'll be joined by Karolina Gnas, 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 4 months of the games 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 any time 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 Q3 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. 2 years ago, we launched our Boston Hub and started building the team responsible for the next Cyberpunk title there. 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 of well-known AAA projects such as GTA, God of War, World of Warcraft or [indiscernible], 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 preproduction works. We plan to expand the Boston-based Cyberpunk team as the project progresses and double it within the next 2 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 2 separate big AAA games at the same time. Despite introducing some geographical and operational complexity, it brought in a wealth of multilayered 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 3 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 preproduction phase works. And with that, I'll be ending. That will be all for 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 7. Our group sales revenue for the third quarter of 2025 reached nearly PLN 350 million. 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 the 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 twofold 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 PLN 58 million 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 U.S. dollar and euro. In the case of the CD PROJEKT RED segment, the figure reached over PLN 14 million, which is 10x 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 2 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 to Edition as well as some expenses on our game's updates. Administrative costs remained flat year-over-year. And finally, our net profit for the third quarter of 2025 reached PLN 193 million. This figure is 2.5x higher than the year before. The numbers speak for themselves. We are also very proud of our results in the 9 consecutive months of 2020 -- for the 9 consecutive months of 2025. Our revenues grew 21% and net profit increased by 40%, reaching nearly PLN 350 million. Most of that was delivered by the CD PROJEKT RED segment. Please take a look at the segment's results in a broader perspective on the next slide. This year, we generated even higher sales and more profits than 2 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 9 months of this year reached 53% in the CD PROJEKT 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, #10, our consolidated balance sheet. On the asset side, first, the usual expenditures on development projects. The balance here increased by PLN 122 million, driven by PLN 137 million in development expenses, less PLN 15 million from amortization of previously launched games. During the past quarter, the total balance of this line item exceeded PLN 1 billion. Out of this total number, PLN 173 million corresponds to our finished products, mainly Phantom Liberty, Cyberpunk and its next-gen Switch 2 and Apple versions. Works in progress account for PLN 847 million 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 nongaming 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 PLN 19 million 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 eclipse with 2 stages, which once finished, will help us work faster and more efficiently on 2 projects at the same time. The total value of cash deposits and bonds included in the 3 asset items marked with an asterisk is summed up under the table and amounts to PLN 1.408 billion 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 PLN 99.9 million decrease in liabilities due to the dividend payout, which took place in July. Now please move on to the next slide, #12, to the CD PROJEKT RED's expenditures on research works, development and cost of product maintenance presented here on a quarterly basis over the past 7 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 engagement -- our aggregated cash flow drivers on Slide 13. The PLN 193 million book net profit was supported by PLN 32 million in amortization, depreciation and noncash costs of our share-based incentive programs. At the same time, PLN 40 million was expensed on the acquisition of tangible and intangible assets. The overall change in receivables, liabilities, provisions and deferrals boosted our cash flows by PLN 31 million. Putting dividends, share buyback and investments into currently developed products aside, our ongoing business generated a healthy PLN 221 million 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 PLN 180 million outflow associated with development projects. And at the beginning of July, we shared with our shareholders a nearly PLN 100 million dividend, which was later followed by a PLN 22 million 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 PLN 19 million, 1% over the reporting period and stood at PLN 1.4 billion 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 PLN 2 billion in cumulative net profit. After 11 out of 16 quarters, PLN 700 million 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.

[Operator Instructions] We have our first question that comes from Nick Dempsey from Barclays.

Yes. I've got 2 questions, please. So in terms of the 2 factors that are helping you this year, which are not just pure unit sales, we've got the PlayStation Plus benefit and the Switch 2 benefit. In terms of the PlayStation Plus benefit, can I assume that, that benefit has all happened in Q3 in a one-off payment? Or should I assume that there's more to come in terms of that benefit? And then for Switch 2, could we assume even more in the next quarter because Switch 2 is expected to be a big holiday season seller? So that's the first question. And then in terms of Piotr's favorite slide, the expenditure on development projects of 118, I think we had in Q1, 100 and then in Q2, 142 and now we've got 118. Can you just kind of talk about the lumpiness in there because I wasn't really expecting it to go down as it's basically people and they're going up.

Okay. So starting from the first 2, they are easier than the third one. Yes, this Q3, we recorded all of the revenue related to our agreement with Sony on including Cyberpunk in the PlayStation Plus system. You mentioned it's one-off. It's one-off. To a certain degree, it is a one-off. But at the same time, I would like to underline that it was an intentional business decision made on us, decision directly related to the core of the business we run. So it wasn't a lottery win. It was conscious life cycle management. And to make it even more not a one-off type of revenue, I would like to underline that a year ago, exactly Q3 2024, we also recorded revenues related to becoming a partner of PlayStation Plus. But back then, it was done based on the Witcher -- Witcher 3 game. So such revenues happen in our business. And answering directly the question, we recorded both of them 100% either now in Q3 '25 or back then with Witcher 3 in Q3 '24. The expenditures on development projects, 111, this is cash flow-wise. And this may differ from period-to-period versus what we record book-wise. And basically, book-wise, our investment into development of projects was presented on the nicely growing table with the blue color and quarter-to-quarter, we invest more into future projects. And 118 was part of the cash flow presentation and related directly the sales, the cash flows attributed to the development, and they may be somehow desynchronized with the bookings we do. But in general, we develop and spend more and more quarter-by-quarter. And there was also the Switch 2 mentioned, okay. And you ask as far as I remember, can we assume even more sales this quarter, the fourth quarter than what we recorded in the first quarter. So we never guide future projects, future period sales. But what I can say is that we feel to be well positioned with Cyberpunk on the Switch 2 platform. It's one-of-a-kind offering we have for gamers, which is nicely, strongly growing. Also, the guidance from Nintendo recently increased the volumes of the console they expect to sell, and this puts us in a nice position to expect longevity of the title on this platform. And Q4, usually, as we all know, is seasonally an important period of the year.

[Operator Instructions] We have some text questions. So maybe I will pass the line to the company to read them and answer them.

So I think I got a first question from [ Christof Koch ] from [ Erste ]. The question is, does the company plan to conduct any marketing activities related to new projects later this year? So we are typically not commenting on marketing activities or lack of them -- ahead of them because they're traditionally is supposed to be a surprise. But if you're alluding or asking about our presence at the TGA, The Game Awards, well, we're not bringing any new content to TGA this year. Let me say it straight. But we will be present there as part of the show because we're very happy. We're very proud to be nominated with Witcher 4 as the most anticipated game. And I'd like to thank from this space to everyone who has already voted for us. That means a lot to us. Thanks, everybody. But we'll be there to watch the show and celebrate this event with the rest of the peers from the industry. And I think the second question I can take as well. That's from [indiscernible] from [indiscernible]. And the question is, is the Cyberpunk 2 team nearing somehow the end of preproduction work? Or is that still a long way off? Well, we're happy with the progress Cyberpunk 2 team has made so far, but it's for sure, too early to talk about entering any next stage or phase of this project. We'll, for sure, make a proper update and statement when that time comes.

So I will take the third one from Nicolas Langlet, BNP Paribas. Are you able to quantify the contribution from licensing deal with PlayStation for Cyberpunk 2077 in the third quarter '25? Well, I'm sorry, but we cannot share any details regarding the payment, the remuneration. However, as I said, it has had a visible impact on our top line in the third quarter we just published. But what I would like once again to underline that it was not the only driver for the growth of revenues. We also enjoyed higher sales of Cyberpunk on the old platforms and also the new revenue driver came from Nintendo Switch 2 version. And I will read the next question from [ Christof Koch ] from [ Erste ]. After adding Cyberpunk to the PlayStation Plus subscription, has the company seen a decline in Cyberpunk sales on PlayStation 5?

I'll take this one. So there is always a hit to current sales of the game when you launch on a subscription basis. We launched in PS Plus the base game, so without the expansion. However, what is important to stress what we take into account in our planning is we do want to generate a surplus from what the game would normally do within a certain given moment of time, and we do believe we did that with this particular entry into the subscription. And also, we have created an opportunity to upsell additional copies for Phantom -- of Phantom Liberty of the expansion within that time frame. So this is beneficial in our opinion, to the bottom line for the company and the long-term performance of CP 2077 as well.

Okay. So I will take the next one from [ Christof Koch, Erste ] again. The question is approximately how many people at full CRE are working on the new unannounced project? And when did development on this project begin? Over 100 people right now. And regarding time line, we do not have any comment. So thank you. And...

And I'll get the next one. It's coming from Nicolas Langlet from BNP Paribas. And the question is, can you share more detail about where you are in the Witcher 4 development process? And what are the key technical design risks that could shift the release window. So as we have already stated, I mean, the Witcher 4 is in the full-scale production phase. And we're not fully disclosing any details regarding the target release dates. So there is no, I'd say, point in time I could refer to answering such questions. I mean the only thing we're commenting is we're not launching in '26. And we're also not really typically getting into any, I don't know, specifics when it comes to technical or design. I mean there's nothing out of ordinary, I'd say, in that area happening with the Witcher 4. So I mean, it's just full-scale production going at its pace for our internal plans. And I think that's as much as we can...

Okay. We have another voice question that comes from Piotr Poniatowski from mBanku maklerskie.

A couple of questions. How many unannounced projects are being capitalized? How many of them are gaming projects? Do these unannounced projects include board games or any trading card games, let's say? Would you consider Whiter IP-based board game as a gaming project? So that's, let's say, a pack of questions. Another thing, what is going on with Sirius and Hadar projects? And as a follow-up to the full theory question, how many people are working at full theory on Witcher 1 remake? That would be all.

I'll try to tackle some of them. I think we're not disclosing details, correct me if I'm wrong, of how many projects are gaming or nongaming, et cetera. So I won't be able to help here. I can comment on the card game, Cyberpunk card game. I saw there was a lot of, I think, confusion around that one. So let me state it clearly. This is a physical collectible collectors card game, TCG. It's not a video game project. What was the remaining part of the question? There was quite a few things that were in there.

The question was whether that project is among the already mentioned unannounced projects? No, we are not developing it ourselves. We are not capitalizing expenditures on that. And we didn't mention either the board games nor the Gwent collectible card game as the unannounced project from us.

As for the Hadar and Sirius projects, they're in their respective stages of -- for Sirius development and Hadar still IP preproduction, if you want to call it that way. In terms of the full theory, I think we stated in the past that majority of the team is currently involved with the other projects and also support of the Witcher 4. So there is some limited team working on the Witcher 1, but it's -- since this is very much tied with the Witcher 4 development, this is also why we have made this move. I think we explained that in the past. That's why on the Witcher 1 per se, it's a smaller group of people directly at this moment in time.

Okay. So I will pass the line for -- back for the text questions that have come in.

Right. So the next question comes again from Nicolas Langlet, BNP Paribas. On the Scopely mobile partnership, anything to share about the progress of the discussion? Do you expect to book any upfront payment of the collaboration in 2026? So what I can say for now is that this project is still in a very early phase. And regarding the potential booking of revenues on our side, unfortunately, I have nothing to guide in terms of our 2026 revenues.

And the next one is again from Nicolas Langlet from BNP Paribas. And the question is, any update you can make on the use of Unreal Engine 5 for the full production process of Witcher 4. Do you expect next games in the Witcher trilogy can be delivered on a shorter and more predictable cadence? So we've been using the UE 5 for the Witcher 4 for almost 5 years right now, and we're very happy with what we've achieved. I think some of that you could have seen with your own eyes with the demo we have unraveled at the Unreal Fest a couple of months ago, and we're very happy with the results of that as well. We said that, but I'm always happy to say it again. And we're happy with how the Engine is evolving for the Epic team's efforts and how we are learning how to make it work within a huge open world games as Witcher 4 is meant to be. And in a way, yes, I do believe that next games should be delivered in a shorter period of time because as we have stated before that the plan still is to launch the whole trilogy within a total of 6-year period. So that would mean, yes, we would plan to have shorter development time between Witcher 4 and 5, 5 and 6 and so on. So I think...

And next question comes from Konrad Krasuski, Bloomberg. Does government plan to control self-employed in companies to check whether such agreements should be rather typical employment contracts may impact way CD PROJEKT operates? So in general, something you named the typical employment contract. This is our main type of contract. However, obviously, due to the nature of our business, we collaborate with various artists and freelancers using also different forms of allowed cooperation. Having said that, we still do not know the final legislation, which you're referring to as it's unknown, and we are continuously monitoring the work on the changes of the regulations.

The next question is also from Konrad Krasuski from Bloomberg. And the question is, how would you describe the current availability of IT talent to your studios given numerous reports that AI is making many people redundant. Can you imagine that you may reduce headcount, thanks to AI tools in the near future without any harm to work on your next project? So I mean, we are not really hiring classic IT, but I understand it's supposed to touch on like the gaming industry talent. So I mean, the availability of the talent has been maybe a little bit more increased over the past 2 years. But I'm not sure I would actually necessarily ascribe it to AI, to be perfectly honest. I mean the studios, various studios were going through various turmoils. There were some project closures and so on. So yes, there's been many redundancies in the games industry. And we've all seen that. And it's been very dramatic in many cases. But I -- literally kill me here, but I don't recall a single time where it would be directly ascribed to AI. At least I don't know about that. And can we imagine that we reduce headcount, thanks to AI tools? I don't imagine that. Our usage of AI is mainly in the productivity areas, to be honest, and that's where we see the largest benefits in that. And the benefits are real and they're meaningful, but it's not really a situation, and I'm unaware of such situation in the industry where AI can like sit down and make games for the people. I don't think this is really where it's heading. That's our take on that. That doesn't mean it's not going to be useful, but it's not going to be making Witcher 5 or 6 or anything like that. All right. Since there seems to be no more questions on the line or in the text. I'd like to thank all of you for joining us today. And yes, somebody was saying something, no, I hope for a second. And if you have any follow-up questions, of course, please feel free to get in touch with our fantastic Investor Relations team. And I wish you all a pleasant evening, and goodbye and until the next investors call. Thank you.

Thank you very much. This concludes our call today. We are now closing all the lines. Thank you, and goodbye.