CD Projekt Red 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 First Half 2026 Earnings Conference Call on the second September. [Operator Instructions] So without further ado, I would like now to pass the line to Mr. Michal Nowakowski, the Joint Chief Executive Officer. Please go ahead, sir.

Good evening. Thank you for joining us today. My name is Michal Nowakowski. I'm the joint CEO of CD PROJEKT RED and I'll be hosting today's earnings call concerning the first half of 2026. Presenting alongside me is our CFO, Piotr Nielubowicz. And after the presentation, we'll open the floor for Q&A or will be joined by Karolina Gnas, our VP of Investor Relations. If I were to sum up this half year in one sentence, I would say this, both our franchises are stronger than ever, and we are ushering in the next chapter in the [ group ]. So let me show you what I mean starting with Cyberpunk. Nearly 6 years after the launch of Cyberpunk 2077 it has sold over 14 million copies and continues to sell well. This reflects deliberate life cycle management, platform expansion, broadening player reach and continuous support for the game itself. The results speak for themselves. In the first week of July, the peak concurrent player figure on [ steam ] exceeded 100,000, the highest value observed since October 2023. Meanwhile, Phantom Liberty has reached its own milestone in July, crossing the 15 million copies sold threshold. Today, Cyberpunk is an evergreen franchise. And as you'll see in a moment, its value compounds well beyond the game itself. We keep expanding the Cyberpunk ecosystem for selective license based partnerships that fit our world. In the first half of the year, Night City was featured, among others in withering waves and Apex Legends. For its part, the Cyberpunk [ trade ] card game raised $28 million, becoming the most funded table top game project in [ Kickstarter's ] history. These partnerships generate visible revenue while maintaining global brand engagement between our core game releases. The new season of the Cyberpunk: Edgerunners anime series is launching on Netflix on October 20. In 2022, the release of the first season drove a resurgence of interest in Cyberpunk 2077 among players, which led directly to a visible spike in game sales. With Edgerunners too, we want to reengage audiences with VIP and encourage players to come back to Night City. Now let me turn your attention to the Witcher franchise. Witcher 3: Wild Hunt has now sold over 65 million copies. Making it one of the best-selling games for all time. Across the whole franchise, we have now sold over 90 million, which [ gains ] -- these numbers provide us with a solid foundation for upcoming releases in the universe. The first one comes on September 29, '26 -- 2026, when we are launching The Witcher 3: Wild Hunt - Remastered. This new addition brings us slower upgrades and enhancements to visuals, performance and gameplay. Remastered also includes a dedicated addition of the game for Nintendo Switch 2. Existing owners will receive Remastered along with both expansions, [ hot of stone ] and blood and wine at no additional cost. With this move, we reactivated players interest in the the Witcher franchise and attracting new ones to the Witcher 3: Wild Hunt. Remastered builds momentum ahead of the release of [ songs ] over the past and the Witcher 4. In 2027, we're launching Songs of the Past past, the third full expanson for The Witcher 3: Wild Hunt, with a scope comparable to Blood and Wine. It acts as a natural bridge keeping player engagement high and directly leading into the launch of the next saga. And we're also gearing up for The Witcher 4 with a target release window in 2028. The game marks the beginning of a new saga and is the biggest, boldest and most ambitious projects in our history so far. To sum up, three subsequent years, three major releases each bigger than the one before in one unified universe. And I want to be clear, this is not the full list of what we are working on in this universe. In this context, it is encouraging that a recent experience of Gamescom only reaffirm [ our ] conviction, players do want more Witcher content. Our hands off demo gameplay showcase of Songs of the Past attracted nearly 9,000 players alongside 1,500 media representatives and industry personals. During the event, we conducted over 50 interviews with global media outlets, securing broad coverage for the coming weeks. The reception of our materials presented during Gamescom confirms that player enthusiasm for the Witcher remains strong. Taken together, the Songs of the Past teaser trailer its games from demo [ Supercuts ] and the announcement dealer of the Witcher 3: Wild Hunt Remastered generated 26 million views across our own channels. Of course, not counting opening night live stream views. Additionally, our games became the two most hotly discussed releases announced during the opening night life. According to data from tracked social media platforms within the first 12 hours of the event. CD Projekt Red also to come [ 3 ] official games come awards, best trailer for the Songs of the Past [ reveal ] and [ Best March ], both voted by [ Go Community ] and the jury award for the Best booth. And this momentum translated into measurable results, 900,000 players added songs of the past on their wish list within a week. Getting back to our growth plans for both franchises. We continue to expand our teams to deliver this ambitious pipeline. As of the end of July 2026, our total development team grew to 1,045 people. The Witcher [ 14 ] remains our largest unit with 519 developers on board. Over the last 3 months, we expanded the Cyberpunk [ 2 ] team to 184 developers to support the game's current development phase. With the other projects, we aligned their head count with the project's current needs. And now I will hand over the floor to our CFO, Piotr Nielubowicz, who is going to walk you through the financial results for the period. Piotr, it's your turn.

Good evening, everyone. Let's start with our consolidated profit and loss account on Slide 16. Our sales revenue for the first half of 2026 reached over PLN 435 million, an impressive 23% increase compared to the first half of 2025 when Cyberpunk 2077 premier [ on ] Nintendo Switch 2. The majority of sales came from our own products, particularly the Cyberpunk family. In Q1, we also recognized revenue from the inclusion of the base addition of Cyberpunk 2077 and the Witcher 3: Wild Hunt complete addition in Xbox [ Campus ] premium and ultimate subscriptions. But what really made a difference in the first 6 months of 2026 compared to a year ago were revenues from IP licensing, a new line in our presentation and report. We booked almost PLN 95 million year, which included licensing revenues from some of the already announced and mentioned by Michal products and partnerships like Cyberpunk trading card game developed by [ Wood ] the co-op with [ uterine ] waves as well as some other initiatives that are still unannounced. With cost of sales being a bit lower year-on-year, our gross profit on sales reached nearly PLN 406 million, up 28% compared to the first half of 2025. Operating costs slightly increased by 6% reaching over PLN 160 million, driven mainly by administrative expenses, while selling expenses remained pretty stable. Finally, our net profit for the first half of 2026 reached nearly PLN 0.2 billion, a solid 37% increase year-on-year. We're also very satisfied with the net profitability we've achieved, which is why I'd like to share a slightly longer-term [ view ]. On the next slide, you can see [ tetapriograds ] semiannual simplified financial results along with the net profitability for each period over the last 4 years. This year's net profitability of 57%, combined with an increasing revenue stream, have allowed us to achieve a nearly threefold increase in net profit over 3 years. The next slide, #18, presents our consolidated balance sheet on the asset side. The main position remains the expenditure on development projects, which grew by PLN 364 million to surplus PLN 1.5 billion. During the first half of 2026 alone, we invested nearly PLN 385 million in new development work. Main investments for the period are related to the development of [ Witcher 4 ], [ Cyberpunk 2 ] and the Songs of the Past expansion. We also recorded an increase in property, plant and equipment and investment properties altogether by PLN 69 million. It was driven mainly by investments in our campus expansion and ongoing construction works on it. On the current asset side, trade receivables increased to PLN 160 million due to higher sales at the end of the reporting period while other current assets decreased to PLN 102 million, primarily following the settlement of receivables from the sale of [ GOG ] shares and historical prepayments. At the bottom of the table, you can see our total liquid reserves, combining cash, bank deposits and bonds, which stood at nearly PLN 1.29 billion at the end of June maintaining a resilient financial buffer. As usual, I will discuss this in more detail on the dedicated cash flow slide. Moving to Slide 19, equity and liabilities. Driven by the strong net profit for the period, our total equity grew by 8% to serve us PLN 3.5 billion as of the end of June. Total liabilities remained stable at PLN 227 million. Now please move to Slide 20, our expenditures on research works, development and cost of product maintenance presented here on a quarterly basis over the last 6 quarters. The chart clearly illustrates the steady ramp-up in our production effort. Investments in our projects mainly publicly announced alongside some unannounced are constantly growing. The vast majority of what we present here shown in blue, relates to capitalized development projects. The increase comes from -- both from projects developed internally and those created in cooperation with our partners like Songs of the Past or [ Jonas to ] And finally, let's look at our aggregated cash flow drivers on Slide 21. Cash-wise, the PLN 249 million book net profit from continuing operations was supported by PLN 47 million in amortization, depreciation and non-cash costs of our share-based incentive programs. At the same time, PLN 59 million was spent on the acquisition of tangible and intangible assets as discussed on the balance sheet slide. The overall changes in working capital decreased our cash flows by PLN 21 million, driven mainly by increased level of receivables related to higher sales decreased provisions mainly related to 2025 annual bonuses being paid out in Q2. Summing it all up, we generated an estimated positive cash flow of PLN [ 229,000 ] from our ongoing business in the first half of 2026. Additionally, in general, we received the payment for the sale of GOG shares, which after transaction costs bolstered our cash position by PLN 87 million. And last but not least, our cash outflows associated to progressing development expenditures. These amounted to PLN 356 million in the first 6 months of this year. All in all, during the reporting period, our financial reserves capped in cash, bank deposits and [ BOSS ] decreased by PLN 39 million, standing up at nearly PLN 1.3 billion at the end of June. To conclude my part of the presentation, let's look at Slide 22, which tracks our progress toward the earnings conditions of Incentive Program B. The goal for the first tranche for financial years 2023, 2026 requires generating PLN 2 billion in cumulative net profit from continuing operations over 4 years. Thanks to the PLN 249 million net profit booked in the first half of 2026. We have now completed 86% of this target. This leaves 14% or approximately PLN 273 million to be realized over the remaining 2 quarters. This is more than we earned during the first 2 quarters of this year. With strong back-catalog performance, the upcoming -- [ whether master ] plant also for an Nintendo Switch 2, the [ drones ] to Premier and other partnerships and initiatives, we believe in reaching this ambitious goal. At the same time, I would like to add one key remark regarding the incentive program. Taking into account the company's current release schedule, the group will most likely not meet the performance conditions set for the second stage of incentive program for the years 2024, 2027, which was set at PLN 3 billion. Consequently, 70% of the entitlements granted to participants under this tranche will most likely not vest. As a result, we reversed the previously recognized noncash costs of Stage 2 of the program in the portion corresponding to these entitlements in the amount of PLN 11 million. I should note, however, that assuming things go in line with our plans, we remain optimistic about the prospects of achieving the third and fourth earnings targets under the incentive program, respectively, PLN 4 billion and PLN 5 billion in subsequent 4-year periods. Thank you. We are now ready for the Q&A session.

[Operator Instructions] We have our first voice question coming from Nick Dempsey from Barclays.

I've got two questions, please. So first of all, your expenditure on development project in Q2, just over PLN 200 million, as Piotr just flagged. That's a decent step up versus Q1. Now as you ramp up towards delivering 1 of the past and the which are 4, should we expect that quarterly amount to move up again? Or is this a kind of quarterly normal peak level ahead of those games being released? And second question, when thinking about the remaster of the which what extent should we hope for a decent uplift in revenue around that in Q4? I understand that many people will receive this for free because they bought the game already. but I'm also thinking that there will still be new players interested in buying our full price, the combination of the remaster and the 2 previous expansion. So how should we think about that in Q4?

So the increase of our expenditures on that project is rather something that we do quarter-by-quarter by growing our debt teams and getting into more advanced phases of all of the development projects we work. And like I presented on one of the slides. So getting closer to the launch of Songs of the Past will rather not influence it significantly as we will continue on all of the other front-end projects we currently work. Whereas the end of the increases, I don't know, we are not guiding. But as you may imagine, the dream of the management of the company is to continue growing getting bigger, having more projects in the pipeline and one day having even more releases.

As for the second question about the Remastered and the extent of the potential uplift in revenue for Q4. You're correct in your assumption that we're counting on both all players coming back, but also on the new players buying the Witcher 3 for the first time, both on the existing platforms and also the new platform, which was just added, which is the Switch 2. However, we are not guiding exactly on the extent. I cannot help here. But what we've been flagging before, this is one of the elements that is supposed to help us reach the goals of the motivational program this particular year. And -- but we're not guiding specifically on the revenue attached to Remastered.

So I see the rest of the questions are text questions. So I'll pass the line to CD Projekt team to read them out and answer them.

Okay. I'll maybe read the first question. It's from [ Christoph cut ] from [ Arista ]. And a question reads. I'd like to clarify what exactly you mean when you say that Witcher 4 is already running on every platform. Are we talking about a limited part of the game, used mainly for technical testing? Or is the current build already somewhat representative in terms of the games, scale and content? So what I meant in the interview, I know which interview I have on your mind is we're launching the game on all platforms target [ levels ] such as PC, PlayStation and Xbox. And I mean here, the current build we have that we are working on. So it does not imply, it's a full game, full scale, full content. Those things happen at later stages of development. But it just means that the build, the current build that the team operates on is maintained, [ is ] launchable on each target platform. This is very important for us in the development process.

This next question comes from Grzegorz Gawkowski [indiscernible] how many unannounced game projects do you currently have in the pipeline? Was the Witcher 3 Remastered previously included among those unannounced projects or was it not capitalized, classified as a separate development project? So maybe I'll refer to projects being currently capitalized. So those that are being in the development phase without touching the research earlier phase. In the development phase, we still have two unannounced projects. And as far as the Witcher 3 Remastered is concerned, it created along all the works on the expansion Songs of the Past as a continuation of historic investments into updating and improving the Witcher 3 and this particular project was not capitalized. What we, however, did capitalize towards the expansion Songs of the Past as well as the net Switch 2 version of the Witcher 3 as this is a [ part ] or this is an adaptation of the game for a new platform.

Okay. And the next one is from Piotr Poniatowski, mBank. Could you give us a bit more color on Project Series? What's going on there? So as you probably know, we recently adjusted the size of the team according to the current needs of the project. The production is ongoing -- the preproduction [ series ] ongoing. And at this stage, we are focused on testing different solutions and ideas we develop. And it's also worth mentioning that this project is very different from our other projects because it's focused on multiplayer. So there's a lot of learning and testing in this particular one.

And the next question is from [indiscernible] from [ Trigon ]. And at [ Rates ].What pricing strategy are you considering for the expansion particularly versus the previous two which are expansions of Cyberpunk 2077 [ Phantom Liberty ], could pricing also serve as a way to monetize the value created by the 3 Remastered. So we're not reviewing the pricing strategy just yet that would be, of course, part of specific marketing announcements when the time for that comes. We're not super far from that, obviously, but now here and now is not -- is not the moment for that. As for the last part of the question, I'm not sure I got it completely. What is meant here. Could pricing also serve as a way to monetize the body created by the 3 year master. But obviously, we do hope that a combination of the remaster and the sons of the past is going to rejuvenate the charter, the interest in the which universe as such. And thus, that implies also the increased interest in the expansion and its sales as well, right? I mean we hope a lot of people are going to come into the game, whether they were existing players or the new players who just purchased which are free for the first time. We do hope that a lot of them will also decide to buy the expansion.

The next question comes from Piotr Poniatowski, mBank. On the Slide 16, you have listed revenues from IP licensing. Could you elaborate more on that line? Does it include anything from the Netflix cooperation? So this line includes revenues we generated over the first 6 months of this year on licensing our [ rise ], either the Witcher IP or to Cyberpunk IP to external partners and yes, it includes some revenue from Netflix. However, it's probably not the revenue you potentially ask for. We have a cooperation with Netflix on licensing, merchandising rights. And these being sold by Netflix include royalty for us. And this is not the biggest news of the [ season ], I would say. Therefore, it's not any of the major incomes we recorded within this line. There is altogether over 100 partners with whom we cooperated over the first half of this year. and from whom we included the revenues into this [ 90,000,095,000,000 ] presented in the presentation.

And the next one is again from Jaguari from Trigon. How would you describe the current stage of development of songs of the past? Are you still actively producing content? Or has the project already moved into the polishing and optimization phase. Well, we're not getting into details of that because if we did, we would have to narrow down the the launch date very specifically, and this is something we're keeping for a specific moment in time. So for now, we're just saying 2027, and you will have to live with that for a moment ago.