Paradox Interactive AB (publ) (PDX) Earnings Call Transcript & Summary

Hello. I think we are on. Welcome to the Paradox Q4 2019 report. Alex, I just come back from the States, which is exactly the same thing as last time we did this. I have been to a conference in Vegas called D.I.C.E., very fitting for Vegas, I think, and I had a lot of very good meetings. What about you, how are you?

Good, very hectic week. Yes, but in all exploring a bit today with the reported costs so that's always a peek for the quarter.

Yes. I think the big difference is that we don't have any headsets, we normally do. But we've moved. We're in a new office in Stockholm, and we also have a new streaming studio. So no headsets which is very good, apart from that we can't always hear what they're saying in the control room. So wish us luck. I think it will be good. Shall we kick it off?

Let's kick it off. Yes.

Yes. So yes, great quarter. We're very happy and a revenue record-breaking year, almost SEK 1.3 billion. So that is the highest we've had in revenues, and we -- it's also the highest profits that we've ever had. Very happy about that, of course. Q4, which is what we're focusing on today, is the second highest revenues we've ever had and actually the highest profits. And I think it's worth pointing out because we always say, and I will say it again that this industry, you can't really look at what happens from quarter-to-quarter because it varies very much with what games we release, and we don't really plan after quarterly calendars, we plan after when the games are done and when we feel that the quality is there. And last Q4, I think 4 of our big games had expansions out, whereas this year, actually, they didn't. So we're very proud that we managed to get to this result. In part, it has to do with the fact that the distribution environment is changing a lot. And we now have agreements with, for example, Epic Games and Microsoft through Game Pass, which is their subscription service, which changes things around a little bit. But anyway, we're very happy. We released 1 new game this quarter, Surviving the Aftermath. This game is in early access, which means that it's not actually done. It's an early version of the game. We are doing updates to the game every month, and we're getting a lot of feedback from the players. But we're super happy with both the amount of feedback we're getting. There's a little ladybird in the corner of the game that you can click on and give your feedback directly to the developers. The developers are Finnish studio called Iceflake based in Tampere in Finland. Anyway, this is an exclusive with Epic for as long as it is on -- in early access. So then next fall, we will launch it everywhere when it's completely done basically. We've had 3 expansions in the quarter, Heavy Metal for BATTLETECH, which is the last expansion that we will do for BATTLETECH, Revelations for Age of Wonders: Planetfall. And I should mention Planetfall also actually today has a major overhaul being released. And then we also released Psych Ward: Wardens Edition for Prison Architect, which is a game that we acquired very late in 2018.

This is a first DLC that we did...

Yes, exactly. We've done some content expansions before but no DLCs. So I don't know if you've seen it, but it's the little guys running around in the prison. And they're quite cute, but a bit crazy, I would have to say. Anyway, so -- and the revenues from the quarter come from mainly BATTLETECH, Cities: Skylines, Europa Universalis IV, Hearts of Iron IV, and Stellaris. And I would like to make a little shout out to BATTLETECH. It's really nice to see the game on the top 5 list, very well deserved. This is developed by our fabulous team in Seattle in Harebrained Schemes. Yes, you are the one in control there. If we look at what the year has been like in full, it's very much about gearing up for a quite special 2020 for us. We have a lot of stuff coming, and we have been building the company for this. We have increased our staff quite a lot. We're almost -- well, now we're over 500 people, but at the end of the quarter, we were almost 500 people. We have really invested a lot in marketing. That is both in terms of marketing that is driving sales, but it's also very much in the quality of all the content we produce for the marketing, which is I hope you see that many of our trailers. Well, I'm obviously biased, but I think they look very, very good these days. We've also moved in almost all of our locations. Triumph has moved in the Netherlands. HBS has moved in Seattle. And also the Stockholm office has moved, hence, no headsets in the streaming studio. In terms of the marketing, we also have a lot of new corporations in the distribution part of our industry. Of course, we have the Steam Publisher Weekend!, which this year was in Q4. The year before, it was in Q3. That's a very, very great event for us. It drives a lot of interest in us and in our games, of course. But then we've also really expanded on our Game Pass cooperation with Microsoft. Game Pass was launched originally on Xbox, but now it's also available on PC. And for us, it's a way to really test subscription model. That's something that we haven't done so much before. We also have a test going on with Europa Universalis IV on Steam, where when you buy the base game, you can subscribe to all of the DLCs for as long as you like. We think it's an interesting way to get a handle on all of the material that is there for a game that's been around for as long as EUIV. So we're very keen on seeing the results. It will be a couple of months before we see anything real coming out of this. And of course, as I said before, we have also this deal with the Epic Games for Surviving the Aftermath that, so far, is great for both us and the game. One thing that I'm extra proud of is that our MAU, monthly active users, has reached 4 million. That's great for us. We love to see that our fans love our games. And this is, of course, a way for us to see that. We also have more Paradox accounts than ever, 12 million. I think we're up to, no?

Yes. And the MAU has not only reached 4 million, we have established ourselves above 4 million with safety, I would say.

Yes, exactly. That's a very good point. One of my highlights of the year, I think. And our highlights of the year was PDXCON that we had in the quarter, we were in Berlin. We had 2,000 people a little bit more, 40 nationalities. Lots of events were just really engaging and hanging out our fans and our staff and our partners, but also showcasing new games and showing off some things that are coming in the future. We combine that with the staff conference as well. So that was also a great event. This period, now if we move over to Q1, we have rereleased Stellaris: Galaxy Command in soft launch. So Stellaris: Galaxy Command is our mobile game for Stellaris. And as you normally, when it comes to mobile, you soft launch first in a few markets to see how it works and if the game will take off. We've done many soft launches over the years, some more successful than others. And this one, we have pretty high hopes on. We think it looks really good. We get good feedback from people who are playing it. Currently, it's only available in Sweden, Canada and Australia. So if you're in those markets, you can try it. But otherwise, you'll have to wait. We're not sure exactly when we will hard launch yet, but let's see -- we will let you know. And then, of course, we expect 2020 -- especially the fall of 2020 to be very exciting for us. We have CK 3, we have -- or Crusader Kings III, I should say, Vampire: the Masquerade - Bloodlines 2, we have Empire of Sin and the full release of Surviving the Aftermath coming. And we have also decided to push the release of Empire of Sin to the fall 2020. And this is because we want to make sure that the game is as good as it can possibly be. Yes, I think that's it. Do you want to go over and talk a bit more about the numbers?

Yes. It's going to be a busy fall.

Yes, a very busy fall.

Okay. So let's dig into the numbers. So the revenues for Q4 ended up at SEK 381 million, and that is a 13% increase compared to Q4 in 2018, where we had SEK 337 million. And as you said, Ebba, that is very impressive because in Q4 2018, we had set this with Stellaris, we had CK 2. We had Europa Universalis IV, all our biggest games had expansions. And of course, when they have expansions, we can expect a lot of sales from them. We also had, let's say, we had BATTLETECH expansion, and I'm forgetting something?

I think it's Surviving Mars expansion as well.

Yes, I think so. This year, we had some nice expansions, but on games that are fairly new on BATTLETECH, on Planetfall and on Prison Architect, that's new for us. So we can't expect -- we don't have the same user basis, and we can't expect them to generate the same revenues. But anyway, we did. And one thing that you brought up was the Publisher Weekend with Steam that generated a lot. In 2018, we had it in Q3. Now we had it in Q4. So that pushes up the revenues quite a lot. And even more so, perhaps, the cooperations, the new cooperations with the distributors -- or not the new cooperations, but the extended cooperations with Microsoft, we have worked from 2018. I think we started on the Xbox Game Pass. And now we have expanded it a lot and continue to do so. So that is really, really great. Operating profit came in at SEK 163 million compared to SEK 147 million last quarter 2018. So that is an 11% increase. Q4 in 2019 was helped a bit by us releasing a reserve from our Harebrained Schemes acquisition. When we acquired the company back in June 2018, we paid an upfront fixed fee and then agreed on a possible earnout depending on how the studio performs -- or actually, if the studio will generate profit above a certain threshold. And when we acquired the studio -- I mean, we made an estimation of what games were going to be launched and so on during this 5-year period. But it's very, very difficult. But we make a best estimation, and we put a reserve on as a debt. Now when we have worked with the studio, the plan have cleared. We have a more solid pipeline, and we know when the games are going to release. So therefore, we have made a new estimation as of today. And as that shows, we don't think that we're going to end up paying any more earnout. So therefore, we have taken down this debt on the balance sheet. But this, who knows it might change over time. We still have 3 years to go. So we'll see.

And as you might have heard from Mitch and the team, they are working on no less than 2 new projects. Very exciting. But nothing to say about those yet.

Yes. And as the situation often is not only with us, but with all of our industry, I think, is that we tend to overestimate how quick we can make the projects. So at the end, they tend to come a bit later. So SEK 44 million improvement in Q4 from this release of reserves, but it can be said that since the acquisition in June 2018, we have depreciated more than SEK 60 million of the acquisition price. So over time, we have taken more cost over the income statement than this positive income [ opportunity ]. So it's good to know. Then we have profit before tax comes in at SEK 157 million compared to SEK 147 million last year. So that is also an increase. Then we have normally a 22% tax rate. We have a 22% tax rate, but...

Normally, most of...

Yes. But some transactions are not taxable. So the release of the debt that I just mentioned is not taxed. So therefore, when you do the calculation, in total, we are paying less than 22% tax in Q4. So profit after tax comes in at SEK 131 million almost compared to SEK 114 million last year. So quite a solid increase. Let's move on. Now this is a chart that shows how our revenues and our 3 cost types have evolved from quarter-to-quarter. So the green very kind of Shaky one or a volatile one. The revenues and the ones of you that have been following us for some time know that our revenues fluctuate with the releases of our games and expansions. And that we could see in Q4 and Q3 and Q2 and so on. The costs are not that volatile in the same way, they tend to go up a bit with when we release games. So you can see that there are movements, especially on the yellow line, which is the direct cost. But in general, they tend to go up when we grow our business. So the yellow line, the direct cost, that is all the cost for our development. So the 6 internal development studios with the cost we have for them, the external studios we have making games for us, royalties we pay to external studios and also depreciation of the acquired brands and licenses. And so -- and what we do when we develop the games, we capitalize during the development process. And then when we release the game, we start depreciating the game. And we do that linearly over 18 months. So that means that the yellow line or the direct cost that increases when we release a game because then we start to depreciate on a new game, but then it keeps the same freight demand. So it isn't as volatile as the green one, the revenues. Marketing and administrative costs are the other ones. And there you can see marketing costs have gone up, I would say, quite a lot compared to Q4 last year.

We actually have a question on this here. I know you had PDXCON due in Q4, but selling expenses still seem to rise quite quickly. Is marketing for new releases being done for a longer time period now before Bloodlines, for example? Yes. And also the quality, as I mentioned before.

Yes. Exactly. But yes, so PDXCON is one thing. We took the full cost for that in October, so in Q4. And that doesn't -- well, it generates some revenues, of course, because it brings attention to the games, but it's a more long-term gain we have in it. But what you can see in 2019 compared to 2018 is a big difference in marketing. And that is we have started to spend quite substantial marketing on games yet to be released. So in 2019, our biggest spending on one game was on Vampire: the Masquerade, and that, we haven't seen any revenues yet. It's going to come in 2020. And we also spent on Crusader Kings III, Empire of Sin and so on. In 2018, we didn't have the same ratio. Everyone will spend everything on games released in 2018. So that's that is why the sales expenses goes up. So they were SEK 34 million in Q4 2018, and SEK 64 million in Q4 '19. So PDXCON was a special thing. But I think we can continue to see kind of high marketing spends -- spending going forward.

I like to call it investments.

Yes. Yes.

Because it's very much -- as we invest in game development, we also invest in marketing and communicating about our games.

I mean, definitely, definitely. I mean, we spend the money today, and we are going to get the fruit of it tomorrow. So it's definitely an investment. But we can't put it on the balance sheet. So -- but anyway. So administrative expenses, that is everything except selling expenses and the direct cost. So the big part here is actually tech costs. So it's everything for the back end. So multi-play functionality, launcher, CRM platform, the store platform and everything that is being developed and maintained. That is a big one. Then the offices, of course...

And that's maybe part of the increase?

Yes, yes. So there is a quite big increase, especially from Q3 to Q4. Q3, you should remember that that is -- that includes 2 summer months. And that's -- so that means actually a bit -- normally a bit less activities on the marketing side, but also less personnel cost because most of us go on vacation and then we pay salary, but we take the cost for that salary spread out throughout the year. But as you mentioned, Ebba, it went up in Q4 because we moved, especially -- so we moved. HBS, we moved -- Harebrained Schemes moved earlier this year. But in Q4, the whole publishing department in Stockholm moved, PDS, which is our biggest development studio and also Triumph in Holland moved in Q4. So it's not just the moving that happens over a month that cost, but there are a lot of other costs occurring together with them. And the biggest one is that we have been sitting with double rents for Q4. So we couldn't get out of the previous rent contract on the exact same day as we moved in here, and we couldn't sublease it for the outstanding period. So that made it a bit extra high in Q4. Also, the big, nice, very nice personnel staff conference we had in Berlin, of course.

Yes, that's something that we really want to and plan on continuing to do because it is a huge benefit to us to be able to bring everyone together, the whole company, especially now when we're so spread out geographically.

Yes. So when you have very volatile revenues but more steadily growing cost or more stable costs that means that the profits are even more volatile than revenue and that we can see here on the next slide, this just shows revenue and profit from each quarter. And the revenues are the same as on the previous screen, and you can see they are volatile. But if you look percentage-wise, you can see that the yellow line representing operating profit, that fluctuates even more, and that is the result of having a fairly fixed cost but very variable revenues. And what else does it show? Yes, you can't evaluate Paradox from just one quarter because it will look very different, depending on which quarter you'd choose. Let's move on to the next one, to see a bit more of a trend. In this chart, we have added 12 months together, so it's a rolling 12 months, and there we can see a very clear trend going in a positive direction. Both revenue, trending upwards, and so does the profits. So that is, of course, very, very good. And we have rolling 12 months, we have record revenues and also record profits. So very, very good. Let's go into the next chart that shows our cash flow. So very high cash flow from our operating activities. It's a bit special in Q3 and Q4. The ones of you that listened in to our Q3 presentation might remember this. So in September, we sold a project that was under development. So we sold it for SEK 80 million. And so that meant -- but we got the cash in Q4. So therefore, Q4 is very high, and Q3 is not that high. But even if you remove those SEK 80 million, we have a super strong cash flow in Q4 of SEK 185 million from our operating activities. And if we look at the cash flow from our investing activities also increasing, so it was the biggest quarter in terms of investments. We invested SEK 121 million in game, game development and another SEK 15 million in the new offices. So the biggest investment into new games ever. We had big investments in previous quarters like Q4 last year, but that was due to the acquisition of the Prison Architect. So let's see if we have something more. Yes, I think this is the last chart before we go into the questions. So this shows our total equity and total noncurrent assets. And I mean, the total equity, that just goes up as we have positive profitable quarters. The total noncurrent assets, previously, that has mainly been 2 things. It has been capitalized development. So it's all the investments that we have made into our games. And it's the acquired IPs. So when we have acquired in H1, there is Prison Architect, what else, World of Darkness and so on, we put it on the balance sheet. But in Q4, we have one other big item, and that is our rent agreement. So due to new accounting rules that we apply actually from the 1st of January, 2019, you put the full rental contract onto the balance sheet, both as an asset, a right-to-use asset and as a debt.

So if our contract is 7 years...

So 7 years and 6 floors, that is quite a big contractual value. So all of that goes up onto the balance sheet as an asset and as a debt.

And will it continue to be like that from now on then?

Well, it will go up every time we add, we move into the new offices. So Q4 was exceptional. But now we are not going to move in Stockholm for a while and Seattle has also...

For a long time...

Seattle has new offices, Delft has new offices. So this will come down because instead of reporting rent cost, we are reporting depreciation on this asset. So...

Okay. And it's purely from -- that's the legal requirement on how...

It's a new accounting standard. So that is the big difference. Yes, I think that is what I had planned to go through. So now we have received quite a lot of questions.

Okay. Great. We have loads of questions. Shall I read the questions? And if you have any other questions, you can always write them in the chat. And we will try to answer all of them as quickly as we can.

The first one. How do you feel the stock price of PDX has fared over the last year?

I mean, we don't comment on the share price. We focus on growing the revenues and keeping sound margins. And we think that over time, the share price will kind of be correct, and valuate us correctly. But how it fluctuates on one report or over 1 year, I mean, we are not even the experts to tell that.

No. We leave that to the market.

Yes.

Yes. All right. Thank you. When developing newly acquired studios such as Harebrained Schemes, how our new game launches handled and marketed? HBS has suggested they're working on new projects. How will those be handled compared to BATTLETECH, where Paradox stepped in last year, the Kickstarter? Well, as a general rule, whether you're a third-party studio or first-party studio, the process is quite similar. It's -- I always say, and you always say that this is -- there is a bit of magic involved in creating a game. So very often, the idea, the base idea of the game comes from the studio themselves. Sometimes, it can come from somewhere else and via a suggestion to a studio, but the studio always like fleshes it out and comes up with the actual idea. And then we have a fairly standardized process, which has to do with a committee looking at the idea deciding if it's something that fits who we are as a company, but also if we think that there's something that there's a valid business case behind it. And then you just develop over time, and there are various key gates over time. So that goes for HBS, just as any other of our studios. And in this case, I think it's been a bit of a cooperation between publishing and the studio. So -- yes, so -- but that's how it works for anyone. And then here, we got an accountant question. I will give this to you. How do you account for the revenue received from Microsoft for the inclusion of Paradox games on Xbox Game Pass? Is it a lump-sum, a monthly fee, or is it paid per user?

Yes, it's a very relevant question because this is something that is increasing. And so on the balance sheet, we account for it when we send the invoice and when we get the money. But in the income statement, then we account for -- or we recognize the revenue when we actually kind of deliver or perform. And that is -- so take Game Pass for an example, there we spread out the revenues over the different games that are included. And within each game, we distribute the revenues over the month that the game is up on the service. And it's like the similar thinking for other situations where we get fixed fees. But I think it's -- I read another question. Why are your, let's say, accounts receivable so high? And why are your prepaid revenues so high? And they are. And that also has to do with this because -- so for example, in December, we sent out a few big invoices that we didn't receive payment for until now. So that amount -- and that was for these cooperation. So therefore, we had quite a big accounts receivable. But we also had quite a big prepaid revenue because we are not recognizing the revenue until later of the year.

Okay. Get it. All right. Next question, Paradox says they -- we cut about 40% of our projects before they ever see announcement. Does this 40% vary much between PDS and other Paradox studios? I would say it doesn't really vary very much between ours internal studios. It's a bit higher for external studios. And that's -- I would say 2 reasons, partly because sometimes they are a little bit more risky in terms of what we think they will become, but also because it is a little bit harder working with studios that we haven't worked with before at times. So that would be that. But it doesn't vary too much, but that's -- yes.

And I think we also tend to make -- with the studios we have, we tend to make games that we have done before. So that also takes down the risk a bit.

Yes, yes. Next question is a little bit of a misunderstanding. There was a mention in the last interim report of a 500-person facility build being constructed in Seattle. Might this be the combined number for separate builds for HBS and Hardsuit Labs? No. The 500-person office is here in Stockholm. So HBS has also moved recently, as you said, but I think the office can hold around 100 people or so. So that's the situation there. And Hardsuit Labs, as we only own 33% of the studio, they run their own facility management, et cetera there.

And so both Stockholm Studio and the Seattle Studio has quite some room to grow.

Yes, yes, which is, of course, great for us. Do you have any plans to move the Paradox stock from First North to the main list in Stockholm? What do you say, Alex, any plans?

No, we don't have any plans. I mean, the topic comes up sometimes, but we don't have any plans on doing that.

And then one more. Are there any stock analysts who follow Paradox? I haven't been able to find one. Are you able/allowed to recommend anyone?

Yes, I think I'm allowed to. Yes, there are 6 analysts that follow us, and they're all very talented, I think. So we have 4 Swedish ones. We have Carnegie. We have ABG. We have Danske Bank and SEB. And then we have 2 international ones in Berenberg and Jefferies. So there are 6 to choose from.

And where can one find these analysts' reports? It can be a bit tricky at times.

I mean, these reports are the result of a very big work. So they tend to want to receive something for the effort. So it's very difficult to find them on the Internet or somewhere else. So you should contact any of these analysts and see if you can get them.

But sometimes, you can read, like when they come out with a new report quite often, you can read about it in financial media.

Yes, it's a very short summary...

Especially in Sweden, I would say. In international media, less so. But if you're Swedish, you can find it in Dagens Industri and things like that.

Yes.

All right. As someone who likes dividends, smiley...

Who doesn't?

Is there going to be a long-term dividend policy for the company? Or will you continue to expand the company's portfolio rather than pay dividends in the near future?

I mean, we -- I would say we have a long-term dividend policy. And so I can share this, yes. So yesterday, the Board decided that they're going to propose to the Annual Shareholders Meeting that we -- even this year, we're going to pay a dividend of SEK 1 per share. So that's SEK 105.6 million as dividends to the shareholders, and it's up to the Annual Shareholders Meeting to accept it or not. And this is the same as we have done in the last 3 years, I think. It has been the same. The Board's and the management's view is as long as we are in a growth phase, we shall spend the major part of the profits we make, reinvesting them into new games and not increasing the dividends. But at the end of the day, it's a shareholders' decision. But knowing the largest shareholders, I think they support this idea because they -- so far, they have seen very good returns on leaving the money in Paradox rather than getting more dividends. So I think, I hope they are going to continue to give us that confidence.

Agree. All right. Let's see, how has the early access version of Surviving the Aftermath performed on the Epic store in terms of sales and functionality on the platform versus your expectations? Very well, is the short answer. So I said it before, but the way we launched it, it was somewhat bare-bone version of it, which is the whole point of early access, and then we do monthly updates. We have now increased the marketing a little bit as well, which means that it's ticking along very nicely, and we're seeing increased monthly active users and sales, et cetera. So -- and it's a really, really great way for us to get feedback from players. And the studio in Tampere, they take every single feedback and they -- while they decide -- not all of it is incorporated, of course, because it depends if it fits with the game, but they do take all of it to analyze and have a look at. We have also, I think, been on the top 5 list for the Epic Games store a few times. And the top 20 more or less constantly, which feels like a good testament for an early access game here. All right. Here's a question about grand strategy games. How do you describe the next-generation of grand strategy games, will it be more focused on multi-player, for example? Does Paradox have a vision for the grand strategy genre for the upcoming few years? Well, yes, we do. This is, of course, very much our core. One thing that we have been working on, and we'll continue to work on is to make the onboarding into our games a little bit easier to grasp and understand for new players. We really -- I mean, none of us would ever want to compromise the depth and the endlessness of the games or even the difficulty. But we do want to make it easier for someone who hasn't played a game before to understand what it is you're supposed to do. And I think it's one thing when the game is new and another thing when there's multiple years of DLCs content in there as well. That also makes it a bit more difficult to explain and give vision.

We have just got a 5-minute warning from [ Jesse ].

Really?

So we will move on to the next question.

You cut me short. Okay.

With Paradox growth as a company, what new markets are being considered as strategic? And how will that impact the localization of upcoming games?

Okay. So we have lots of markets, Western Europe and the U.S. or North America has historically been our main strongholds, but a lot of other areas are growing. A couple of countries in South America. Turkey is growing quite a bit. The Eastern sphere, including China. So all of those, we are working with. And that also means that localization becomes more important, both in terms of how we communicate and market, but also -- and when we build the games. China specifically is very interesting for us because it is growing more than any other country, really. But it's -- so we're -- it would be quite cool to make a game that's more targeted towards the Chinese market. We're not there yet, but I think it would be interesting for sure. What's your vision for developing the World of Darkness brand beyond the already announced projects? Well, the World of Darkness, we're building this as a global brand across all sorts of media. So we're doing a lot of table-top things. We're doing lots of games, as you know, and we're also looking at other possibilities. We also have a couple of potential things coming on sub IPs that are included in this world, but that you haven't seen so much of yet. So I'm hoping we can talk about more exciting things there soon to come. And here, we have some more questions.

Please, one more financial question.

Yes. Could you please give more light on the financial expenses, minus SEK 7.298 million, what's that?

Yes. We haven't had that much before. So we had SEK 7.3 million as a financial expense, and that is down to 2 things. One is the new accounting standard for rental agreements. So instead of accounting it as a rental cost, we account it as part of depreciation, but part is an interest. A bit funny, but that's how it is. And the other is also a bit particular and a one-off. And that is when we put a reserve on the balance sheet for an upcoming debt, which we had for the Harebrained Schemes' earnout, you need to -- so we estimated that we're going to pay something back in 2023. And then we discount it to see what the present value is today. And that is lower because you apply a discounting interest. And every year, you need to reevaluate that. And the debt goes up because there is one year less to discount. So therefore, it's a bit fictive. But it generates a financial expense. So that's why we saw that SEK 7.3 million in this quarter.

Okay. That was such a long answer, when we only have 5 minutes. Okay. Will the DLCs subscription model be something that's planned to spread across other games? Yes, probably, if the EUIV test turns out to be good, but we'll see. I think in general, subscription seems to be growing. So we have to figure out ways for us that works -- to work with it. We don't plan to abandon our DLC model either because we know a lot of people really like it. But it's a good version for people who prefer it another way basically. Can you remind us of our capital allocation priorities as you think about the next 12 months from most to least attractive uses of capital? Invest in games, I would say, yes, that's number one. #1, 2 and 3. Invest in games, and then, of course, invest in our staff and make sure that people who work here are happy and...

Yes. But I often get the question how do you prioritize between making more DLCs and investing in completely new games, and that is a very important balance that we always evaluate because making DLCs tend to be perhaps more profitable short term, but we also want -- it's very important for us to increase our portfolio of brands and games that we want to have, recurring playing and revenues on for many, many years.

So we do one final question?

Sure.

Yes. I think this one is relevant. So you talked about the write-down of the earnout. Does that mean that we don't -- and at the same time, the expansion from BATTLETECH was very successful? The last one. Does this mean that there's something that we're not happy with around HBS or...

No, no. No, it doesn't mean that. So this is -- the initial estimation we did when we acquired the studio back in June 2018 was based on an idea of which games that we're going to make over the next 5 years.

And it's almost impossible to know that far.

It's impossible. And now we know what games are we going to do. We are very excited about those games, and we think they are going to be...

And it's fair to say that the guys in Seattle and girls in Seattle are also very excited about this.

Yes, yes. But I think as we have said before, games tend to take a bit longer to develop and release than you plan from the beginning. That's not only for us, it's for the whole industry.

Yes, yes, yes. All right.

Is that it?

Yes, I think so, for this time. Thank you very much, guys.

Thank you.

Thanks for tuning in. We will be back...

Yes, May 12 for a new Stream.

May 12. That will be Q1 2020 that we will report then.

Yes, very exciting.

Until then, thank you. Bye.

See you. Bye.