Paradox Interactive AB (publ) ($PDX)

Hello, everyone, and welcome to the Quarter 1 Interim Report Stream for Paradox Interactive. With me, Fred and

I'm Alex Bricca, the CFO.

Perfect. So as always, we start by going through all the projects that we released or the releases for Q1. And then we go over to the numbers, which Alex will present to you, and then we'll do the Q&A. And we even got our first batch of AI-generated questions for this stream. So we're super happy to see that we're in the AI age finally. So that's me, and we move on. It's a balanced, I must say, a bit boring first quarter with very few releases. Worth mentioning here, like Alex will probably mention as well, is that we have a small, small growth on revenue. if we take foreign exchange into account because we see a bit of a weaker dollar compared to the same period last year. But overall, stable revenue, stable operating margin and stable cash flow. So as we always say, I would say, in these streams, we still are in control of our future, and we can do the investments we need to make. And if opportunities should arise, we're well prepared to take care of those as well. The big thing on the gaming front is the sentiment change of Cities: Skylines II, which is now mostly positive in the last 30 days on steam, meaning more than 70% positive reviews, and it impacts sales a bit in a good way. So we're super happy with that. So our studio in Tampere, Iceflake has made a great job of gathering the community and releasing a string of patches that has improved the quality of life on the product. Of course, there's still a lot of work to be done, and we look forward to a long life of this product with a lot of good products being released as well. And as I mentioned, it is a bit of a calm release quarter and gearing up for the year to come. Last year, we released in Q4 released DLCs for all our major products. And in Q1, it's -- the only big DLC we had was for Age of Wonders 4, which is a good game, good stable game in community, but one of our smaller franchises. So we have a lot of stuff lined up later this year. So like I said, Rise from Ruin for Age of Wonders 4 was the only big DLC, then we did some releases for Hearts of Iron IV for Cities: Skylines I and -- yes, that's it. Cities: Skylines II, obviously, Office Evolution and City Stations. So overall, calm and controlled. I posted this on LinkedIn a couple of months ago, and it was picked up by a few people, but I think it's worth mentioning, so you can see how we see development from the inside. So some quarters will be better, some will be not so good because it depends on what we released and how we released and what cadence we have basically in the company. But if you want to go back 10 years in time, roughly from when we listed the company on Nasdaq First North in 2016, this is the development of daily peak users for all our games combined. So we have more or less quadrupled the number of gamers that we have. And it shows in the monthly active users, which also happens to be the most important metric for us to see the health of the company, where does Paradox Interactive stand today because -- if you have a lot of monthly active users, it means that you also can sell a lot of the products that we make, like the DLCs and the content creator packs and whatnot. So keeping a healthy growth and pace of concurrent users is absolutely key to our business. And of course, we look forward to adding more games to the already seven games that we have in our portfolio that we call live games that we constantly update and release new DLCs and all sorts of downloadable content for, I could say. So we build games that players value for a long period of time as well. Stellaris and Hearts of Iron IV both turned 10 this year in May and June. So you can easily see the longevity on our franchises once we have a hit. And of course, we have the ambition to grow. So we're kind of taking aim here or preparing next sprint in the life of Paradox. So those are the seven franchises that we currently support. We have a couple of smaller ones like Across the Obelisk and Surviving Mars that are more in the experimental stages, but these are the seven key franchises. And here, we focus on fine-tuning the player experience and making the player experience better while building our strategic moat for each game. Also, we're going to focus more on improving the player services around the games, if you want to call it Meta layer or Meta game or however you put it. Well we used to say seven games in the pipeline is now eight, which means that we have a healthy amount of projects as well, and we hope to reveal at least some of them this side of the year. If some maybe even sooner than that, we'll see. But we also have the capacity to fund and to buy our way into new projects as well. We have money in the bank, and there are also a lot of projects out there that is currently looking for funding. They might have gone halfway through or 75% through on the project and they might need funding. So a partner like Paradox might come in handy there as well. But our focus remains on strategy and management games. So that's where our sort of our key efforts will still be focused. So Alex, I'll let you go to -- go through the numbers.

Thank you, Fred. Right. So you mentioned it a bit. Revenues came in at SEK 431 million in Q1 this year compared to SEK 464 million in the same quarter last year. So that's a 7% decrease. As you know, if you follow Paradox, you know that we have two things that drives our revenue from quarter-to-quarter. It's what we release in the quarter and currency impact. Let's start with currency impact since you touched upon it. I think the dollar is down 14% if you compare Q1 this year compared to Q1 of 2025. euro a bit less 5%, pound 8, Chinese yuan, 10. In average, it's about 10%.

Right.

So take away, take 10%, that's SEK 40 million to SEK 50 million from last year's revenue. So that means that we have grown 2 percentages, 3 percentages organically this year.

Not spectacular, but still...

No. And it doesn't make the most sense to do these comparisons because we don't have a stable release pattern from quarter-to-quarter.

Right.

So the next thing is, therefore, to look what have we released. Q1 tends to be slow. and it's no different this year. As you mentioned, Fred, we released on all our big franchises in Q4. So obviously, the following quarter is slow in terms of releases. It was Age of Wonders 4 that made the only big expansion release. So where is it down? We do less revenues on HOI, Hearts of Iron and Crusader Kings, this year compared to last year because last year, we had the release on Hearts of Iron and one on Crusader Kings. So therefore, we're a bit down this year. Stellaris didn't have a release last year, but they released the expansion pass in Q1. So that -- so when we release expansion passes, it generates a lot of sales, but we don't put that on to the -- as revenue. We don't recognize it as revenue until we actually release what is in expansion pass.

Right.

But -- even so, when we release an expansion pass, it generates attention to the game because we do marketing. So other parts of the game like the base game and other DLCs are being acquired. So that happened in Q1 last year when we released the Stellaris expansion pass. Now that this year, it comes in Q2 instead, I think.

Right.

So we didn't have any big items on the balance sheet that we could count in for Q1 this year.

Right.

Well, we didn't release any -- we didn't announce or release an expansion pass on Stellaris.

All right.

That will come later this year. What is up on the other hand, is Age of Wonders because we released an expansion there. Bloodlines 2, of course, we didn't have that line last year. This year, we had it. And I think worth mentioning, even though it's flat fairly much is Cities because -- last year, when we released the content creator packs and radio stations on Cities II, that was part of the premium edition.

All right.

So -- and when we release premium editions with the original base game on our most successful titles, we sell a big chunk of premium editions. So a lot of the money sits on the balance sheet. And when we release the content, we release and recognize revenue. And that happened in Q1 last year.

Right.

So therefore, Q1 for cities last year is a very tough comparison due to this. But still, we managed to make very similar revenues this year. And that has to do with the fact, as you mentioned, Iceflake has been able to turn around the sentiment on the product. So the sales levels now is -- it looks very good. So that, I think, is one of the highlights of the quarter. Yes. Top revenue contributors, it's the same as always. It's our big seven franchises, as you mentioned, plus Bloodlines this quarter. I'm afraid it's going to have a diminishing impact on the top line quarter-by-quarter, but Q4 has had a big impact, of course, still a significant impact in Q1. Let's see what happens in Q2. Operating profit, SEK 101 million compared to SEK 147 million. So it's down SEK 46 million compared to last year. It's FX on top line and it's amortizations. We have higher amortizations this year. and we will come back to that, but that has to do with the fact that we released big games in Q4, Bloodlines [indiscernible] V, but also Surviving Mars. And with our digressive amortization model, we take a lot of cost in the earlier periods, most in the first quarter like Q4, but a significant amount also in the second quarter like Q1. So that pushes down profit. It also -- if we move on, so profit after financial items, SEK 106 million compared to SEK 154 million last year. Profit after tax, SEK 86 million compared to SEK 124 million. Profit margin, 25% against 33% of Q1 last year. It's the same there. It's FX and it's the amortization of the base games we released back in Q4 that holds it down temporarily, I would say, in Q1. Equity to asset ratio, very solid company, 80%. It's slightly down since a year back, and that has to do with the fact that we renewed the office lease agreement here in Stockholm. So we put that on the balance sheet as an asset and as a debt. So therefore, it decreases a bit. Average number of employees in the quarter, 681 compared to 596 1 year ago. So it's a massive increase. A big chunk of that is Haemimont that has been added. But we also increased -- Haemimont has continued to grow because they are...

They have virtual projects.

They have projects that are moving into later phases, and that means that we add on people to the team.

And also Iceflake took over City Skylines.

Iceflake took over City Skylines too. That's right. And we see some smaller increases here and there in -- especially in the development studios.

Right.

Let's move on to the next slide.

Right. It's my job, right?

So this chart shows -- it's a standard chart as we have had before, revenue and our three main costs. Revenue we have talked about, but what the chart shows here is that it fluctuates quite a lot between the quarters with the releases. The three main costs, cost of goods sold, selling expenses and administrative expenses, they also fluctuate with the releases, especially selling expenses and COGS. And you can see that in Q4, proportionally very big bumps. And now in Q1, it's back to much more normal levels. Cost of goods sold, SEK 264 million this year in Q1 compared to SEK 221 million. So it's up -- we're going to talk -- we're going to deep dive a bit on that on the next slide. So let's take selling expenses there. We are down from SEK 48 million last year to SEK 41 million this year, and that has to do with -- we had more marketing on EU 5 last year. We started to take costs for the launch already in Q1. And we had slightly more releases last year. So we spent more marketing on Hearts of Iron and Crusader Kings. Administrative expenses normally stays very flat. This time, it's up SEK 6 million almost, and that is one-off items, where the biggest one, which represents a little more than 50% of those almost SEK 6 million has to do with the list change. So we can touch a bit more on that. But we are having fees for applying for the list change to NASDAQ and also advisers to help us get prepared for this change.

Yes.

So that is something that is temporary and will go away as soon as we have completed the list change. So let's go to the next slide.

This is new, right?

This is new. Yes. So part of this has always been in the quarterly report number-wise. And part of it, we have talked about in the stream. So now let's also add a slide. So these are the seven kind of subcomponents of the cost of goods sold. So in total, SEK 264 million, if you add everything together for Q1 this year compared to SEK 221 million last year. And the biggest item is the one you see on the left, that's amortization of capitalized development costs. It's a bit difficult to read there, but it's SEK 120 million Q1 this year compared to SEK 72 million last year. So that's a SEK 48 million difference. And if you take the three games that we released in Q4, Bloodlines 2, [ Europa Universalis V ] and Surviving Mars relaunch, the amortizations on those three games alone in Q1 explains this SEK 48 million difference and some more. So that means that the remaining games have slightly less amortization compared to Q1 of last year. So -- and this is also a temporary effect that will, of course, go down, we will see impacts already in Q2 where the majority of the development costs for these games have been amortized. Write-downs, 0 in Q1 this year and 0 Q1 last year. Then we have amortizations of licenses, trademarks and similar rights. So this is amortizations of acquired businesses and assets. So this year, we have taken SEK 8 million at cost. And last year, we took SEK 16 million. So this is acquisitions -- so this year, it's the acquisition of Haemimont and the acquisition of the games Stranded: Alien Dawn, both we made like 1 year ago.

Yes.

And why does it go down? Well, because in 2020, we acquired Playrion. And then we amortize these acquisition costs for Playrion, we did it linearly over 5 years. So that meant last year, it was fully amortized, so then we don't have any amortization left. We do this quite, I think, prudent, not to say aggressively. So we like to allocate when we acquire a company like Haemimont we like to attribute the acquisition price to assets that we can amortize over time. So if you read the notes from the acquisition, I think we spent roughly EUR 10 million as a fixed amount for acquiring Haemimont, and that we are amortizing in different ways. And then we have roughly SEK 10 million or SEK 11 million more in earn-out that we're also taking. I think in 2025, we took SEK 32 million as costs.

Right.

So that pushes down the profit and loss temporarily because we think the value of Haemimont, for example, is not decreasing. It's probably going upwards if we're doing the right things together.

Yes, for sure.

But as we recognize it, we take it as a cost over the initial years. So it's a very prudent way to do it. Let's move on. Non-capitalized development costs. So this is SEK 72 million this year compared to SEK 75 million last year. So it's not a big change. So this is development costs that we have for projects that we don't capitalize.

So that can [indiscernible] stages, for example, prototypes.

Yes. So it can be either prototyping for all projects, like even the low-risk projects that we do in-house, the prototyping stages, we don't capitalize. But for the more high-risk projects, everything that we have released under ARC, there we wait even further until we start capitalizing.

So now we're comparing this to last year's Q1, and it's not much different. But if we would compare this to 3 years, 4 years back, it has gone up quite a lot because then we used to capitalize this instead. So this is another, I think, prudent way to handle development costs.

So let's move on to the -- the sixth one, development support, operations and maintenance of game. So this is tech costs that we have in publishing. So it's the development of more generic tech. So it's not game development. So this is development and maintenance of the launch share, the mods tools, the forums, everything regarding that.

Everything that is not the game but still tech related.

Yes. And that also stayed fairly flat. So let's see, it was SEK 24 million this Q1 compared to SEK 22 million last Q1. Finally, royalties and revenue-based earn-outs, SEK 34 million in Q1 this year compared to SEK 29 million in Q1 last year. It stays -- it has, over the last year, stayed at this level more or less. So it's mainly royalties on Cities and earn-out on the Triumph acquisition. So it means it's based on revenues from Age of Wonders 4. Now -- and it goes up from Q1 last year because Age of Wonders 4 released an expansion this Q1, which generated more revenues and therefore, generated more royalties. Now that agreement ends today. So April is the last month that we pay this earn-out. So therefore, royalties and -- well, royalties will stay the same, but the revenue-based earn-out that is included here will drop in Q2 compared to Q1. Right. Next one.

Yes. That's it about COGS.

All right. So then we have -- if you look in the P&L, we have 4 more items. We have other income and other expenses to start with. So if you add those together, it's a positive impact of SEK 6 million this Q1 -- last year's Q1, it's a negative net impact of SEK 23 million. And this is mainly currency movements within the quarter, and it's especially dollar movements within the quarter. And if you might remember, last year's Q1, the dollar went down significantly. And that's why we had a negative impact during the quarter.

But it was still higher than it is now, right?

Yes.

Yes.

So this only explains dollar -- it mainly explains dollar in the quarter. But it's a good thing you're pointing out. If we compare Q1 in total this year compared to Q1 in total last year, then the FX movements have not been in our favor. So in total, 10% on top line down. is very good to point out. Then we have the other two bars to the right, financial income and financial expenses. So that is -- it goes from net SEK 7 million to SEK 5 million. It's basically the interest -- the positive interest rate we have on our bank accounts. It has come down because the interest level has come down.

So good news for homeowners, not so good news for our money in the bank, right?

Exactly, exactly. All right.

And financial expenses is self-explanatory, I guess. So we'll move on to the next one.

Yes. Let's move on. Right. So this chart shows rolling 12 months to show you a bit more trend. bar shows revenue. The yellow line shows profit or operating profit. What you can see, if you look at the revenue trend, it has -- there are some ups and downs, but the trend is very clear. It's very similar to the CCU chart you showed, Fred, earlier in the presentation. It is steadily going up back from the first North listing in 2016 up until we are today. So that's a very healthy trend.

Yes, it's 4x both on the CCU and on the revenue, more or less. So it follows the same sort of which shows us that the health of the company can be measured pretty much by the monthly active users or the [ PL ]like the combined CCU curve that we see. Yes. Good point.

And profit, on the other hand, that's much more volatile with short releases, good releases just as the revenue has, but also with write-downs of projects that haven't gone very well. And as you can see, it happened in Q3 2021 when we took a big cleanup in the development pipeline. And then we have had three releases, The Lamplighters League, Life by You and latest Bloodlines 2 that has pushed down profitability.

But now we have a very clean balance sheet, I would say...

That's right.

It's very focused titles with -- so we -- while we can't promise anything, we think it's going to look a bit better from now on.

Yes. So I think just as you said, in our balance sheet now, we don't have any high -- big items on high-risk projects anymore. So -- and that's a great foundation to start building a nice growth on yellow line as well.

For sure. Okay. Let's move on.

Let's move on.

That's the Q&A.

I think you clicked this...

I double click, yes.

I don't want to miss this.

It's a cash flow.

Cash flow. Green bars going upwards is cash flow from operating activities. There, we made SEK 309 million in Q1 compared to SEK 266 million Q1 of last year.

Not bad.

Not bad at all. And you shouldn't look at single quarters because there are movements between the quarters. But look at Q4 as well last year, even stronger. So the cash flow in the company, the last two quarters have been truly amazing. The yellow bar shows here, if you have looked at our presentations before, it's worth pointing out, we made a little change here. Now the yellow bar shows investments in capital development. Previously, we also had investments, for example, when we bought bonds and when we bought companies, I think this shows better how the underlying company is performing cash-wise. So there, we had very similar SEK 121 million in investments in capitalized development this year compared to SEK 120 million last year. So very stable.

Excellent.

That, I think, enabled us the questions.

For Q&A, so we've had some questions that popped in. And as I mentioned, -- there might be some AI generated.

Questions as well.

Because if you take our report and put it into Claude or whatever AI solution you have and say, ask a couple of questions on this, it will pop out questions for sure.

But don't do that, try to come up with your own questions. Here, we have a good one. How do -- it's Fred. How do you aim to replenish your pipeline with new projects?

That's a very good question. There are several different ways to do this, obviously. The first one is in-house development and working with prototyping and seeing what we potentially can do within the areas that we're active. Another one is, obviously, I mentioned this in the beginning, third-party projects. There are a lot of developers and publishers out there who have great projects and at the moment, need a good partner that has strong finances and the publishing pipeline. And that's where Paradox comes in handy. So we're actively scouting for new opportunities, and we do have space for more projects in the pipeline, not a whole bunch because we want to do a great job for every project, but we might fit 1 or 2 more projects in there. We'll see if we can find something. We're not going to pick up just anything, but something that fits with our portfolio, with our business model, with our way of working pretty much. Right. Alex, could you please quantify the impact of FX on revenue development in Q1 '26 versus Q1 '25?

Yes. I think we did, but it's worth repeating. So roughly, it's a 10% headwind on the revenue. So revenues are held back some SEK 40 million to SEK 50 million due to the increased value of the SEK compared to dollar.

But does that go directly all the way down to the bottom line as well, right?

Well, that part goes directly. But then, of course, we have some costs in euros for our European studios. We have some costs in dollars as well. So we have a small natural hedge, but we have some 97%, 98% of our revenues in foreign currency. Cost-wise, it's roughly 50%. Question to you, Fred. Can you give some more color on the internal work with Skylines II and your expectations on new content releases for the game throughout the year?

That is a great question because I was -- I came home from Tampere yesterday. I visited the studio for 2 days. It was very enlighting for me. I haven't been there before, and I hadn't thus seen the new office where Cities: Skylines II is being developed. And they had a flying start with Cities II, you could say, releasing a string of patches that has had turned the sentiment on the game. So we're in a much better place now than we were in the beginning of the year. You can see that on the player sentiment. You can see that in the number of players, you can see that on the revenue. So it's positive across the board. Obviously, bringing a new team and taking them up to speed where we want to be, it has taken some time, but we're going to start releasing new content. Hopefully, we're going to announce something soon, but we can't give any direct promises on what to do. But we hope to very soon be up to the speed where we want to be and the release cadence that we want to have for the game. But the most important thing is that the game is in good shape once we start releasing this. So we're not running into more problems, especially on the performance side. So Cities II is getting there slowly but surely, and it has -- shows all the right signs. That's what I can say in summary.

And I can add without saying the numbers, but the revenues in Q1, if you add the franchise together, Cities I, Cities II, console part of Cities I, UGC, it did great revenues.

Great. So this is for both of us. Do you expect a change in the level of noncapitalized dev costs versus last year? And would AI allow you to do more with less, thus resulting in less development costs? So that's a... It's a double question, right?

Yes. So let me take the first one. Do you expect a change in the level of noncapitalized development versus last year? That is what we showed, so noncapitalized development costs. It's very little change compared to last year. It's a big change if you go 2 years, 3 years, 4 years back.

Where we capitalized almost everything.

Yes. So it's fairly flat. And yes, I think let's answer that question.

Yes. And touching on the AI side, I could do that probably. I mean we think that, first of all, AI is going to help us release more things quicker and better with higher quality. And our aim with using AI tools is, first and foremost, to increase the cadence and increase the production quality of what we're doing. And we're slowly getting there. So Alex, what's the time line for the move to the NASDAQ Stockholm main market? Would you be open to buybacks in the near term, '26, '27?

Right. So when we disclosed this, we said that we will make the move during this year, so some point during 2026. We sent in the application to NASDAQ at the end of February, and that means that it can't happen earlier than 3 months after that. So the earliest theoretically possible time it can happen is at the very beginning of June. And the latest according to our targets in December. So sometime between June and December. And we do everything we can to make it happen as early as possible.

December 2026.

Slightly earlier, I hope. And there was a second question, would you be open to buybacks in the near term? Well, so in the notice to the Annual Shareholders' Meeting that we have on the 12th of May, we have asked the shareholders to give the Board a mandate to make share buybacks during the upcoming 12 months. But that's the Board decision...

Yes. So whether the Board will use that or not, will have to be strategized by the Board over the next 12 months. But the possibility is there once we have completed the list change and once the Annual Shareholders' Meeting have given the Board a mandate.

Fred, Europa Universalis V reviews stood at approximately 80% shortly after launch, but have come down to below 50%. What went wrong in your opinion? And what will PDX do to improve the game and build back positive momentum?

First of all, it doesn't stand at 50%. It stands at around 74%, I think, of the total reviews, but the recent ones are 47%, 48% something just to correct. And what we did with EU 5 at Paradox Tinto, the development studio was a lot of rapid changes after the games release, and it had different impacts on the game and the reactions from the community was to a certain extent, negative. So we're working now to balance and work with the issues that people have with the game. And it's going at a really good pace as well. And they're improving the game day by day. As you know, we work with very complex games. So it -- sometimes it takes some time, but we think we're really on the right path of fixing all the things we need to fix. And right now, we're looking forward to a big update and the new DLC Rise of the Phoenix that is just around the corner here in the beginning of May. So you have a lot to look forward to all of the EU5 [indiscernible]. So Alex, what drives the strong sales in console in Q1? Is this a one-off or a trend shift? Are there plans to bring additional existing PC franchises to console platform as part of the pipeline strategy?

It's a bit of both. So if you look at one of the notes in the report, I think we made SEK 49 million of revenues in Q1 last year from console, SEK 49 million. And this year's Q1, we do SEK 71 million. So it's an increase. And the main explanation is Bloodlines 2.

All right.

So Bloodlines 2 had, of course, 0 last year, and it has a significant share of its revenues coming from console as we expected. But also Age of Wonders 4 released this quarter and City Skylines I, where we came out with a DLC, both on PC and console for the first time for some while. So I think the part of this -- the main part of this increase that is attributable to Bloodlines 2, that will decrease over the next quarter. But where we have an upside is, of course, Cities 2 because out of our core games, it's Cities Skylines I that has had most of its sales generated from console. And there we haven't yet -- we have yet to come out with the console version to Cities Skylines II. But apart from that, it's a decision that every game team or we make game by game. Some games are -- we think are the right thing to see shift from the start. Some games are not. Some games there we can port to a console version later on and some games are better just being a PC version. So it depends on the player base and the game.

Yes.

Fred and Alex, let's say, you increased pipeline by 1 from 7 to 8 in the quarter. Yes. Is that related to Note 4, all right, subsequent events? Is this in line with the strategy for publishing mentioned in the CEO comment? I can answer on the formalities. Yes, in Note 4, we write that after the quarter, we have entered into a publishing partner agreement, and that is also why we have increased the games in pipeline from 7 to 8 because we've added a publishing game.

And it's a game -- we can't speak too much about that right now. We're going to come out with more information soon. But it's a game that fits our portfolio really well. That's all we can say at this point. I think we'll get back to you with more information. We wished we could have said more.

Yes.

To what extent is Paradox currently using AI in its development process? And how fast are you to adapt? Do you expect AI to disproportionately benefit smaller teams by improving efficiency compared to larger publishers? And more generally, how much of a threat do you see AI [ policing ] into the existing games industry? Well, you talked a bit about it.

I spoke a bit about AI. So we are currently rolling out AI into most parts of the company. We are being very mindful about copyright infringements and other things when it comes on the art and music side. So we're a bit caution -- taking a bit more caution there. On the programming side, I think most programmers are using some sort of AI tool to help them be more efficient and program faster. And then we review code, obviously, manually still to make sure that we're not bloating the code or our own engine. I think AI will benefit smaller teams, yes, to a larger extent than the larger teams. Maybe I'm biased because our teams are a bit smaller than the industry average. But I think you will get a lot more done on your small team now than you could 2 years, 3 years, 4 years ago. And how much of a threat? I mean, last year, 20,000 games were released on Steam. So there's for a long time, been a lot of games released. It's easier and easier to release a game for every year because the number of things you can -- the number of tools you can use to make a game just increases for every year. Now AI is a jump forward on that sort of trend line, but it's not going to revolutionize anything for us. I think in the short to medium term, this is a strategic strength for us because it's going to increase our moat, it's going to increase our release cadence. It's hopefully going to increase the quality of what we release as well. So I see -- at least for Paradox, I see AI in the short to medium term as a big strategic benefit rather than a strategic threat. But it's always hard to see where the tech trend is going in the long term, right? So -- but for the industry as a whole, sure, more games are going to be released. And I think also important to remember is that every technology shift that has happened in the games industry, be it the games engine or old like graphic improvements in the 1990s and even before that, has always benefited the gamer most of all. So they get better games at a lower cost pretty much. So quality is going to increase.

It's good.

Yes. It sounds like you paradise pretty much. Maybe it's not, but still a step in the right direction. Perhaps one more question for you, Fred. Players in China and Western markets often want pretty different things from your games. How are you handling that balance, both in how you design games and how you sell them?

We see -- our view of this is that we have gamers both in the West and in China or in Asia. And we see that China has been growing significantly for us in the past 6 years, 7 years. So we don't see the design component as critical to address a certain market. It's more about how you charge for the games and the price levels and stuff like that. There are differences in what type of content people prefer in different markets in our historical games. It has to do with for example, what countries we're actually touching upon. I mean the All Under Haven expansion for Crusader Kings III is focused on Asia and China, Japan, Korean Peninsula. So of course, it's going to be more attractive to Asian gamers. But all in all, I mean, the marketing differs between the different areas as well, not as much as I think you would expect, but it's still -- you have to adapt to each market, especially when it comes to working with influencers and working with how to get into the market and also explain the game to the different markets. But all in all, I would say that our games are not -- saying that they are universal, it sounds a bit bombastic, but that's the way I would put it. So Alex, is it possible to quantify how much the cost base could come down from Q2 given lower royalty fees from Age of Wonders 4 in Q2, '26? What was the nonrecurring item cost in administrative expenses and how large? And what CapEx run rate should we expect for this year? -- reasonable that it could come down as Bloodline 2 and EU V is out? Or do you have new projects filling the gaps? That's a lot of question.

How much time do we have?

We have 19 more minutes.

All right. I think we can do them fairly quick. So the first one, how much could the cost base come down in Q2 or from Q2 in terms of royalty fees? So there you see it, we had like SEK 30 million in total royalties and revenue-based earnouts. I think Q2 will tell you pretty much because we will have 1 month in that quarter where we still have the earnout and 2 months without it. So I'm not going to forego that and tell you how much of this.

You will see in the next report.

Yes. You will probably be able to do a fairly quick estimation going forward based on the next report.

Nonrecurring item cost...

Administrative expenses. Yes. So admin expenses went up from SEK 25 million to SEK 31 million, and we said it's mostly nonrecurring, so it's one-offs. And the slight majority of that increase has to do with this change, yes. So it's application fees to NASDAQ. It's cost for advisers that are helping us to prepare the company. Yes. So that's what it is. And it will come down, of course, once the project is done. More questions in the same question. What CapEx run rate should we expect for this year? Reasonable that it could come down as [indiscernible] is out? Or do you have new projects filling the gaps here? So there you see it. I think -- I know we said when we presented Q4, we said that the investment in Cap that you saw in Q4 was probably at the good base level. That's probably where we will be going forward. So now we have come down slightly more from Q4 to Q1. So maybe something between Q4 and Q1 is a good estimate of where we will be in Q3 and Q4. Sure, EU 4 is out, but...

EU 5.

Sorry... 5 is also out. But we still have investments to make in DLCs for that game. We are not decreasing the development on the game. And then we have the other 8 games in the pipeline where we increase on most as the projects are proceeding, we tend to increase. So -- but that's normal. So I think Q4, Q1 are good levels, maybe closer to Q4 and Q1, if I'm going to guess.

And that was the final question for the day. We want to thank you very much for watching this Q1 live stream with me Fred and Alex. And we hope to see you next time when we present the Q2 report.

Q2 report.

And that will be at the beginning of August.

Beginning of August. Yes.

Don't miss it. It will be a lot of fun.

Thank you for your time.

See you next time. Cheers.

Yes. Bye-bye.