Remedy Entertainment Oyj (REMEDY) Earnings Call Transcript & Summary

Okay. I think it's 2:00. So hello, everyone, and thank you for joining Remedy Entertainment, Webinar. My name is Elina Petajajarvi and I am a member of the Remedy Investor Relations team. Today, we will go through Remedy's Half Year Report for the First Half of 2022. With me are Tero Virtala, Remedy CEO; and Terhi Kauppi, Remedy CFO. We will have a Q&A session after the presentation.

Right. Thank you, Elina. So good afternoon, also on my behalf, as said, my name is Tero Virtala, I'm the CEO of Remedy. Let's have a look at the highlights of the second quarter of '22. Our revenue in the second quarter was at the previous year's level, EUR 9.4 million. EBITDA decreased to minus EUR 1.8 million. Operating profit being minus EUR 2.4 million. Terhi, our CFO, will soon talk more on the financial side. As peak events in the second quarter, we announced that we will remake the iconic Max Payne 1&2 with Rockstar Games. Max Payne. It's again created by Remedy and the game that originally defined who we are. It goes without saying that working again on Max Payne is highly motivating to our team. And the game also fits very well with many of our strengths in both building characters, stories and action gameplay. Also, the business parameters in the deal are in order. We have a highly respected and well-known partner to work with us, Rockstar, and the game has good commercial potential with well-managed risks. Additionally, this project allows us to both utilize our existing production and technology competencies and to continue building them further. So there are clear synergies between Max Payne 1&2 Remake and our other projects in development. We also, in second quarter, on May moved into transferred from First North Growth market -- marketplace to the official list of Nasdaq Helsinki. Then, when we look at our project portfolio, it's important to bear in mind the background. Building a well-functioning multi-project model has been one of the key strategic guidelines that we have followed during the past 5 years' time. This multi-project model is typically hard for any AAA games to year to build. At Remedy, we have taken our time to build it the right way, basically step by step as we see the benefits clear for our people, gains and also the growth opportunities that lie ahead. This will also always be approved. This type of model is never fully ready. But at the moment, we have many of the key elements of our multi-project model in place, and we see it already working at Remedy also by looking at our current project portfolio. We have now 5 big games in development, all with strong partners. Partners who are the right ones for these exact games and that we have chosen for these games and teams, Control with 505 Games, Alan Wake with Epic Games, Vanguard with Tencent, Max Payne with Rockstar. Max Payne out of these games is a partner-owned brand, 3 other brands are owned by Remedy. These gains, all of them, they build on our strengths of well building characters, stories and action. In a way that is tried for the gaming question [ and beam ]. Alan Wake and Max Payne have the biggest potential as single-player experiences. At the same time, we are taking planned steps with Condor and Vanguard to expand to long engaging multiplayer service-based games. We have definitely come a long way are in a strong position for the future. At the moment, it's no longer about building this operational model, crafting new game ideas, securing financing for those seeking who are the right partners. Our focus is now on executing the existing game -- the game road map with the partners we have and with partners who trust in us and in the games we have in development. We are now creating the high-quality games to have steady flow of successful game launches starting from next year '23. And what's highly important is that our capability to develop these games is stronger than ever. What I mean when I say that we are stronger than ever, the creative and development capabilities are in question. I already said that our 5 games, we have strong partners for all of them. These are the right partners for these exact games. These partners, we have options for all these games who would be the best partners [ who solve ] these ones. With the business model that is good for the game, good for us and good for our partners. And in addition, with the Capital Games we did last year, our cash position is really strong and supports us in making this roadmap happen. Now what has developed a lot is that at the center of our production model, or of course, the game development teams, led by experienced and strong game leaders of the teams, Executive Producer, Game Director, Art Director, Technical Director, Development Director, Product Director. Having won this type of strong leadership team is often a challenge for many studios. Having it now built for 4 game fronts that we have has taken time, but it's now done. We have also grown to 350 world-class talents and the bar has been kept high all the time, approximately 1% to 2% of the game industry professionals who apply to Remedy gets accepted. Our recruitment works well and keeps on improving all the time. That's clearly paying off. Just as an example, in the first half of this year, the [ onboarded ] more people during the whole year of '21. Overall, in addition, our team's ability is to understand earlier and in [ quite ] detail, what game they are exactly aiming to make, how they plan their work in complex projects on what part of the game to focus exactly and when, how to develop the gain at that point of time, all this is in better shape than it has ever been at Remedy. Of course, with ambitious and complex game projects, the requirement to improve never ends, but the state at which where we have already gotten is good, and we keep on improving. We have also invested systematically into having the right capabilities to work with external partners, outsource some work in our game project on that wider external development in some other areas to co-development in selected projects. All this gives us access to additional specialized development skills and also scalability to have more developers faster in our projects when we need them. This is where we have all the time aimed for. Now we have these capabilities to do it. In the first half of this year, we were able to do more external development than ever before in a well-planned and very managed manner. Also, the Northlight technology and tools, it's currently supporting 4 of our 5 projects and the Northlight team, the underlying technology won't use, the development tools, they continue to advance all the time. We have production support function in operation that every day help our [ KMGs ], be it, talent allocation, production planning support or specialized craft support. Overall, we have systematically developed in many ways on how to plan, lead, support and develop our games. We have learned and we have kept on improving. One of these learnings that I would like to highlight and developments that we have taken relates to how we as management in the company guide and also support our gaming projects. We have already, for a longer time, had our internal project faces that help our game development teams to define what the key focus in their project should be at this state of the project? And what are the main goals that projects should then [ release ] before advancing the next phases when they will then have bigger development teams and also increased box set. This goes from mandate phase to concept, proof-of-concept production readiness, production all the way to watch the launch and line phase of the game. Alan Wake 2 out of our games is now already in production. All the other games are in the earlier phases of concept and proof of play or proof of concept. However, it's always easy to solve a model on paper. But to have it well-working in practice requires a lot of organizational developments and abilities as every game and team is a bit different. Some uncertainty and risk also has to be accepted. Few projects meet every detail of the requirements before moving to next phases. But the deals and we at management have to evaluate what are the priorities, what is acceptable level of uncertainty and fees for that game and that team at this point of time. We have had a lot of learnings during the past years when we have been developing our past projects from Control, from 2 operations at Crossfire, Alan Wake Remastered, Alan Wake 2, and we have been able to improve both our model and how we apply that model in our game project. This improved capability and also the improved abilities of our project teams, the higher number of projects and our strong cash position support us in focusing exactly on what is best for every game at each point of time. One of these considerations is that the further the project advances in the project life cycle, the more it has personnel, the higher the costs are. And also, the bigger the team, it is always small work to make any more design changes and any [ change on DLA is slow and costly ]. We now have been able to define with each game in much more detail what are the high priorities for each project phase for their game. And we can now keep projects longer, especially in these early phases when needed. As an example, the recent decision to keep Vanguard in the proof of concept base is an excellent example of that. The decision to keep it in the proof of concept base, it's not due to game development not progressing. No. Demand game have been progressing all the time. What has changed in a very positive manner is our ability as a company and as a development team to understand in much more detail what is exactly the Vanguard we are aiming to make, what it requires and therefore, what do we want to do and pull in the game right now. With our games like Vanguard, we will never be satisfied with okay quality. We want quality to be excellent, but we also want to have always something new in our games that can make the game [ truly stand out in the market today it launches ]. Naming these key elements of the game and having the unique selling points in order and also proven takes talent, it takes effort, it takes time. What we have learned from our past project is that these early phases, they deserve enough time for the game to be iterated, tested and proven. Now we estimated that Vanguard clearly knows what they are aiming at, what they need and deserve more time to iterate, develop and test that the key pieces of the game are in order because the rest of the game that we will then build with a bigger deal will be built on these key pillars. Vanguard team still has just about 40 people, giving a project at this size in the early phase is the right call. It's faster and more efficient to [ develop and best-core ] elements with the smaller team, and this will support both the quality of the game, efficiency of the bigger production than when we one day move into the production. We could always scale up the teams earlier, prospect the remaining key elements will be solved and proven later, secure higher shorter-term development fees, but that would not serve the much bigger opportunity of developing great gains efficiently. To keep Vanguard still in this proof of concept base was definitely the right call when we aim for the big opportunity that the game has. Then -- in a way, just a reminder, it's obvious. This is a creative industry at the heart of our type of game developer [ are well trust talents ] our people. We have continued successfully the recruitments, keeping the bar high. We now have approximately 350 people. The systematically deepen developing not just a recruitment but also how we onboard, support, develop and build high-performing [ game things ] with these people. As I said in the previous slide, we now have many projects still in the early development phases. But at some point, when we move on, they will move on and they will have the next phases in their development. With 5 projects moving towards the production at some point in the future, we need more talent. Therefore, it's all the time being highly important that the recruitment works as well as other HR functions, and we have kept on advancing on the recruitment front. We have also now the second development studio in Stockholm in operation, we have now, at the moment, approximately 20 people there. And while our own talents focused on the most crucial parts of game, we complement this with the external development partners that bring their special expertise and also allow us to scale after production. In a way, expanding the external development capabilities has been our strategy all the time. We seek for good partners who bring us valuable competencies and help us execute our game projects in the intended scale, time and quality, but really to do it in a planned manner, in a well-managed manner that in the right way, helps the projects efficiently, that has required us also to improve our capabilities to plan and lead this type of collaboration. We also faced capital last year to be able to invest into our games in which we see major future potential. The increase in the external development fees, combined with our increased abilities to read that are parts of the well planned investments that we all the time have had. All these recruitment our own personnel, our second studio in Stockholm, our external development capabilities, we continue to focus on these expand these capabilities in the managed way that best supports our growth objectives. This is the summary of what has happened in the second quarter and some background also on our thinking, now to the financial part. Terhi, please.

Thank you, Tero, and good afternoon to everyone also on my behalf. Yes, in quarter 2, our revenue remained at the same level, EUR 9.4 million as in comparison period. We had growth in development fees. They increased by [ 22% ] to EUR 7.4 million, whereas royalties were on 41% global level at EUR 2 million. The key to positive contributors for the growth of the development fees where the development fees from Alan Wake 2 and Max Payne 1&2 Remake. At the same time, the development fees from Codename Condor and Alan Wake Remastered as well as game royalties from Control decreased from the comparison period. Also, it's good to note that in the comparison period, Condor was compensated for historical work [ per job ], and this is a normal pattern for milestone-based invoicing for basically all projects. And Alan Wake Remastered project, on the other hand, then finished already in November. Our royalties in this time line has been mostly from one game only, and there has been fluctuation over the quarters. From total sales, royalties have fluctuated from 8% develop of 50%. And in quarter 2, we had 21% of sales royalties. We did not receive any royalties from Crossfire now from Alan Wake Remastered and of course, are 100% happy with this. As a reminder, there is a regrouping of total development fees for all of these before the royalties effect. For quarter 2, the EBIT was minus EUR 2.4 million, and that's minus 26% of revenue. Whereas in comparison period, we had 16% positive EBIT level. The increase in external development costs impacted the profitability level. This was expected and an interim strategic investment for us. And in first half '22, overall, our revenue increased year-on-year, 26% to EUR 22.1 million. We had growth due to increasing development fees, and they increased by 56% to EUR 19.1 million. And royalties also for the full first half there on a lower level, 43% lower level at EUR 3 million. We had 3 positive contributors for the growth of development fees in the first half, the development fees from Alan Wake 2, Max Payne project under. And at the same time, the development fees from Alan Wake Remastered from Crossfire decreased and also impacting the first full half year, the game royalties from Control decreased from the comparison period. In first half, the EBIT was EUR 0.4 million, and that's 1.6% of revenue. There is in comparison period, we have had a 7.3% EBIT level. And again, the increase in external development expenses caused the profitability decrease. Running a multi-project model to generate top quality games, as Tero described, requires the world-class talent, and we have invested to drive sustainable growth. Our cost base is increasing on steady contract manner as we continue to expand our project and start new initiatives. This increase in resourcing is visible both in personnel expenses and especially now in external development costs. Our capitalization, EUR 2 million were at about the same level as in the comparison quarter, and we expect them to be -- remain at about similar level over the coming quarters. And it is good to note that now the official profit and loss formula in IFRS net the capital effect with the expenses. Personnel expenses were EUR 6.9 million in quarter 2, EUR 0.3 million higher than in comparison period. And out of these expenses, EUR 0.6 million were capitalized. Our external development costs were EUR 4.9 million. That's EUR 3.5 million or 241% more than 1 year ago, and EUR 1.4 million of these costs were capitalized. And it's especially important for us to be able to utilize external development because we need to ensure scalability for our operating model, and we will be also in future, investing into our resourcing. Our operative cash flow in quarter 2 was minus EUR 8.3 million. Operating cash flow was impacted by a lesser amount of income in payments from partners and higher outsourcing. Personnel and other operating costs also impacted the outgoing payments. And this is all purely timely related. And also as seen in quarter 1, we had a very positive operating cash flow. Our cash position is still very strong over EUR 60 million. And as said, our current profitability level is impacted by increased investments to product development and by compensation of revenue, i.e., lower level of royalties. Also, the profitability somewhat impacted by IFRS conversion from the year 2020 onwards. Overall, we see possibilities for our top line growth in the long run. And that in mind, we make operatively wise decisions such as giving the Vanguard team small for a longer period, although in short term, this impacts our numbers. And with our strong cash position, we build up the basis for long-term success. And yes, we have a balanced portfolio of projects. We have a new subcontracting type agreement with Rockstar Games for Max Payne Remake, offsetting the discontinued operations project. We are working with 505 Games and Epic in a model where Remedy owns the IP, publishing partner finds the development fully or partly, and we share the game sales profits. And we are taking steps towards self-publishing in a risk-controlled manner by starting copublishing like with project Condor and Vanguard with IPs owned by Remedy. We do not yet have any projects where Remedy would act as sole publisher, but this is a future opportunity. And now back to Tero for outlook.

Thank you, Terhi. All right. So on the outlook, as you noticed, after the end of the review period on the first day of August, we lowered our revenue and operating result outlook for this year. The lowering of the outlook, it resulted from lower-than-expected game royalties in '22 as well as our decision to take extra time for Vanguard. This will postpone some of the income from '22 to subsequent financial years, however, good to remind everyone. This will not affect the total amount of development fees generated by Vanguard only their timing. But with all this, according to our updated outlook, we expect our revenue to remain at the previous year's level and operating results to decline significantly compared to year '21. In '21, our revenue was [ EUR 44.17 million ] and operating profit, EUR 11.4 million. As I said earlier, we are currently working on 5 world-class game titles and our capability to develop these gains is stronger than ever. Our focus is now on executing our game program. We aim to have a steady flow of successful game losses starting from next year '23. And also a reminder, despite of lowering our outlook short term for this year, our long-term objectives remain the same. The objective is that by the year '25, we have created several successful games and at least one major hit game, again, that [ creates us the global of selling charts and can keep ] on succeeding. We will have unique creative skills. And we will have developed further our unique creative skills and can create builds, character stories that build powerful brands. We own at least 3 expanding game brands, all with long-term [ heat possible ] potential for highly successful games. We have strengthened our commercial capabilities so that we can freely select the right commercial model for each scale we have. [ Bids in some cases ], self-financing and self-publishing or work with publishing partners and some others. Great people continue to be a key focus for us. We aim to be the most attractive gaming industry employer in Europe. And to reach these objectives, we are having a profitable growing business in the long term in a way that we manage also our risks well. This was all from our point. Now it's time for Q&A.

So you see the instructions. You can type in your questions into the chat and [ led some light ] into the question. Let's see, we have some questions coming before the event. And the first one is that -- can you elaborate on Alan Wake Remastered? It has not yet regrouped, although the game has had good scores by critics, which seems to have been your expectation at this point. Are you worried about the strength of the IP, looking at becoming Alan Wake 2 with these uncertainties in mind? Do you see potential for [indiscernible] this game given Alan Wake's huge box set? Well, many questions. But if I start opening up, first on the Alan Wake Remastered, what's, of course, always good to bear in mind, but Alan Wake Remastered has never been kind of like an individual isolated product. It relates very strongly to our franchise. Alan Wake, and we signed a deal with Epic Games on 2 games, Alan Wake 2 and Alan Wake Remastered. So in a way, that has been related. Now of course, when we start developing a game, the idea is, first of all, that it needs to be a high-quality game, it needs to help us to grow the brand further, and we are aiming at commercially successful games as well. Now -- the first Alan Wake launched already over 10 years ago, and it has still been relevant in a way to gain kept on selling almost at the point when we launched the Alan Wake Remastered. So with Alan Wake Remastered, the idea was to update the game to a level that it can continue selling for a number of years going into the future. When we now look at the shorter early phase, in a way, we knew that the gain had some uncertainty sales-wise, I'll soon get into those. But definitely, our early expectations for the early phase sales were slightly higher than what we now have seen. What we believe has affected and why I said uncertainty is that traditionally went from a high-quality games, a remastered or remade is being made, that's 10 to 20 years after the launch of the original game. And many of these games have already been partly for [ cotton ], so haven't been selling for the past 5 to 10 years' time. Now with Alan Wake, we had a bit different position. Alan Wake still a couple of years before the loans was selling. We were having really discount sales. We were having business-to-business deals in which game was being delivered for 3, 4 gamers. We were able to grow the player base for Alan Wake by millions of players. And now looking back when we then in a way very shortly after that launch Alan Wake Remastered, definitely, it has affected on these early phase sales. But then at the same time, this is again published by Epic Games. And of course, to in a way bigger gaming development, Alan Wake 2, it's obvious that we shouldn't, in a way, use big marketing power at this point for Alan Wake Remastered because we know that the marketing campaign of Alan Wake 2 is coming. And it is a consideration of ours that how to utilize Alan Wake Remastered in the best possible manner to also support that. But we also know that the marketing of Alan Wake 2 will bring the remastered the original game also into the minds of the gamers. So definitely, we see that Alan Wake Remastered continues to have in a way, good sales potential going into the future. Then maybe there is that can you elaborate on the EUR 4 million higher cost in the quarter versus last year?

Yes, sure. Like I said, this was not unexpected. Our aim has been all the time to both increase our internal teams. So the person is working for us directly as employees or as consultants. But as also then we are looking at partners and we talk about external development. And it's not actually very easy to find those partners and start the cooperation and so forth. So we are very happy that we have this very important strategic cost that going forward. And of course, then in numbers, it shows as a higher cost, but this is according to our own expectations as well.

Yes. Then there was one more question sent beforehand is Max Payne deal more like a work or higher or like a regular own IP deal when it comes to Royalty possibility? Max Payne 1&2 Remake is a work for higher project. But as a company, we never in a way we are always interested and our partners are interested to incentivize us in a way that, yes, we will be compensated by the work we do, but it is in everyone's best interest to make a high-quality game that also sells well. So normally, in our games, [ there is -- where priority ] opportunity as well. Then, in the questions that have come, many related to Vanguard. If we start, what are the key elements of the gain that still need more development time in proof of concept base? Well, that goes so deeply into the design of the game that I can't open it completely. We are not disclosing in a way the exact game designs. But if I stay on a bit of a higher level with every game, Vanguard included, we have a clear game vision. What's the gain we intend to make, what are the unique selling points that really make the game stand out. And that's then transformed into core game pillars that what are in a way selected key elements of the game that they make this reason to. And typically, in a game, you normally have 3 to 5 this type of core pillars that relate to the heart of the game that really makes this game stand out, makes it unique, but also certain elements to the type of game that need to be in order for the game to have possibilities to succeed, which may relate to technology in a way online service based infrastructure that needs to be built. And now, in a way, we have teams that are working in these areas, and all of them have defined that what is -- what are the core elements within these pillars that need to be put in order, that need to be defined, need to be test and prove and iterated. And one of the learnings, as I said before in my presentation is that we have seen that we really need to nail these things down because the [ whole impression ] of the game is being built around these 4 elements, the high priority parts of the game pillars. And some of these we already have in place. Some of these, we still think that we need to pull them further, develop them further because then when we one day move to next phases. If these things have been locked, in a way scaling up the team, in a way developing the missing parts of the game, it's much more about execution than still wondering if some changes should be made. Then thus Vanguard delay affect your other project schedules? No, it doesn't. So Vanguard is its old team that's working on 1 game and doesn't relate to our other games. Then let me see if there are others related to Vanguard. How should we read your decision to take more time for developing Vanguard from an execution perspective? Are you happy with the execution of Vanguard so far and with the execution of your multi-project model overall? Well, as I said in my presentation, in a way we are making exactly the right call to keep Vanguard in its current phase for a longer time. The project overall has had visible concrete progress throughout the year, which is really good. The team is stronger than it has ever been, but also -- our capability and basins also to understand what are the highly important things that we should be able to nail down in these projects. These capabilities have improved both with the project deal and Remedy overall. And in that sense, in a way, the decision to keep Vanguard in this phase very much reflects the increased ability that we have. It does have, in a way, some negative effect, of course, on the financial side on the short term because we are not scaling up the team that fast, in a way our development costs are not for that project growing that fast. Therefore, our development fees from our partners are not as high as they could have been. But for the longer-term success because our intention with our partners is to really be able to develop high-quality standout games that launch in the markets and succeed in those markets for a number of years and make the big upside for the company and our partners from the game sales from the Royalty part. And that's where we are aiming at. Now development-wise, in a way, some of the development fees are then moved to next years. But definitely, it's in a way, more like a result of our competencies being stronger to understand how we need, plan and develop the projects we are developing. Then if we move to other games. When Condor moves to production readiness, production phase, will it take time as long as with your typical AAA games? I won't comment in detail what are the planned schedules. But [ in center probably ], one could say that service based in a way, all these service-based gains, especially in a way, service-based games, which are also new to us, I think it makes sense to keep them in the earlier phases, bit longer to make sure that all the key parts in order. Then, of course, in a way, the games have to be high quality before we first time launched them, but they are still service-based games. So the development doesn't end with the first launch but continues. In that sense, in a way, the service-based games normally don't require as much time in the production phase as the big AAA games, but that, of course, in a way, always depends on the gaming question. It was also a question to Control. It was announced that Project Condor was moved to preproduction phase. Has this happened during second quarter or during time between end of [ Q2 at ] this date? Actually, it was said that the project Condor is moving. So it's currently moving towards the preproduction phase. It's at the end of the proof-of-concept phase. There are certain elements when it's a service-based game where we already are working on preproduction related stuff, but the team is now in a very busy still proving the last bits and pieces. But as we said, when it's moving there, we are very close to the preproduction phase. Then, okay? We already discussed the Alan Wake Remastered sales performance. External development expenses increased significantly from quarter 1. How will this cost develop in the future? Is the second quarter level fair assumption for the coming quarters?

Well, it's not a direct line, so to say. So it depends on the portfolio, project portfolio and the phases of the projects. For some projects, we use more external development than for others. And should those projects be in production phase, for example, and a certain quarter, then the expenses are higher and so forth. So it's not that direct. But overall, I will repeat that it's clearly our intention and target to utilize as much as possible and [ wise sensible ] for the project, the external development.

Okay. Then there is a question on the Control royalties were quite high in second quarter, was there some B2B deals during the quarter? Well, we haven't opened up that our partner 505 Games. So --

But overall, of course, when thinking about the game sales and Control is not that young anymore, so to say, within a certain period of time, the sales are affected by sales campaigns and to also, to some extent, the B2B deals overall.

Then in relation to personnel. Do you plan to open up your talent for the countries other than Finland and Sweden? Now, in a way naturally when we look at past 2 years, the pandemic times, we also in a way developed our remote working capabilities a lot. And we have been hiring selected talents also that are based in different countries. It's been a learning process as well. We are mainly focused on European countries, having developers approximately the same fine so as we are in Finland and Sweden in a way less from U.S., Canada from Asian markets, selected once there as well, but they are exceptions. In a way, the well-working teams and team work is so crucial for developing efficiently high-quality games. So we have, in a way, tens of people already who work outside of Finland and Sweden. But definitely, in a way, one of the focuses is to try to have people in places where there would be [ more Remedy ], hence where there is a social aspect in a way the team building aspect as well, possibility to see face-to-face your colleagues and also face-to-face your colleagues with whom you are working in the same project. So we have already opened up the talent pool but are aiming to focus it more and more so that in a way, there are certain hubs or spots where we would have more people. Then you have now stated that you have learned that it's better to keep our game projects in the early development phase for a longer period of time than in the past. Does this mean that the other projects in your pipeline will also need more development time than originally expected? At the moment, the projects are proceeding according to the plans that the game development teams currently have, if in the future, there comes a justified need that some projects should stay a bit longer in the concept or in the proof of concept base, soon that may happen. But at the moment, when we look at our growth map, in a way, what are the plans of the teams, how teams have been staffed, what they are focusing on. It's in a way, really good progress. They are proceeding according to the accrete plans and the visibility for the future is better than it has ever been. So at the moment, in a way, we are progressing according to the plans. If one day in the future, in a way, a similar situation like in Vanguard would come, that it justified for everyone's -- from everyone's opinion, and we see in a way helping our long-term opportunities. Then this type of decisions would be made. But at the moment, in a way, none of these things are. There is no need for this type of speculation at the moment. The year '22, so far has seen a long list of delayed games in the video games industry, partly explained by studios adapting to new ways of working during and in the aftermath of the pandemic. How do you view your team's ability to execute at the moment? Have you made any strategic decisions on bringing these back to the office or letting them work remotely? Have you observed slower iteration for [ remote work ]? That's actually -- that's a very interesting and good question and definitely not just related to Remedy. I think it's a valid observation that we're now looking at the news from gaming industry in a way last year throughout this year is really fair not to read on dealers with [ big A ] projects. And of course, there are always deep-related studio-related game-related reasons for that. But it's clear that the remote working during the past 2 years has been one -- in a way, the 2 in a way, widely spread remote working that had to be done is, in many cases, one of the factors that has affected. In a way big triple AAA games, they are huge project in a way intending always to do something new that hasn't been done before, complex projects with different disciplines, different technologies in a way, often consisting of existing experienced team members, new team in person, in a way the team building requires. And many of the studios has -- many of the -- all the companies in the world had to adapt this new in a way full remote reality so fast. It has definitely affected. And I think remote work is here to stay also at Remedy, but how we are intending to do that, we are giving in a way quite a lot of freedom to our individual teams. We have 5 game teams at the moment. We have technology teams. We have individual support teams. They will all work a bit differently. They have freedom to decide what's the right model for them, but we have said them one pool. Everyone has to increase face-to-face time. So there has to be enough physical presence with the team how they are working. Some teams have decided that they are 3 days a week in the office 2 days remotely. Some have been different phases. They may be in a way a bit more remotely, but still seeing each other 2 days. So we have in a way some bit more remotely built teams who are then spending in a way 1 week per month in the office, all seeing together. But I think in AAA game development, nothing beats physical presence and spending time together. It doesn't have to be every day, every week all the month. But in a way, the full remote is going to be challenging for any studio. So in a way, the common saying of hybrid work definitely is the future for games industry, I believe. Personnel expenses in the -- were up 11% in second quarter. Are you witnessing acceleration in salary inflation? It hasn't been radical with us, but definitely within the industry and also with us in a way the rising inflation and combined with the continued competition for talent has had an effect. So there has been, in a way, a slight push upwards, but it's not that practical as has been read maybe with some other industries or countries. In the income statement, product capitalization is not declared. Is the capitalization instead included in the revenue of EUR 9.4 million?

Yes. It's correct. In the income statement, currently with the IFRS form, the product capitalization is not visible directly, but it's netted against the expenses. And like I explained in the presentation, the EUR 2 million capitalizations are netted by 600,000 with personnel expenses and EUR 1.4 million of the external development costs. And not -- it's not affecting our revenue number in any way.

Yes, I think it seems to be all the questions. So, thank you, everyone, for participating. Thank you for good questions, and have a good rest of the day.

Yes, and we will. We will be back with the next earnings Webinar on October 28. So see you then. Have a great weekend.