Remedy Entertainment Oyj (REMEDY) Earnings Call Transcript & Summary

[Audio Gap] CEO, Jean-Charles Gaudechon; and Remedy's CFO, Santtu Kallionpaa. The agenda for today, JC will guide us through the quarter's numbers, and then we'll take a deeper look at the CONTROL Resonant. We'll cover our marketing ramp-up during Q2, the sentiment, commercial indicators and the launch window positioning. Then as usual, we'll take a look at our games in the market as well as our development pipeline. Santtu will then do a deeper dive on the financials, and we'll end with the Q&A. Any questions you have already, feel free to leave those in the text box below the webcast. But without further ado, please, JC, the stage is yours.

All right. Thank you, Aapo. Hello, everyone. So the headline numbers first. Revenue was EUR 10.2 million this quarter, down 40% from the comparison period. EBITDA was minus EUR 2.4 million and EBIT minus EUR 3.9 million. Operating cash flow slightly negative at negative EUR 0.7 million. Two main factors explain this quarter's performance. First, the comparison quarter included the launch of FBC: Firebreak with its initial subscription accruals. Second, marketing for CONTROL Resonant ramped up during the quarter, reducing profitability as anticipated. So let's talk about this quarter was all about CONTROL Resonant launches worldwide on September 24. We can now finally speak about the date. So this is Remedy developing and self-publishing the sequel to CONTROL, our own IP, our own voice and our most ambitious release to date. We revealed the launch date with a trailer shown at State of Play in June. Let's look at it again now. [Presentation]

All right. Cool. So we had 2 trailers that same week. The one we just saw and the second trailer at Summer Game Fest. That lifted our embargo, then media and content creators went hands-on with a 3-hour build of the game. One thing I want to highlight here, the move to faster kind of melee action, different type of gameplay was the most debated aspect at announcement for good reason. It was something new for Remedy, but something we learned with this demo is that this has become one of the most positive feedback we got on the game, which is excellent to see alongside, of course, the atmosphere and storytelling that Remedy is very well known for. So encouraging as we approach launch. We have an ambitious global campaign for this game after the trailers were revealed. We ramped up the activity and got members of the team on the road to meet fans and support our hands-on demo. We got 20 million impressions from that tour so far. Over 1,000 articles were written and 71 content creators engaged worldwide, which at this stage is really good and only the beginning. Just over a week ago, we were at ChinaJoy in Shanghai with a very promising reception from the local audience. We are also listening to live feedback when people play the game and localization quality, which, as I mentioned before, is extremely important for us. Next up, we're in Gamescom in Cologne, where we're gearing up for a great show, including a community event where you're all invited. Our marketing accelerates further in the third quarter. I can't reveal too much for now, but there's a lot to expect leading up to the launch. We got some great and constructive early coverage, quoting Eurogamer, "How video games should be done" and Polygon, "a bolder sequel than we ever could have expected." So we're very grateful for this reception, but we also keep it in perspective. There are previews. These are only previews of an early build, not reviews of the finished game, obviously. But even from that demo, the game has come a long way. So we're very bullish. Interest has matched the sentiment. As of today, we have over 1.5 million wishlists across platforms, which is growth, as you know, typically tracks campaign activity, which will keep intensifying further in Q3, so only bigger numbers to come. During the campaign window in June, our analytics showed that CONTROL Resonant among -- was among the top 3 most preordered games on PlayStation in the U.S., Germany and Brazil. And Chinese-speaking markets are our second largest market in Steam unit preorders. So we are seeing strength in both our traditional and growth markets. So there's been a lot of talks around a very busy launch window and for good reasons. There are a lot of great games coming in September. But the first priority for us has always been to ship an outstanding game and a very unique experience that we believe has a real chance to stand out. The following factors also give us confidence. We're day 1 on all major platforms, which is a first for Remedy. And this is our most localized product ever, which I believe I mentioned before, which matters tremendously in order to reach new markets and grow our audience. Also the price point, $59.99 for the Standard Edition. This is basically AAA quality at an attractive price against comparable titles in autumn. We made the conscious decision to keep this product priced attractively. Overall, I just don't think there's such things as a perfect window these days. There are amazing games coming out all through the year. I think the real differentiators today is quality and uniqueness, where we're pushing really strongly on CONTROL Resonant. So that's it for CONTROL Resonant. Let's look at our games in the market. Alan Wake 2 passed 3 million lifetime copies sold during the second quarter. Consumer sales continue at an expected pace and royalties in Q2 were generated entirely from consumer sales. No platform deal accruals this quarter. CONTROL is a good example of the power of franchises, which is extremely important for me. In its seventh year on the market, CONTROL grew year-on-year in Q2, over 6 million copies sold, more than 20 million lifetime players. The CONTROL Resonant campaign is renewing interest in the original game and CONTROL remains the entry point into the franchise for new fans. On FBC: Firebreak, unfortunately, this is the main driver of the year-on-year decline in game sales and royalties because as mentioned previously, the comparison quarter contained its launch and the initial accruals that came with it. This quarter, most of Firebreak sales were revenue accruals from our subscription service agreements, and the game continues to be available on Xbox Game Pass and PlayStation Plus. Naturally, all eyes are on CONTROL Resonant, but it's important to remember that we are a multi-project studio. Max Payne 1 & 2 Remake remains in full production with Rockstar Games and our new project moved to production readiness, the next stage gate on our development framework. And with that, over to Santtu for the financials.

Thank you, JC, and good afternoon. So before jumping into financials, let's start with discussing the reporting logic. As this is now first time when we are receiving preorders as a self-publisher, it's good to walk through how these are shown in our P&L and balance sheet. So before the game launch, preorders are not recognized as revenue. As based on IFRS, sales can't be accrued before the performance obligation has been fulfilled. In our case, this means delivering the game to the players. Based on this, on the launch date, all preorder revenue is recognized. And at the same time, also related platform fees and royalties are accrued as costs. After that, accruing sales and related partner expenses will happen on a continuous basis. On balance sheet, preorders are shown in advances received only if we have received payments from the platforms before the game launch. As there is usually at least 1 month delay in receiving the payments, there are no cash flow impacts from preorders in our Q2 reported figures. After the game launch, reported sales will be shown in trade receivables or in cash depending on if the actual payment from platform to us has taken place. And as I said, there is usually at least 1 month delay with the actual payment related to sales, and this also varies depending on the platform. In outgoing cash side, it's good to note we are paying contract-based royalties to our partner with delay after first receiving the cash ourselves. Then let's move on to actual figures of our second quarter report and start with the revenue. So our second quarter 2026 revenue was EUR 10.2 million, a decrease from the previous year was 40%. The decline in revenue was mainly from the game sales and royalties side. The main factor for the decrease was the initial revenue accruals from FBC: Firebreak's subscription service agreements that were linked to the release of the game in the comparison period last year. In Q2 2026, CONTROL, FBC: Firebreak and Alan Wake 2 were the main drivers of game sales and royalties revenue. Looking at the development fees, those also decreased from the comparison period. The development fees were from Max Payne 1 & 2 Remake and CONTROL Resonant. In this quarter, the exchange rates didn't have a big impact on the revenue level. Then looking at a longer period, we can see revenue variations from quarter-to-quarter. The amount of development fees is based on accurate development milestones. In Q2 2026, those were on a lower level than during the last couple of quarters. In a longer perspective, we can see the effects of the self-publishing strategy. The game sales and royalties have been on a higher level since the beginning of 2025 as our own published games generate meaningful game sales. FBC: Firebreak continues to be available in the gaming services. However, the game is already 1 year old, and we have not had new game launches since then, which explains the decline in game sales. And as said, CONTROL Resonant preorders are not included in the Q2 figures as we can't accrue these sales before the game is available to the gamers. Then moving on to profitability. So the operating profit was minus EUR 3.9 million in Q2 2026, which was EUR 3.5 million less than in the comparison period. EBITDA was at minus EUR 2.4 million and on a lower level than in the comparison period. Our other operating expenses increased from a year ago as we ramped up our marketing efforts for CONTROL Resonant. As we head to the third quarter and the game launch approaches, the marketing expenses are expected to grow even more. Overall, the profitability was largely affected by the revenue decrease in Q2 2026, driven by lower level in game sales and royalties and also partly in development fees. Then let's dive in our costs in more detail. So gross external development and personnel expenses in total decreased by 8.5 [Audio Gap] following the year-on-year trend and the external development needs in the game projects, the external work expenses were at EUR 2.6 million, being clearly lower than a year ago. We have been able to complete more required external development in-house than before. Personnel expenses increased by 7.3 percentage and were EUR 9 million in Q2 '26. The increase was mainly due to general increase in salary levels and additional efforts put towards the game launch. The capitalized development expenses were EUR 3.7 million in Q2 '26. The amount of capitalization is higher than in the previous quarters, mainly due to the increased development efforts put into CONTROL Resonant. Then depreciation in total, it was EUR 1.6 million and were on a level in Q2 2026 -- sorry, [Audio Gap] during the previous quarters. EUR 0.9 million of the total depreciation was related to the game projects. This included Alan Wake 2 and FBC: Firebreak depreciations. Depreciation closely follow the level of game sales of the games which we are depreciating. Depreciation of CONTROL Resonant will start when the game has launched and other depreciations then stayed on a similar level from quarter-to-quarter. At the end of June 2026, our total cash level was EUR 29.6 million, including EUR 9.6 million in cash and EUR 20 million in short-term cash management investments. Cash flow from operations was EUR 0.7 million negative. The main driver for the negative operating cash flow was the period's low revenue level. Cash flow from investments at minus EUR 3.8 million had the biggest impact on the period end cash position as the investments in our capitalized development projects, mainly in CONTROL Resonant increased. Cash flow from financing included the IFRS lease liability payments and it was on a similar level as in previous quarters. Net cash flow in the first half of 2026 has been minus EUR 0.1 million, including EUR 7 million investments, offset by positive operating cash flow. So looking at the year-to-date revenue from the first half of the year, it was EUR 23.3 million. This is EUR 7 million less than the first half of 2025 as we had Firebreak launching in second quarter 2025. In the first half of 2026, we started investing more in marketing. At the same time, we have kept on working on our cost structure, and we have managed to decrease our outsourcing expenses. Ahead of the new game launch, our profitability declined from a year ago with EBITDA being in the first half of the year, 2.3 percentage positive and EBIT 12.5 percentage negative. This year's profitability overall will be defined by the sales of CONTROL Resonant. And now JC will continue with outlook.

Thank you, Santtu. So our outlook is for the year. Our full year outlook is unchanged. We expect revenue and EBITDA to increase from the previous year.

Right. So let's head to the Q&A session next.

Any questions you have leave those in the text box below the webcast. We already have a couple of good questions in the pipeline. So let's begin with those. A bulk of the questions are in relation to CONTROL Resonant first, and let's start with the commercial indicators. After [Audio Gap].

Yes. Okay. So first, 1.5 million wishlist is an achievement. We're very happy about where we stand, and we're pretty much on track with what we were planning. So that's actually great news. When it comes to conversion, of course, it really depends. We've seen games actually with a lot of wishlist not converting as well. We've also seen some games which weren't as focused on wishlisting that did really well. So we -- this is not science. The one thing we control today is to push that number as high as we can. And of course, one thing that is really positive for a game like CONTROL Resonant is the sequel of a well-established franchise, which obviously has a nucleus of players of fans that are here, and we hope will be here day 1, and that is conversion, but also all the work that the team is doing today to expand our global audience and make that a day 1 purchase. Obviously, we can expect through a healthy level of conversions.

Very good. And then looking at the conversions, are the preorders running ahead or in line or behind your internal plans?

Preorders are positive also. As I mentioned in the slides, we're very happy about being in top preorders in the kind of window that we released that or did that announcement. So, so far, very happy, very bullish on preorders. Of course, we don't have internal as easy numbers to compare. But what I can say is that it's tracking ahead of some of our previous games, which is very healthy again on the preorder front.

Very good. And then on the wishlist number, is the figure cumulative or net of cancellations?

Yes. So it is net of cancellations. So it's actually a true number. We've actually removed people that decided to pull out. So that's basically, I could say here that is an absolute true number. And yes, it is cumulative, but of course, removing these people. One thing I wanted to mention also both for preorders and wishlist, it's still early. And most of these numbers accelerate much further as we get closer to launch. So we're, again, tracking well.

Very good. Is there something you want to communicate for the split between platforms and the preorders?

So I can't give precise numbers on the split. What I can say is it's strong on all platforms.

Very good. Excellent. Then heading to China next, how has CONTROL Resonant been received in the Chinese market or the Chinese-speaking market? And what are your expectations for that market?

So indeed, and I've said it before, China is a priority for us along all our core market. But -- and the reason for that, by the way, is our data has shown that CONTROL has done really well in China. This is a franchise that resonates well in China, which is also why this is grounded in reality. This is not kind of a shot in the dark. And also why we were at ChinaJoy just a bit more than a week ago, and we had actually a great show, allowing people actually fans, press, content creators to play the game. And the game has been really well received so far. So -- and as I said, extremely important for us to really feel how the game resonate locally and also the quality of localization since, as you know, for Chinese, we also have VO. So we're being very close to feedback from local audience.

Then next, maybe to Santtu, how does your -- how does your share of net sales with Annapurna change once the production or marketing investment is recouped?

Yes. First of all, when the recouping the investment is happening, it's happening in relation of the investments made. And after the investment has been recouped, then Remedy will receive a greater share of the net sales of CONTROL Resonant.

Very good. Then on the market [Audio Gap] for CONTROL Resonant exceed Q1 and Q2 combined, Santtu?

Yes. I think it's a good assumption that the kind of peak of the marketing cost and the investments made, it will happen around the launch window. I will not give an exact guidance for Q3, but I can say that the second half of the year is greater in marketing cost than the first half of the year.

Got you. Then the next one is what is the total budget for CONTROL Resonant? I mean it's in line with our AAA budget. Is there something you want to add on that?

Well, I can say that, as I said, it's a AAA game, which anyway, I think Remedy can make much more affordable way compared to many companies around the world.

Excellent. I think those were the questions for CONTROL Resonant at the moment, but let's continue with the CONTROL franchise, Santtu, also CONTROL grew in comparison to the comparison period. Was this in copies revenue or both?