CD Projekt SA
WSE:CDR
CD Projekt SA
CD Projekt SA, a name that resonates wildly in the gaming industry, began its journey in 1994 as a Polish video game distributor. Over time, it transformed into an influential game developer and publisher, standing out prominently with its world-renowned title, "The Witcher" series. This success catapulted CD Projekt into the global spotlight, underpinned by a narrative-driven, open-world approach that garnered acclaim for both story depth and gameplay. The company thrives on its ability to craft rich, immersive worlds that captivate players worldwide, continuously raising the bar for quality in an industry where storytelling and technical prowess are paramount.
The business model of CD Projekt is multifaceted, broadly encompassing game development, publishing, and distribution through its digital platform GOG.com. The bulk of its revenue originates from game sales, particularly high-profile releases like its latest endeavor, "Cyberpunk 2077". While "Cyberpunk 2077" faced initial turbulence post-launch due to various bugs and performance issues, the company has shown resilience, focusing on post-launch fixes and updates. Beyond direct game sales, CD Projekt also capitalizes on secondary channels such as merchandise, game expansions, and adaptations of its popular intellectual properties into other media forms, breeding a robust ecosystem around its flagship titles. Through GOG.com, CD Projekt offers a digital storefront that hosts a plethora of third-party games, promoting a gamer-friendly, DRM-free environment, which further diversifies its revenue streams and sustains its growth trajectory.
Earnings Calls
In the first quarter of 2025, CD Projekt reported a steady sales revenue of PLN 226 million, consistent with the previous year. Notably, net profit increased by 18% to PLN 86 million, reflecting a solid net profitability of 38%. The company announced that the upcoming Cyberpunk 2077: Ultimate Edition will launch on the Nintendo Switch 2, a key development which is anticipated to boost Q2 revenues. Additionally, the Phantom Liberty expansion has sold over 10 million copies, highlighting the franchise's enduring appeal. CD Projekt plans a PLN 100 million dividend and share buyback, leveraging its strong cash reserves of PLN 1.49 billion as of March 2025.
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Ladies and gentlemen, thank you for standing by, and I would like to welcome you to CD Projekt's Q1 2025 Earnings Conference Call on the 28th of May. [Operator Instructions] So without further ado, I would now like to pass the line to Mr. Michal Nowakowski, the Joint Chief Executive Officer of CD Projekt. Please go ahead, sir.
Hello. Good afternoon. My name is Michal Nowakowski, and I'll be your host during today's conference where we sum up the first quarter of 2025. I will be co-presenting with Piotr Nielubowicz. After the presentation, we will invite you to participate in a Q&A session where we'll be joined by Karolina Gnas, our VP and Head of Investor Relations.
Starting off, please let me highlight some truly exciting news for Cyberpunk 2077. On April 2, during the highly anticipated Nintendo Direct Conference, we revealed that Cyberpunk 2077: Ultimate Edition would be a launch title for the brand-new Nintendo Switch 2 debuting alongside the console on June 05, 2025, which is just a week away. This is a milestone moment for us, marking the very first time one of our games will be a launch title on a new platform.
The anticipation surrounding Nintendo Switch 2 is immense, and we believe this presents a fantastic opportunity to introduce the world of Night City to a whole new wave of players. And this isn't just a simple port. Our teams have worked diligently to tailor the Cyberpunk 2077: Ultimate Edition experience specifically for the innovative capabilities of Nintendo Switch 2.
Initial reactions from the media and players who have had hands-on time with Cyberpunk 2077 on the Switch 2 at Nintendo's global preview events have been very encouraging. And while the ultimate judgment, of course, rests with the players, we feel quite optimistic about the upcoming launch. Building on the excitement and continued growth of the Cyberpunk universe that we just highlighted with the upcoming Nintendo Switch 2 launch, I'm also thrilled to announce a significant milestone for the Phantom Liberty expansion, which has now surpassed 10 million copies sold worldwide since its release back in September 2023.
And this achievement reached in just over 20 months is a powerful testament to both the quality of the expansion and the enduring appeal of the Cyberpunk franchise. And that appeal, along with our desire to tell the new captivating stories is precisely what fuels our ongoing work on the future of the Cyberpunk franchise. I'm pleased to share that Cyberpunk 2, which we have previously referred to as Project Orion, successfully concluded its concept phase a few weeks ago and has transitioned into preproduction.
Thus, we are well on our way towards delivering the next big Cyberpunk game in due time. Now shifting gears, let's move to The Witcher franchise. On May 19, just over a week ago, we proudly celebrated the 10th anniversary of the release of The Witcher 3: Wild Hunt. And this groundbreaking title is not only a pop culture phenomenon that has captured the hearts of millions of players worldwide, but it also represents a cornerstone of CD Projekt, of our success over the past decade.
And looking back at these past 10 years, the commercial success of The Witcher 3: Wild Hunt has been nothing short of phenomenal. And I'm incredibly proud to announce that the global sales of The Witcher 3 have now surpassed an astounding 60 million copies. And reflecting on the premier that happened 10 years ago, we had no idea what lay ahead. And even in our wildest dreams, we couldn't have imagined how significant this will become for all of us.
I would like to extend my deepest gratitude to everyone who is part of that journey whether as a team member, a dedicated fan or a fan who ultimately became a team member. This remarkable figure of 60 million copies firmly establishes The Witcher 3 as one of the best-selling games of all time, a testament to its enduring quality, immersive world and unwavering support of our global player base. Our goal is now to introduce them along with those who are not yet familiar with our franchise to a new saga that will begin with the upcoming fourth installment of The Witcher.
And over the past decade, The Witcher 3: Wild Hunt has generated an impressive PLN 2.4 billion in revenue. The remarkable financial performance underscores the enduring value of the franchise and its continued contribution to CD Projekt's strong financial foundation, enabling us to dive into new projects and pursue our creative vision independently as we shape the future of both The Witcher and The Cyberpunk universes as well as a third IP code named Hadar.
Regarding current project allocation, as of the end of April, our dev team has expanded slightly now consists of over 730 talented developers. The Witcher 4 team with over 420 developers on board focuses on production phase work, while the Cyberpunk 2 team has entered the preproduction phase and will be our primary recruitment focus for this year.
Beyond these undertakings, our other pipeline projects have seen minor adjustments in team sizes, aligning with their ongoing progress and evolving workload requirements. And that's all for me for now. And now it's time for Piotr.
Thank you, Michal, and good evening, everyone. As usual, let's start this part of the presentation with the consolidated profit and loss account on Slide 10. Our group sales revenue for the first quarter of 2025 reached PLN 226 million, essentially the same as in the corresponding period last year. Despite the passing of another year, games from both product families, Cyberpunk and The Witcher generated revenue levels similar to those of the prior year.
Our sales of goods and materials reached PLN 45 million and recorded 11% growth. This growth was entirely driven by GOG.com platform where we saw an increase in sales, particularly for classic titles which we attribute to initiatives focused on game preservation and the GOG preservation program.
Our cost of products and services sold consists mostly of Phantom Liberty, Cyberpunk and Witcher 3 amortization. This position is lower in Q1 '25 compared to Q1 2024, mainly for 2 reasons: Firstly, due to the use of a declining amortization model; and secondly because we extended the estimated useful lives of our assets at the end of last year, a decision which appears fully justified given the strong performance of our games again this year.
More details on our amortization schemes can be found in our recent annual report. Moving on to operating costs. In 2025 Q1, they also remained stable versus last year. However, the structure changed. On the one hand, the research work cost decreased after the Cyberpunk 2 project changed its IFRS status in September 2024 from research to development, which qualifies for capitalization.
And on the other hand, this year, we had some extra expenses related to the implementation of our new ERP system, which just went live as well as increased costs of our incentive programs due to a new tranche...
[Technical Difficulty]
Ladies and gentlemen, please standby as we reconnect with the host.
Am I on the line? Okay. So I'll start once again from our operating costs. Moving on to operating costs. In 2025 Q1, they also remained stable versus last year. However, the structure has changed. On the one hand, the research work costs decreased after the Cyberpunk 2 project changed its IFRS status in September 2024 from research to development, which qualifies for capitalization.
And on the other hand, this year, we had some extra expenses related to the implementation of our new ERP system, which just went live as well as increased cost of our incentive program due to a new tranche of entitlements being granted. All in all, our EBIT reached nearly PLN 96 million, 18% more than a year ago. Negative income tax for the first quarter of the previous year was not typical for our business, neither is the relatively high income tax we recorded for the first quarter of this year.
Most of this amount, nearly PLN 22 million came from adjustments relating to our prior years, driven mainly by corrections to our bookings related to the withholding taxes, events of a one-off nature. And finally, our net profit for the first quarter of this year reached PLN 86 million. The overall net profitability of the group was 38%, [indiscernible] PROJEKT RED alone, this factor was 47%.
Now we can move on to the next slide, #11, our consolidated balance sheet. On the asset side, the core of our business, expenditures on development projects. The balance here increased by nearly PLN 90 million. The new developments, mainly The Witcher 4, Cyberpunk 2 and Sirius, but also some projects that are still unannounced were responsible for a PLN 104 million increase, parallel to the decrease coming from amortization driven mainly by the already launched Cyberpunk 2077 and Phantom Liberty.
And while we are on the topic of development expenditures, we estimate that the budget of the upcoming version of Cyberpunk 2077 for Nintendo Switch 2 will be around PLN 10 million. We believe this investment will help us make Cyberpunk more accessible to new clients, extend its life cycle and further strengthen the franchise flywheel. We also continue investing in our local physical assets as visible in the PLN 21 million increase of the property, plant and equipment line item.
This was mainly driven by the final phase of the construction of a new building at our Warsaw campus where The Witcher 4 will continue to be developed beginning this June. Our trade receivables decreased over the first 3 months of this year, which is typical after the juicy Q4 sales period and the high level of trade receivables recorded at the end of last year.
The total value of cash deposits and bonds included in the 3 asset items marked with an asterisk is summed up under the table and amounts to PLN 1.489 billion as of the end of this March. Our financial position increased by PLN 17 million over the first quarter. Within this change, GOG was responsible for a decrease by PLN 10 million driven by payments to its game suppliers related to Q4 sales, which is typical for first quarters.
At the same time, CD PROJEKT RED generated a PLN 27 million increase in its financial reserves. I will have a separate slide to provide some more insight on our main cash flow drivers this quarter. Moving forward to liabilities and equity, Slide 12. The most noticeable change here is the increase in our equity driven by the strong financial performance of the recent Q1. Along with a decrease in trade receivables by PLN 80 million, our liabilities also decreased by PLN 36 million. This occurred in both segments and is also typical for first quarters.
Now please move on to the next slide, #13. CD PROJEKT RED's expenditures on research works, development and cost of product maintenance presented here on a quarterly basis over the last 5 quarters. We keep investing more and more while our projects move from research to development and become more and more advanced. Currently, 9 projects of different types and sizes are in the development stage, 3 of which are still unannounced.
And finally, our main cash flow drivers on Slide 14. The PLN 86 million booked net profit was supported by PLN 24 million in amortization, depreciation and noncash costs of our share-based incentive programs. At the same time, PLN 36 million was expensed for the acquisition of tangible and intangible assets as discussed on the balance sheet side. The overall change in receivables, liabilities and provisions boosted our cash flows by nearly PLN 40 million. At the same time, most of CD PROJEKT RED was engaged in working on new games, hence, the investment of PLN 100 million into development projects.
All in all, our financial reserves kept in cash, bank deposits and bonds increased by the already mentioned PLN 17 million over the reporting period, reaching PLN 1.49 billion. And putting investments into currently developed products aside, our ongoing business generated PLN 117 million, which is over 36% more than the net profit for the period. That ends my commentary on the most recent results and allows me to move to a pretty nice conclusion.
Our strong cash position and longevity of our products have allowed us to make 2 important decisions. We proposed to the general meeting a dividend from 2024 profits in the amount of nearly PLN 100 million, precisely PLN 1 per share. And we also asked our general meeting to approve a share buyback that would allow us to settle the first tranche of our incentive program next year. It involves up to 89,601 shares with a current market value of around PLN 20 million. And I can't wait to see what impact the Cyberpunk: Ultimate Edition premiere on Nintendo Switch 2 will have on our Q2 and this year. The big day is only a week away. That's all from me for now. We can now move on to the Q&A session. Thank you.
[Operator Instructions] Our first question comes from Mr. Nick Dempsey from Barclays.
I've got 2 questions, please. So the first one, would you naturally expect that the Switch 2 release would mean that your sales of products and services would be higher in Q2 '25 than we've just seen in Q1 '25? Or would it be just sort of balancing out or slowing in other sales? The second question for Cyberpunk 2, as we're now calling it, I believe that the Witcher 4 went into preproduction in May 2022. We know that game will not be released during '26. So maybe we can say that we're looking at somewhere between 5 and 6 years for that period between the preproduction phase and release. So that would put Cyberpunk 2 in late 2030 or early 2031. Is that a broadly sensible way to think about it?
Hello, Nick. What I can say for now is that Nintendo Switch 2 to sales should have a visible impact on our revenues from sales of products for the second quarter of this year. But as for now, I wouldn't like to be guiding how much better or not the second quarter versus the first quarter will be.
Okay. And I'll try to deal with the second question. So I can reiterate in a way what I said in one of the previous calls, which was basically that our journey from the preproduction to the final release takes 4 to 5 years on average. So a little bit less than I think what you said in the question. Having said that, keep in mind that each project is unique and there are many variables that influence the final outcome. So I will not lead you into specific years. But yes, I mean, this is pretty much how it looks like.
[Operator Instructions] We'll now be moving to a couple of text questions. The next text question is from Mr. Michal Wojciechowski from IPOPEMA Securities. What exactly do you understand by the 3 unannounced projects? For example, you count in projects like Hadar in the number, which is not revealed yet, but it is mentioned in the pipeline or projects where we have not mentioned before.
Okay. So it's Michal Nowakowski again. I'm happy to deal with this one. So unannounced projects are the projects which have not been hinted at specifically at any point. So Hadar would not be one of these projects because while we haven't said anything specific about Hadar or didn't go into any details with it, we've been talking about it for a while. So these are the projects that have not been mentioned in any kind of communication by us before. I hope that addresses the question.
And I would also like to add something from my side, as I've mentioned, the unannounced projects when commenting the capitalized projects and our expenditures and development projects. Hadar is absolutely not capitalized yet. We are not at this stage of production. So the 3 unannounced projects that I mentioned are projects that are already in development phase according to IFRS standards.
[Operator Instructions] The next text question comes from Mr. Piotr Poniatowski from mBank Dom Maklerski. Could you please update us on the mobile project? Anything more except that you're cooperating with Scopely?
Okay. I'll take this one again, Michal Nowakowski. Unfortunately, there's nothing more we have to share you on that matter on this call.
Okay. And then the second part of the question, how many of these 3 unannounced projects are there being capitalized are gaming projects?
2 projects are gaming projects and 1 is not.
[Operator Instructions] I see no further questions at this point. Perhaps I'll pass the line back to the management team for any concluding remarks.
All right. So since there are no further questions, I'd like to thank everybody who's been with us on this call, and I guess we'll be in touch with you in due time during the next quarter call. Thank you so much. Goodbye, everybody.
Thank you very much. This concludes today's conference call. We'll now be closing all the lines. Thank you, and good bye.