Interim Report January – June 2019

Tue, Aug 13, 2019 08:00 CET

Second quarter 2019

Revenues amounted to SEK 387.2 (298.8) million, an increase by 30 % compared to the same period last year.
Operating profit amounted to SEK 154.2 (99.4) million, an increase by 55 %.
Profit before tax amounted to SEK 154.0 (99.5) million, and profit after tax amounted to SEK 120.3 (77.9) million.
Cash flow from operating activities amounted to SEK 232.7 (182.3) million, and cash flow from investing activities amounted to SEK -104.9 (-121.2) million.
By the end of the period cash amounted to SEK 396.4 (329.3) million.
Earnings per share amounted to SEK 1.14 (0.74) per share.
Revenues in the quarter are mainly attributable to Cities: Skylines, Hearts of Iron IV, Imperator: Rome, Stellaris and Surviving Mars.

Half year 2019

Revenues for the period amounted to SEK 625.4 (565.8) million, an increase by 11 % compared to the same period last year.
Operating profit amounted to SEK 217.0 (239.9) million, a decrease by 10 %.
Profit before tax amounted to SEK 217.2 (240.1) million, and profit after tax amounted to SEK 169.6 (186.7) million.
Earnings per share amounted to SEK 1.61 (1.77).

Important events in the second quarter 2019

One new game was released during the period, Imperator: Rome, developed by Paradox Development Studio.
Six new expansions were released during the period; Urban Warfare for BATTLETECH, Campus for Cities: Skylines, Green Planet for Surviving Mars, Ancient Relics Story Pack for Stellaris, Industries for Cities: Skylines Console, and Leviathans Story Pack for Stellaris: Console Edition.
In June, the new game Empire of Sin was announced, developed by Romero Games. The game is planned for release in spring 2020.
A collaboration has been initiated with publisher and developer Double Eleven for continued development of the game Prison Architect on PC and console.
Steam Summer Sale took place June 25 to July 9.
At the Annual General Meeting on May 17, Mathias Hermansson was elected as a new board member. Cecilia Beck-Friis declined re-election.

Comments from CEO

Strong cash flow that lays the foundation for our continued growth

We finance our entire growth with the cash flow from our current operations. High profitability is the basis for strong cash flow and thus an important prerequisite for us to be able to invest in the future. Both the development and marketing of our games start long before the games are released, and substantial parts of these costs are recognized immediately. This means that we have costs for our games long before they start to generate revenue, which has also been the case during the second quarter of the year with, for example, Vampire: The Masquerade - Bloodlines 2, Age of Wonders: Planetfall and Empire of Sin. The profitability of the period is thus held back the more we invest in future games, and this trend will continue so long as we continue to increase our investments.

When we develop and plan our business, it is crucial for us to maintain a good balance between generating high profitability in the period and at the same time building for the future. We think we succeed well in achieving this balance. During the second quarter of the year we set a new revenue record. Revenues amounted to SEK 387.2 million, compared with SEK 298.8 million in the second quarter of 2018. This resulted in an increase of 30 % compared to last year’s second quarter, and an increase of 15 % compared to the previous revenue record from the fourth quarter of 2018. The quarter's profit before tax amounted to SEK 154.0 million, compared with SEK 99.5 million in the second quarter of 2018. At the same time, we continued to increase our investments for the future; during the quarter we spent more on game development and marketing of games than we have in any previous quarter.

Our cash flow continues to be strong. Despite the fact that we spent more than ever during the quarter on both game development and marketing and distributed SEK 105.6 million to our shareholders as dividend, the total cash flow was positive and we closed the quarter with a record-high cash position. Our positive cash flow comes entirely from current operations and has been extra strong this quarter thanks to an advance payment for our collaboration with Xbox Game Pass. The second quarter of the year has thus continued on the same growth path that Paradox has followed for several years, with a well-balanced, continuous increase of both cash flows from operating activities and investments for the future.

As always, our quarterly financial outcome depends on the new games and expansions we release during the quarter. During the second quarter we released an entirely new game, Imperator: Rome. Imperator: Rome is the latest addition to our portfolio of grand strategy games and is developed by our Stockholm-based Paradox Development Studio. The game was well received by industry media, but the reception from our players has not been as positive as we had hoped for. We are grateful for our active player community and take all feedback from our players very seriously. Positive as well as negative opinions have, after thorough analysis, helped shape the three free updates we have delivered so far to Imperator: Rome and will continue to do so going forward. Both the released and the upcoming updates that are currently being tested by our players have improved the game’s experience and have been met with a positive response. We have also published our development plan for the game for the coming year.

During the quarter, we also released six expansions to existing games. Last year's new games BATTLETECH and Surviving Mars received new expansions through Urban Warfare and Green Planet, respectively. We released the Campus expansion to our top seller Cities: Skylines while the popular expansion Industries made its way to Cities: Skylines – Console Edition. Stellaris celebrated a three-year anniversary during the quarter and received two new Story Packs; Ancient Relics for PC players and Leviathans for console players.

During the quarter, we deepened our collaboration with Microsoft through the new Xbox Game Pass for PC subscription service. We have previously participated in Xbox Game Pass for console and when Microsoft released the service for PC earlier in June this year, we were part of the launch with Imperator: Rome, Surviving Mars and Tyranny. It is important for us to continuously test new ways to offer our games to the market and the Xbox Game Pass is an interesting one. Our main distribution platform continues to be Steam, with another successful Summer Sale capping off the quarter.

In June, we participated in the E3 video game trade show in Los Angeles, where we presented several of our upcoming games. It was there that we had the pleasure to announce our upcoming game Empire of Sin, a strategy game set in the 1920s in Chicago's criminal underworld. The game is developed by Romero Games and has a planned release in spring 2020 on PC as well as PlayStation, Xbox and Nintendo Switch. Through Empire of Sin we continue to expand within one of our most successful gaming genres, strategy games. While our most successful strategy games to date have been real-time grand strategy games, Empire of Sin is a turn-based strategy game with tactical features.

On August 6, we released our new game Age of Wonders: Planetfall. The game has been very well received by both players and industry media and we look forward to continuing to develop the game for a long time ahead. Age of Wonders: Planetfall is a turn-based strategy game in a science fiction environment that complements and expands our existing portfolio of strategy games in a good way. The game is developed by our Dutch studio Triumph Studios and is the first Triumph-developed game released since we acquired the studio in 2017.

We enthusiastically look forward to an eventful second half of 2019. For us at Paradox, this year's highlight will be October 18th to 20th, when PDXCON 2019 takes place in Berlin. We feel extremely privileged to once again meet so many Paradox fans eye to eye.

Ebba Ljungerud, CEO

Presentation of report

Ebba Ljungerud and Alexander Bricca will host a live stream to answer report and financial related questions on our Twitch channel on August 13 at 12:00 PM CET https://www.twitch.tv/paradoxinteractive.

Submit your questions before via our forum https://forum.paradoxplaza.com/forum/index.php?threads/paradox-q2-2019-report-and-livestream.1229989/, by e-mailing them to ir@paradoxinteractive.com or directly in the Twitch chat. The Twitch chat is open for anyone to view but to post comments or question you will need to create an account.

For additional information, please contact:

Ebba Ljungerud, CEO Paradox Interactive
Alexander Bricca, CFO Paradox Interactive
Email: ir@paradoxinteractive.com
Phone: +4670-355 54 18

This information is information that Paradox Interactive AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication on August 13, 2019.

About Paradox Interactive

The Paradox group today consists of both publishing and internal development of games and brands. The game portfolio includes more than 100 titles and Paradox owns the most important brands, including Stellaris, Europa Universalis, Hearts of Iron, Crusader Kings, Cities: Skylines, Prison Architect, Magicka, Age of Wonders and the World of Darkness catalogue of brands. From the start 15 years ago, the company has published its games all over the world, initially through physical distribution but since 2006 primarily in digital channels. Paradox games are developed primarily for PC and console platforms, but the company also releases games on mobile. The largest markets today include the US, UK, China, Germany, France, Russia and Scandinavia. Today, over three million gamers play a Paradox game each month and the number of registered Paradox users exceeds ten million.

Paradox Interactive AB (publ)’s shares are listed on Nasdaq Stockholm First North Premier under ticker PDX. Certified Advisor: FNCA Sweden AB, info@fnca.se, +46-8-528 00 399. For more information, please visit www.paradoxinteractive.com.