Interim Report January – March 2019

First quarter 2019

• Revenues amounted to SEK 238.3 (267.0) million, a decrease by 11 % compared to the same period last year.
• Operating profit amounted to SEK 62.7 (140.5) million, a decrease by 55 %.
• Profit before tax amounted to SEK 63.2 (140.5) million, and profit after tax amounted to SEK 49.3 (108.8) million.
• Cash flow from operating activities amounted to SEK 156.3 (144.2) million, and cash flow from investing activities amounted to SEK -10.6 (-90.3) million.
• By the end of the period cash and short-term placements amounted to SEK 378.7 (373.6) million.
• Earnings per share amounted to SEK 0.47 (1.03) per share.
• Revenues from the first quarter of 2019 are mainly attributable to Hearts of Iron IV, Cities: Skylines, Stellaris, Europa Universalis IV and Crusader Kings II.

Important events in the first quarter 2019

• Three new expansions were released during the period; Green Cities and Parklife for Cities: Skylines Console, and Man the Guns for Hearts of Iron IV.
• In February Stellaris was released for the first time on Console; Stellaris: Console Edition.
• On March 7, Paradox announced the opening of a new internal development studio, Paradox Tectonic, which will operate in Berkeley, California.
• On March 21, the new game Vampire: the Masquerade - Bloodlines 2 was announced, developed by Hardsuit Labs Inc. The game is planned for released in March 2020.
• Steam Winter Sale took place December 20 to January 3.

Words from CEO

Our long-term growth journey continues

2019 has started at full speed and we have already passed several of this year's milestones. The first quarter of the year has been characterised by a focus on long-term growth and expansion in several of our core areas. During the quarter, we invested more in both game development and marketing than we did in any previous quarter. Among other things, we carried out our largest marketing campaign ever when we announced the game Vampire: the Masquerade - Bloodlines 2. We have also gradually invested in building an organisation that will be able to develop and publish our growing game portfolio. Since the first quarter of 2018, we have grown from 287 employees to 423, i.e., by 47%. These investments in development, marketing and organisation need to be done well in advance of the games being released and thus before we get a return on these investments. This means that our margins are lower when we are in a strong development phase, an effect that will be very noticeable when we simultaneously have a quarter with fewer major game releases. It should be noted that all game purchases made before a game has been released are not recognized as revenue until the game is released. 

The quarter's revenues amounted to SEK 238.3 million, compared with SEK 267.0 million in the first quarter of 2018. The quarter's earnings before tax amounted to SEK 63.2 million, compared with SEK 140.5 million in the first quarter of 2018. Our operations and our game launches are not seasonal, which means that a comparison of the financial outcome between single quarters from one year to another rarely gives a representative picture of the company's development. The comparison between the first quarter of this year and last year is an example of this, where the first quarter of 2018 contained more major launches, including a new game, than the first quarter of this year, at the same time as our investments for the future have been at a record high.

During the quarter, we launched the expansion Man the Guns to our grand strategy game Hearts of Iron IV. The expansion broke the sales record for the game when, one month after launch, it had sold more than any other of the game's previous expansions during the corresponding time. This development where game expansions break new sales records many years after the launch of their base games is something we have seen the past year with several of our games, such as Europa Universalis IV, Crusader Kings II and Cities: Skylines. We are delighted that our games continue to attract players and generate revenue for such a long time after launch. Long-life games and a business model that gives us continuous revenue during the game's lifetime are central to our strategy.

During the period we continued our investment in games for gaming consoles - a platform that is increasing in value for us. In February, we launched Stellaris: Console Edition for Xbox One and Playstation 4. This is the first time we have launched a grand strategy game on console. The game has been received very positively by both existing and new players and creates opportunities for additional grand strategy games for console. We also released two expansions to Cities: Skylines Console - Green Cities and Parklife. Green Cities sold more copies during the first month after launch than any other expansion to Cities: Skylines Console previously made.

In March at the Game Developers Conference in San Francisco, we announced our upcoming game Vampire: The Masquerade - Bloodlines 2. The game is based on one of the brands we acquired as part of White Wolf. The game is developed by the Seattle-based studio Hardsuit Labs, of which we own 33%, and is scheduled to be launched during the first quarter of 2020. Vampire: The Masquerade - Bloodlines 2 is an important step of our expansion in the role-playing genre, an important growth area for us alongside strategy and management games.

During the first quarter of the year, we also increased our development competence and capacity by opening the doors to our new development studio Paradox Tectonic in Berkeley, California. The studio is led by game veteran Rod Humble and is currently developing a not-yet-announced game.

In February, we launched Paradox Mods, a further development of our modding platform that enables our players to share their own modifications of Paradox games to other players on both PC and Xbox One. That our players engage and participate in the development of our games through mods has been a contributing factor to the success of our games and is something that continues to be a central part of our identity.

April 25, we launched Imperator: Rome - the first new grand strategy game we have released since 2016. Imperator: Rome is developed by our Stockholm-based studio Paradox Development Studio and is now the fifth active grand strategy game in our portfolio. So far Imperator: Rome has exceeded our sales targets. Gaming press reviews have been very positive, however, we see lower user ratings than expected on Steam. We take this seriously; the game team is working on analyzing these reviews and reviewing their planned roadmap with them in mind. This is, in many ways, business as usual for us - our game development is always in close harmony with our players and we are extremely grateful for all the feedback on how we can make the game better.

In connection with the launch of Imperator: Rome, we reached another milestone on our growth journey - we passed ten million registered Paradox accounts! The growth of Paradox accounts is important as these form the basis of our ecosystem. Not least, they give us new opportunities to communicate directly with our players in a more personalized and relevant way. Players with Paradox accounts spend, on average, more time and money on our games than players without a Paradox account.

We look forward to the continuation of 2019 with great enthusiasm. First off are the expansion Green Planet for Surviving Mars in May and Urban Warfare for BATTLETECH in June. In August, we will launch the highly anticipated Age of Wonders: Planetfall, developed by Triumph Studios. On May 17, we also have our Annual General Meeting where I hope to meet as many of our shareholders as possible.

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 May 14 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-q1-2019-report-and-livestream.1175432/ by e-mailing them to ir@paradoxplaza.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@paradoxplaza.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 May 14, 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 nine 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.