Interim report January - September 2017

Tue, Nov 14, 2017 08:00 CET

Third quarter 2017

Revenues amounted to SEK 180.7 (127.2) million, an increase by 42 % compared to the same period last year.
Operating profit amounted to SEK 52.9 (54.6) million, a decrease by 3 %.
Profit before tax amounted to SEK 52.6 (54.6) million, and profit after tax amounted to SEK 40.6 (42.3) million.
Cash flow from operating activities amounted to SEK 70.3 (102.7) million, and cash flow from investing activities amounted to SEK -79.2 (-30.8) million.
By the end of the period cash and short term placements amounted to SEK 244.3 (215.1) million.
Earnings per share amounted to SEK 0.38 (0.40) per share.
Revenue from the third quarter of 2017 are mainly attributable to Stellaris, Cities: Skylines, Cities: Skylines Console, Hearts of Iron IV and Europa Universalis IV.

Important events in the third quarter

The acquisition of game developer Triumph Studios was finalized with a transaction date July 7. The purchase price was set to EUR 4 million plus a performance based earnout of up to EUR 21 million, until December 2025.
Cities: Skylines PlayStation4 Edition was released to PS4.
Pillars of Eternity: Complete Edition was released to PS4 and Xbox One.
Several expansions were released during the period; Second Wave to Steel Division: Normandy 44, Synthetic Dawn Story Pack to Stellaris and Bastard's Wound to Tyranny.
Steam Summer Sale started June 22 and continued until July 5.
A decision was made to move the release of Battletech to 2018, instead of as previously communicated 2017.
It was announced that CFO Andras Vajlok has decided to step down from his role and a process to recruit his successor was initiated.

Words from CEO

We can do better!

As we close the third quarter, we do so with 42% growth compared with the same quarter in 2016 and an operating margin of 29%. While this is good, the figures are significantly lower than the same period last year. This is mainly a consequence of negative exchange rate differences, the writing-off of an as yet unnamed project and increased royalty payments. The quarter is yet another example of the fact that some quarters will always look better than others throughout our ongoing operations.

We still managed to see growth in turnover despite the fact that we have actually only had one PC release to full price during 2017. On the other hand, we have released some successful expansions with content and value comparable to other full-priced titles on the market. We have also released some of our current games on consoles. These releases, in addition to earlier releases, are the driving forces behind growth in both revenue and players during the quarter. With all that said, we are still short of giving ourselves a passing grade for what we’ve done so far during 2017. Only one new game per year is just not good enough.

The underlying cause for releasing only one game during 2017 are the many decisions that we made a couple of years ago regarding the improvement of the quality of our games. As a result, we tightened the flow of games to a certain degree, with a clearer focus on improved quality. These last few years have shown that this strategy is paying off, in particular when viewed over time, but the real advantages are yet to be revealed. Now that we have more people and teams in place, we are better equipped to meet future challenges and are working with really great developers all over the world. A quick look at what we already know about 2018 reveals two exciting titles, Surviving Mars and Battletech, in our pipeline.

Looking back at the past quarter, the acquisition of game developer Triumph Studios has been the most significant event. We have spent the last few months integrating the team into our organization. The smoothness of this transition is an indication that we share many of the same views regarding our communities with gamers, our love for game development and the kind of driven people that we have within our respective organizations. Paradox has a lot to offer in terms of size, marketing muscle, contacts, experience and so on. It is clear, however, that the Triumph team too can teach us a few things about our different disciplines.

In Q3 we also became a console publisher “for real.” We previously experimented with consoles but have now released both Cities: Skylines on PS4 and Pillars of Eternity: Complete Edition on PS4 and Xbox One. Looking at the suitability for a console version in our game projects is now a natural part of the production process, even if that doesn’t necessarily mean that console versions of our games will automatically be developed.

We have also released a number of expansions during the period. Second Wave for Steel Division: Normandy 44, Synthetic Dawn Story Pack for Stellaris and Bastard's Wound for Tyranny. The content of Stellaris continues to attract new users while reactivating current players. Expansion sales for Steel Division: Normandy and Tyranny: Bastard’s Wound have been slower but, like most DLCs, have contributed to keeping the game active, in particular in view of the sales campaigns that often accompany the release of new content.

After careful consideration, a decision was made to delay the release of Battletech until 2018. This is something that seems to have been met positively from both gamers who are anxiously awaiting the release and the market as a whole. Even if we are naturally reluctant to delay a game release, it is something that we are willing to accept if we see that it makes good business sense regarding the quality of the product.

As in previous years we had a presence at Gamescom in Germany, one of the world’s biggest gaming conventions that seems to break records year after year. This year more than 350,000 people visited the convention. Our participation consisted of more than 200 meetings with media and our partners and, of course, our annual Paradox Party. This year we also held an informal fan-gathering where we got to meet some of our players. The games that we and our respective developers were able to show the media were Surviving Mars, Battletech, Stellaris: Synthetic Dawn and Tyranny: Bastards Wound. We also gave interviews in connection with the announcement of Cities: Skylines - Green Cities and Crusader Kings 2 - Jade Dragon. The importance of Gamescom as a convention was underlined by the fact that the opening ceremony was attended by none other than Angela Merkel herself.

During this period we also announced the decision of CFO Andras Vajlok to step down from his position, and we have begun the process of finding his successor. Andras and I have worked together for more than six years now and have reached many milestones together. Even if I, from a personal point of view, am sorry that we won’t be working together on a daily basis anymore, I am convinced that every change represents an opportunity. Therefore, I am thrilled to be able to share that we have signed with our new CFO, Alexander Bricca. He has a very relevant background, shares my excitement about our future journey and will start within six months.

I am sure that with Andras’ help, we will be able to give our new CFO a great introduction to the Paradox of today, so that he in turn will be able to help us achieve our goals for the future.

Fredrik Wester, CEO

Presentation of interim report

Fredrik Wester and Andras Vajlok will host a live stream to answer report and financial related questions on our Twitch channel on November 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/quarterly-report-q3-q-a-stream-tuesday-nov-14-at-12-00-noon-cet.1053635/ 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:

Fredrik Wester, CEO Paradox Interactive
Andras Vajlok, CFO Paradox Interactive
Email: ir@paradoxplaza.com
Phone: +4670-355 54 89

This information is information that Paradox Interactive AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication on November 14, 2017.

About Paradox Interactive

The Paradox Interactive group includes publishing and internal development of games and licensing of White Wolf’s brands. The publishing operation publishes both internally developed titles and titles developed by independent studios as well as music and books. The game portfolio includes more than 90 titles and Paradox Interactive owns the most important brands, including Stellaris, Europa Universalis, Hearts of Iron, Crusader Kings, Cities: Skylines, Tyranny and Magicka. From the start over ten years ago, the company has published its games all over the world, initially through physical distribution using partners, but beginning in 2006 has primarily distributed digitally using its own publishing arm. The development platform is primarily PC, but the company has released games on console and mobile platforms as well. The largest markets today include the US, UK, Germany, France, Russia and Scandinavia. Today, close to 1.5 million gamers play a Paradox game each month and the number of Paradox registered users exceeds six million.

Paradox Interactive AB (publ)’s shares are listed on Nasdaq Stockholm First North Premier under ticker PDX. Avanza Bank is the company’s Certified Adviser. For more information, please visit www.paradoxinteractive.com.