Starbreeze AB (publ) Interim Report January 2017 – June 30 2017

THE SECOND QUARTER OF 2017

• Net sales increased by 20 percent to SEK 122.7 million (102.6). PAYDAY generated SEK 51.0 million (62.6) of the total and Dead by Daylight SEK 65.8 million (39.9).
• EBITDA was SEK -2.7 million (27.4), corresponding to an EBITDA margin of -1.5 percent.
• Basic and diluted earnings per share were SEK 0.04 (0.09).
• Acquisition of VR company Enterspace for SEK 20 million plus an estimated earnout of SEK 46.8 million.
• Release of Dead by Daylight for console.
• After the end of the quarter, Enterspace made an agreement on a new VR center in Dubai.
• New loan financing from Nordea of SEK 150 million were approved after the end of the quarter.

THE FIRST HALF OF 2017

• Net sales increased by 26 percent to SEK 180 million (143.4). PAYDAY 2 generated SEK 74.6 million (102.2) of the total and Dead by Daylight SEK 86.7 million (39.9).
• EBITDA was SEK -38.0 million (23.2), corresponding to an EBITDA margin of -13.3 percent.
• Basic and diluted earnings per share were SEK 0.22 (0.03).
• Cash and cash equivalents at the end of the period amounted to SEK 384.2 million (328.4).

CEO Bo Andersson Klint remarks on the report:

WIDER REVENUE BASE POWERING GROWTH

Starbreeze delivered its highest net sales for a single quarter so far: net sales for the second quarter increased by 20 percent over Q2 2016 to SEK 122.7 million. Adjusted for non-recurring revenue in Q2 2016, sales rose by 48 percent. The growth is the outcome of our strategy to widen the revenue base by increasing the numbers of both titles and distribution channels per title.

Compared to the second quarter of 2016, our costs excluding royalties to partners, increased by 50 percent, mainly attributable to higher activity in our core business. The rate of cost increase has slowed significantly compared to the first quarter as the development teams are approaching full staffing.

EBITDA for the quarter was slightly negative at SEK -2.7 million and until we release our major titles, such as OVERKILL’s The Walking Dead (OTWD) and Crossfire, which are progressing according to plan, we may report both negative EBITDA and/or negative cash flow in some quarters.

PAYDAY ALL-TIME HIGH ON STEAM

PAYDAY is aging in style and year-on-year sales in the second quarter were up by SEK 8.3 million, mainly due to the introduction of the PAYDAY 2: Ultimate Edition collection. Prior to the update, we wanted as many as possible to have the chance to complete their collections with DLCs before we changed the pricing model, and at the same time we were looking to increase the installed base of the stand-alone game. In early June, we offered the base game for free during a limited time, giving gamers the option to purchase DLCs at à la carte pricing or upgrade to the Ultimate Edition to get the full catalog of content at a discounted price. We started out with a campaign to give away five million copies for free and after an overwhelmingly positive response we achieved the goal in less than 36 hours. Prolonging the campaign, the ultimate outcome was almost eight million new players in less than five days and an all-time peak of 247,628 concurrent players on Steam. This is the sixth-highest concurrent player stat ever recorded on the platform, in all categories.

We’ve managed to generate significant revenues from PAYDAY 2 over four years, thanks to our Games as a Service model, commitment to the game and our strategy of applying sales pulses by frequent updates, constant community interaction and careful use of discounts and campaigns. We now move into phase 2 of the life cycle of PAYDAY 2 and will continue to provide free updates to the game and keep our community interaction at the same levels. With 5.4 million members, we have the biggest community on Steam by far and are confident that PAYDAY will continue to generate significant revenue for Starbreeze and that the gaming community is looking forward to our upcoming titles.

NEW ADDITIONAL TECHNOLOGY FOR OTWD AND CROSSFIRE

After a focused technology roadmap review and testing period of Unreal Engine’s capabilities, we have decided that Starbreeze will continuously support and develop Valhalla as a plugin but will further move to being an engine agnostic company. The Valhalla technology remains the cornerstone of ongoing product development, especially for OTWD. With Valhalla, we have created unique tech, specifically for randomization of worlds and dynamically generated gameplay, which has attracted the attention of multiple industry leaders. After lengthy talks with various partners, Epic, parent of the Unreal Engine, and Starbreeze have agreed to integrate the technology as a plugin to the Unreal Engine for internal use at Starbreeze and for selected publishing partners. Starbreeze will use the Unreal engine as the baseline for OTWD and Crossfire and Valhalla's unique tech to drive the exclusive features in the titles. The decision will not impact the release schedule for OTWD.

POSITIVE TREND IN THE PUBLISHING BUSINESS

RAID is our next big publishing release and we are now working with Lion Game Lion to wrap up development ahead of the release of the PC version on September 26, closely followed by the console releases on the 10th and 13th of October. We've worked closely with Lion Game Lion in the final phases to make sure the game follows our main game pillars, “Fun with Friends” in particular, and are very excited about the outcome. RAID is a true family member to PAYDAY. As we close in on the release date, we are now ramping up our marketing efforts with initial special focus on our PAYDAY community.

The positive trend in our publishing business continues and Dead by Daylight, co-released with Behaviour in the second quarter of 2016, now has more than two million players on PC. The game generated SEK 65.8 million in sales for Starbreeze during the quarter, up 65 percent over Q2 2016 when it was released. The positive sales trend is the result of working deliberately with PAYDAY's success factors and the favorable outcome of our multichannel strategy, with the console releases for Playstation 4 and Xbox One in June.

Antisphere, our first Indie label title, was released in June and we are now evaluating the performance leading up to the console releases. The quest for the studios of tomorrow and next-generation game concepts continues and we are in discussions with new potential partners for Starbreeze IndieLabs on an ongoing basis.

LEAD PARTNER TO A NEW VR CENTER IN DUBAI

With the acquisition of Enterspace as our specialist business in location-based VR entertainment, together with the investments we have made in recent years building our VR ecosystem, we’re extremely pleased to present a new partnership in which Enterspace will deliver unparalleled VR experiences to one of the biggest retail spaces in Dubai!

This opportunity was made possible by Enterspace’s operational experience and location-based entertainment vision, Starbreeze VR content pipeline, StarVR’s extraordinary and unique 5k resolution and 210 degree field of view, Nozon’s PresenZ technology as the next movie format for virtual reality and our great partnership with Acer to provide hardware support. Enterspace will be the lead partner to the VR center, providing operational experience, content and tech support. Based on the premises with the massive foot traffic and visitor flows in the mall, we have great expectations for this venture – in financial terms as well as impact on future business opportunities.

We are also eagerly anticipating the opening of the biggest VR center in Sweden this autumn in Stockholm, featuring experiences including Enterspace’s space adventure.

NEW LOAN AND PROJECT FINANCING

Aimed at maintaining good balance between our investments and their financing, we were approved for a new loan of SEK 150 million with Nordea. We have also secured the financing of the VR project in Dubai, where Nordea guaranteed by the Swedish Export Credit Agency, and StarVR Corp. are co-financing the total investment of approximately USD 10 million.

Finally, I’d like to thank our global team for all of your hard work. I see what you do and I am wicked impressed!

Let’s keep on doing this!

Bo Andersson Klint

Starbreeze AB is required to disclose this information under the EU Market Abuse Regulation and the Securities Market Act. The information was provided by the above contact persons for publication on 24 August 2017 at 8:00 CET.

For more information, please contact:
Ann Charlotte Svensson, Head of Investor Relations and Corporate Communications, Starbreeze AB
Tel: 46(0)8-209 208, email: ir@starbreeze.com

About Starbreeze

Starbreeze is an independent creator, publisher and distributor of high quality entertainment products. With studios in Stockholm, Paris, Los Angeles, Barcelona and Brussels, the company creates games and other virtual reality entertainment products, based on proprietary design and licensed content. Starbreeze most recent games include PAYDAY 2®, John Wick VR shooter and upcoming survival co-op FPS OVERKILL’s The Walking Dead. Under its publishing initiative, Starbreeze has together with Canadian studio Behaviour Digital successfully launched horror thriller Dead by Daylight.

Starbreeze has set out to develop truly immersive virtual reality (VR) experiences by integrating software and hardware in its StarVR® head mounted display, produced together with Acer. Together with wholly owned subsidiary Enterspace, Starbreeze further solidifies its presence in location based entertainment. StarVR can additionally be found at IMAX VR Centres in Los Angeles and New York.

Headquartered in Stockholm, Sweden, Starbreeze shares are listed on Nasdaq Stockholm First North Premier under the tickers STAR A and STAR B with the ISIN-codes SE0007158928 (A share) and SE0005992831 (B share). Remium Nordic is the company's Certified Adviser.

More information: starbreeze.com, starvr.com, overkillsoftware.com 

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