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Starbreeze AB (publ) Q1 report January 1 - March 31 2016

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The full Q1 report is available at www.starbreeze.com/investor-relations/ . Financial statements in English are available at the end of this document. 

CHANGED FISCAL YEAR

Note that in accordance with the decision taken on the Annual General Meeting in November 2015, this is the first quarterly report after changing the company’s fiscal year to calendar year. The comparative period Q1 2015 corresponds to January-March 2015, previously named Q3 2014/2015.

The next report to be issued will thus be Q2 2016 and will be released on August 25 2016.

FIRST QUARTER (JANUARY – MARCH 2016)

  • Net sales amounted to SEK 40.8 million, (SEK 47.7 million), a decrease of -14.5%. Total revenue amounted to SEK 70.1 million (SEK 61.5 million), an increase of 14% year on year.
  • Operating income before depreciation, EBITDA, amounted to SEK -4.2 million (SEK 14.0 million), implying a negative margin of -6.1 percent.
  • Pretax income amounted to SEK -15.0 million (SEK 10.8 million).
  • Net income amounted to SEK -14.8 million (8.1 million), impacted by foreign exchange losses of -3.6 million (6.2 million foreign exchange gain) and by a revaluation of the convertible loan of -5.0 MSEK (0.0 MSEK).
  • Earnings per share before dilution were SEK -0.06 (SEK 0.04) and earnings per share after dilution were SEK -0.06 (SEK 0.04).
  • Cash flow from operating activities amounted to SEK 9.6 million (SEK -12.6 million).
  • As of March 31 2016, the cash balance amounted to SEK 416.5 million (SEK 165.4 million).
  • During the quarter, PAYDAY 2 net sales amounted to SEK 39.6 million (SEK 42.2 million).
  • In January Starbreeze signed an agreement with the Korean gaming company Smilegate. Smilgate invests 344 MSEK in Starbreeze who undertakes to develop a game based on Smilegate’s Crossfire franchise and adapt it for the Western markets. Smilegate also becomes Starbreeze’s distribution partner for PAYDAY 2 and OVERKILL’s The Walking Dead on the Asian markets.
  • On the VRLA event in January the StarCade project was announced. It was communicated that Starbreeze will open an arcade-like VR center in Los Angeles later in the year.
  • In February an extraordinary general meeting was held. At the meeting the proposed targeted share issue for Smilegate Holdings Inc. was approved. The meeting also decided to expand the Board by one member and to appoint Joon Ho Sung, CIO at Smilegate, for the vacant seat.
  • In February Dead by Daylight website was launched with an initial journal from the developers. Visit the website at – deadbydaylight.com.
  • Starbreeze signed its fourth publishing agreement in March. The agreement was signed with the US-based game studio FreeForm Labs Inc and implies that Starbreeze invests 750 000 USD in the upcoming virtual reality game ElemenTerra.
  • In March PAYDAY 2 was launched on Steam’s operating system SteamOS. The SteamOS-compatible version of the game supports SteamCloud and Steam Controller.
  • During the quarter two major updates were released to PAYDAY 2 in collaboration with external partners. With our friends at Coffee Stain Studios, PAYDAY 2 was combined with Goat Simulator in our so far funniest collaboration. In cooperation with STX Entertainment, Starbreeze released a couple of updates in connection with the release of their movie “Hardcore Henry”. The updates included, amongst other things, the character Jimmy and two Hardcore heists.

AFTER THE PERIOD

  • In April, Starbreeze share of the revenue for PAYDAY 2 sales via the PC platform Steam amounted to SEK 2.0 million.
  • In April Starbreeze, together with the Canadian studio Behaviour, announced that the highly anticipated asymmetrical horror game Dead by Daylight will be released on June 14th and that pre-orders will be available on Steam from the day of the announcement. The game will be sold in two versions, a standard version for $19.99/€19.99 and a deluxe version for $29.99/€29.99.
  • In May, at the film festival in Cannes, Starbreeze announced its first internally produced cinematic Virtual Reality experience titled “Cockatoo Spritz” directed by Stephane Barbato. Cockatoo Spritz dives into the film world and presents the new medium from a cinematic perspective. It is a VR experience designed to inspire creative filmmakers to create VR content.
  • In connection with the Cannes Film Festival Starbreeze and Acer signed a letter of intent to form a joint venture for the StarVR Virtual Reality (VR) Head-Mounted Display (HMD). The two companies aim to cooperate on the design, manufacturing, promotion, marketing and sales of the StarVR HMD to the professional- and location-based entertainment market.

CEO BO ANDERSSON KLINT GIVES HIS COMMENT

INVESTING IN OUR FUTURE

With a running start of 2016 we have now closed the first quarter of a year that will truly put Starbreeze on the map as a key player on the market for digital entertainment.

First of all, we have Acer as our VR partner. This is an incredible collaboration that empowers StarVR and Starbreeze leading position as a developer and publisher in the VR eco system. We invested both time and resources this quarter to get here.

These aggressive investments in a brilliant future has made Starbreeze a red first quarter as costs have risen. This as we gear up to build the next generation of a digital studio with multiple IP’s and products for years to come.  The continued sales of PAYDAY 2 still prove our ability to monetize IP years after release.

Net sales amount to 40.8 MSEK which is 15 per cent below the corresponding quarter 2015 which was the quarter we sold ‘Brothers – A Tale of two Sons’ and held PAYDAY 2 campaigns such as Hypetrain. In addition, the dollar rate has been favorable for us for a long period but this quarter there is an adverse FX effect due to the weakening Dollar vs. the Swedish Krona effecting the growth rate negatively.

Considering the one-off items, we can again conclude that the underlying financial strength of PAYDAY 2 is keeping its momentum without material disruption which creates a great fundament for Starbreeze aggressive plan for future growth.

Talking about aggressive growth, after several quarters of reduced spend Starbreeze has during the quarter accelerated its activities within our three core areas; game development, publishing and StarVR. As a result, operating expenses have increased by 12.8 MSEK compared to the previous quarter and we anticipate this higher level to maintain the following quarters. We are confident that the accelerated investments will create great value.

EBITDA for the quarter is negative with -4.2 MSEK. This is according to plan and we know that future launches will drive our topline and profitability.

Our cash balance when exiting the quarter amounts to all-time-high 416.5 MSEK with a positive contribution from operations.

Together with Canadian studio Behaviour Digital Inc, we will release the highly anticipated asymmetrical horror game Dead by Daylight on Steam June 14. Apart from the whole team looking forward to scare gamers by enticing the to hunt for survivors, it will add another revenue stream for us, built on the same principles that we applied on PAYDAY 2.

The quarter also saw a 750,000 USD funding of US based studio Freeform Labs and the upcoming VR game ElemenTerra, a social world-building puzzle game in a cosmic cataclysmic setting. Starbreeze will receive 50% of royalties and own 50% of the IP.

BUILDING THE NEXT GENERATION DIGITAL STUDIO

2016 is an exciting year in which we execute further on our plans, making sure we release more products that generate revenue so we can further expand our offering to partners and customers alike.

Our Smilegate collaboration is in full swing with their 344 MSEK investment, and the two companies have been working hard on our Crossfire design and our PAYDAY 2 Asia project. We are really excited to have such an efficient partner and are actively recruiting more competent developers to Stockholm for the future full production team of Crossfire.

Geminose has been silently built into a nice game and has progressed well. We are now discussing our toy manufacturing approach with potential partners which has taken longer than anticipated when we last communicated around the title. We are still balancing our release between digital and retail depending on our future partners. Once a partner is locked down, Starbreeze will start showing the game to the public to maximize the marketing impact.

For John Wick: The Impossible Task we’re making sure the product’s release window is aligned with Lionsgate and the uptake of the movie John Wick 2 somewhere later this year. It’s a great game already shown to the public and we are looking for a release between the online distribution and in our location based StarCade that is optimal.

IMMERSING OURSELVES INTO VR

A lot has happened with StarVR since the launch at the Electronic Entertainment Expo (E3) in June 2015, less than a year ago. In the past few days, we have presented a major collaboration with a top-tier player. Let me recap and bring you up to speed with our plans.

StarVR kicked-off with the acquisition of French company InfiniteEye, that brought the StarVR HMD technology and an outstanding and agile engineering team into Starbreeze. We knew and had been talking with the team for some time and saw great potential and synergies in bringing them in-house. The unique technology with a 210-degree HMD field of view is unrivalled, positioning the StarVR at the very top end of the VR initiatives now entering the market.

After the launch at E3, we brought StarVR on the road entertaining thousands of consumers across the USA with OVERKILL’s the Walking Dead VR Experience. With the initiative we confirmed the great potential of monetizeable location-based VR. In January 2016, we unveiled the location based StarCade initiative, introducing VR centers where customers are invited to immerse themselves into premium VR experiences.

Last week we premiered our first cinematic VR experience “Cockatoo Spritz” at the Cannes film festival. Directed by Stephane Barbato, the film aims at creatively pushing the movie industry into the VR space, leveraging the artistic heritage of French film making. Our feedback so far has been excellent. We’ve amazed, entertained and spread our VR message as well as built a foundation of connections in the movie industry to ensure a healthy ecosystem for VR in the near future.

To date, we’ve had an awesome start for StarVR, but nothing compared to what’s to come. We’ve been working with a clear roadmap for our VR strategy from day one, and are now about to realize one of the first major collaborations we set out to achieve in our collaboration with Acer.

Our joint-venture with Acer, allows us to shift gears also on the hardware side. Acer is an excellent, experienced and prominent hardware partner that will accelerate us in realizing and producing a high-definition, high-fidelity VR headset. Acer is devoting R&D resources across multiple aspects of the VR ecosystem for a coherent and high-quality experience, just last month announcing powerful desktops and notebooks fully-ready for StarVR.

As always this time of year, a lot of our operations is focused on delivering for E3, which this year will be a four title activation. We’re showing our own PAYDAY 2 as usual, but additionally preview an alpha of PAYDAY 2 Mobile. We’ll also be showing the next version of StarVR, and John Wick: The Impossible Task. Additionally, publishing titles RAID: World War II will be shown as well as Dead by Daylight, the later to be launched to the market the first day of E3.

Let’s do this!

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For more information, please contact: Starbreeze Investor Relations Contact: Maeva Sponbergs, +46 (0)8 209 208 or ir@starbreeze.com

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