Interim report January – March 2020

First quarter 2020

  • Revenues amounted to SEK 400.4 (238.3) million, an increase by 68 % compared to the same period last year.
  • Operating profit amounted to SEK 165.9 (62.7) million, an increase by 164 %.
  • Profit before tax amounted to SEK 164.7 (63.2) million, and profit after tax amounted to SEK 128.0 (49.3) million.
  • Cash flow from operating activities amounted to SEK 247.7 (156.3) million, and cash flow from investing activities amounted to SEK -166.4 (-101.6) million.
  • By the end of the period cash amounted to SEK 625.1 (378.7) million.
  • Earnings per share amounted to SEK 1.21 (0.47) per share.
  • Revenues in the quarter are mainly attributable to Cities: Skylines, Europa Universalis IV, Hearts of Iron IV, Stellaris and Surviving the Aftermath.

Important events in the first quarter 2020

  • Three expansions were released during the period; La Résistance for Hearts of Iron IV, Federations for Stellaris and Sunset Harbor for Cities: Skylines.
  • The Group’s employees work from home since mid-March to reduce the spread of Covid-19. At present, there is no set date for employees to return to work from regular office premises.

Comments from CEO

Record quarter under sad circumstances

It is with mixed feelings that I present the first quarterly report of the year. The Covid-19 pande­mic has impacted our society in a disturbing way, causing tragedies for individuals and families as it has for business. Covid-19 has also affected Pa­radox, albeit not as harshly as many other compa­nies. Since mid-March, all of our employees in all offices worldwide have been working from home, and will continue to do so for the time being. The situation is challenging, but I am extremely proud of how well our employees have handled the situ­ation. We are fortunate to have a business where production, distribution and marketing are almost exclusively digital. Most of the work can therefore be done efficiently from home, although there are, of course, tasks that are more difficult under cur­rent physical constraints. We see some impact on the speed of the creative process, a key compo­nent of developing a game. As for consumption, we, like large parts of the digital entertainment industry, have not seen demand for our products decrease, but on the contrary it has increased. However, it is still too early to say what long-term effects, if any, Covid-19 will have on our business and on the gaming industry in general.

During the quarter, we have tried to help those who have greater challenges than we do. Our efforts, among other things, have included finan­cially supporting charities in Sweden, the Nether­lands, and the US where we have a presence. We are extremely happy and proud, with the help of our dear players, to have conducted a very suc­cessful fundraiser on Steam and thereby donated 5 MSEK to the UN COVID-19 Solidarity Response Fund.

Revenue for the quarter increased by 68% compa­red to the same quarter last year, and revenue for the last 12 months increased by 32% compared to a year ago. Profit before tax for the quarter increased by 161% compared to the first quarter of 2019 and profit before tax for the last 12 months was 50% higher than a year ago. I want to take this oppor­tunity to remind you that our revenues and results often vary substantially between quarters and we rarely have a seasonal pattern. This means that a comparison between individual quarters risks gi­ving a misleading picture of our long-term financial development, especially when including a quarter of extraordinary events such as Covid-19.

A strong contributing reason for the high revenue has been that during the quarter we released expansions to three of our biggest games. First out was La Résistance for Hearts of Iron IV, followed by Federations for Stellaris and then Sunset Harbor for Cities: Skylines. When we release expansions to our larger games, it usually generates significant revenue. This quarter, the sale of the expansions was exceptionally good. All three expansions broke sales records by selling more in the first month than any previous expansion ever made for each respective game. These high sales are reached when the games are now, on average, more than four years old. It is a pattern we see that many of our games sell more and more expansions, the older the games become. On the last day of the qu­arter, we also released a content pack for Impera­tor: Rome. This is the first content we have charged Imperator players for since the release of the game one year ago. The reception from players has been very positive and, as I have written in previous reports, it is really great that we have been able to turn around fans’ perception of Imperator: Rome.

When we break revenue records during the quarter without launching any new games, it is yet another confirmation of how valuable it is to have a portfo­lio of games with a long life, strong brands, and a dedicated and growing player base. This has been, and will continue to be, central to our strategy. We continue to build on our existing brands through new content, constantly expanded distribution, and steady marketing efforts. At the same time, we continue to invest in creating new brands, all with the aim of expanding our portfolio of games that will attract players and generate revenue for a long time.

As our revenues and profits rise, we also increase our investments. During the first quarter of the year, we invested more in game development than ever before; investments increased by 57% compared to the first quarter of 2019.

The second quarter of the year has so far been characterized by a focus on completing the development and preparing the launch of the games that we will release later this year. Ahead of us, we have two of the biggest game releases we have ever launched — Crusader Kings III and Vampire: the Masquerade – Bloodlines 2 — but also Empire of Sin and continued updates to Surviving the Aftermath.

I am very much looking forward to sharing these fantastic games with the outside world — and sincerely hoping that we can all return to our everyday lives as soon 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 12 at 12:00 PM CET https://www.twitch.tv/paradoxinteractive.

Submit your questions before via our forum https://forum.paradoxplaza.com/forum/threads/paradox-q1-2020-report-and-livestream.1388380/ 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 May12, 2020.

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