Interim report January – June 2016

 Second quarter 2016

  • Revenues for the second quarter amounted to SEK 234.9 (182.0) million, an increase of 29 % compared to the same period last year.
  • Operating profit amounted to SEK 142.3 (68.4) million, an increase of 108 %.
  • Profit before tax amounted to SEK 142.9 (68.4) million, and profit after tax amounted to SEK 110.6 (53.2) million.
  • Cash flow from operating activities amounted to SEK 62.1 (174.5) million, and cash flow from investing activities amounted to SEK -25.1 (-20.7) million.
  • By the end of the period, cash and short term placements amounted to SEK 143.2 (176.4) million.
  • During the second quarter of 2016, the internally developed games Stellaris and Hearts of Iron IV were released. In addition, an expansion for Europa Universalis IV, “Mare Nostrum,” was released. Revenues from the second quarter of 2016 are mainly attributable to Stellaris, Hearts of Iron IV, Cities: Skylines, Europa Universalis IV, Pillars of Eternity and Crusader Kings II.

First six months 2016

  • Revenues for the first six months amounted to SEK 328.2 (386.7) million, a decrease of 15 % compared to the same period last year.
  • Operating profit amounted to SEK 167.5 (166.0) million, an increase of 1 %.
  • Profit before tax amounted to SEK 168.0 (165.8) million, and profit after tax amounted to SEK 130.0 (129.0) million.

Important events in the second quarter

  • On May 31, the Company was listed on Nasdaq First North. The aim was to invite employees, fans, and other long-term stakeholders to participate in the Company’s continued journey. A total of 15.5 % of the company was offered, and the Company gained over 22,000 new shareholders.
  • In June, Paradox participated at E3, a major global trade fair for interactive entertainment. Among other activities, the upcoming role-playing game Tyranny, developed by Obsidian Entertainment, was shown to invited media.
  • From June 23 to July 4, the annual “Steam Summer Sale” included several popular Paradox titles.

Words from CEO

The best quarter in Paradox’s history

Over the past 5 years or so, Paradox has followed a clear path with one of the main principles being growth while being profitable. Therefore it is neither a coincidence nor luck that we have just had our strongest quarter in our company history. On the basis of that, however, it’s important to remember that we will continue to have stronger quarters and less strong quarters, just like we’ve previously communicated.

The overriding objective has been to continue to build a company where we are sustainable and profitable over a long period of time and where the foundation is our existing target audience and our Paradox formula (the Paradox game pillars). In addition, we will use strategic acquisitions and partnerships, like the acquisition of White Wolf, to give ourselves additional strategic height to continue developing and challenging ourselves to create even better products.

We have a strong product portfolio, which reduces risk by making us less vulnerable during any single game release. However, any successful game launch naturally increases our ability to invest more and continuously develop and improve ourselves with regards to quality, to ultimately create better products.

Initial success also tends to correlate with a longer long-tail of revenue for each brand, in particular since we continuously create and release new content for our games. A larger player base also means there is a larger group of people who create their own content like modifications, YouTube videos, and streams for each game which helps to keep the brand alive over time.

During this second quarter, we released two internally developed games within the niche that is our absolute strongest, and for this reason we knew results in this quarter would be strong. That it would end up being our strongest quarter in our company history did not become apparent, however, until we initiated the sales campaigns for each game.

Stellaris has received a very positive reception on the market and beat the previously held company revenue record for the first 24 hours of sales. Even though the game to some extent builds on the formula that has made Paradox Development Studio a world leader within their niche, the game has several elements where the team has pushed boundaries, tested new things and implemented changes.

Hearts of Iron is one of our biggest and most successful brands, and with so many existing fans, expectations for a new title were gigantic. Not only did Hearts of Iron IV meet these expectations, but it also became the fastest-selling historical strategy from Paradox to date. User reviews and media reviews show that the team managed to both meet the high customer expectations and, much like with Stellaris, attract many new players.

That both new and existing players appreciate both games is a good example of how we as a company can capitalize on our existing strengths while at the same time develop and challenge ourselves.

In addition to these games, the games released during the period 2012-2015, mainly Crusader Kings II, Europa Universalis IV and Cities: Skylines have also showed good sales during the second quarter. One of the common denominators for all of these games is that the player base is very active, both in the number of played hours but also (perhaps more importantly) because they create a lot of new content that they share with other players.

In addition to the already announced projects as well as those already out on the market, we currently have several active projects in the different stages of the production cycle including the pre-production phase. Out of these projects, some will never reach the production stage or be announced.

In June, Paradox passed 1.5 million monthly active users for the first time. The number of active players is a good indication of how a company in the games industry is doing, particularly when the numbers and trends are looked at over a longer period of time. In our case, we’ve had a very clear trend upwards for the last couple of years.

We have had a very close relationship with our community from the very beginning and all of our employees, particularly our developers, are encouraged to have direct contact with our players. This has absolutely been a contributing factor to us growing our player base while retaining that important personal touch, as well as understanding what our players want. A good game is a game that players play often, play for a long time, and are willing to pay for.

We remain well financed with a strong cash position and we will continue to focus on financing games that match our portfolio and are based on the brands owned by Paradox to a large extent.

White Wolf publishing now has a team of 5 people working on the licensing business and we hope to soon be able to reap the rewards of this work.

On May 31, Paradox was listed on First North Premiere and we received more than 22,000 new shareholders. Since our goal was to invite more people on our journey in the long term, we were particularly excited to see so many fans and employees among the new shareholders. The development for the stock price has been positive and is currently at 85 % above the introductory price.

With the listing we have started a new chapter for Paradox. This new chapter presents many new possibilities but the same basic principles upon which we have built this company remain. In many ways our journey has only begun. Expect ups and downs but growth with profit over time. Or as we like to call it “business as usual”.

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 at 12:00 PM CET (noon) https://www.twitch.tv/paradoxinteractive.

Submit your questions before via our forum https://forum.paradoxplaza.com/forum/index.php?threads/quarterly-report-q-a-stream-12-pm-cet-noon.964121/, 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.

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 August 25, 2016.

For more information, please contact:

Fredrik Wester, CEO of Paradox Interactive
Andras Vajlok, CFO of Paradox Interactive
Email: ir@paradoxplaza.com
Telephone: 070-355 54 18

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