Interim report January – June 2018

Second quarter 2018

  • Revenues amounted to SEK 298.8 (289.4) million, an increase by 3 % compared to the same period last year.

  • Operating profit amounted to SEK 99.4 (162.3) million, a decrease by 39 %.

  • Profit before tax amounted to SEK 99.5 (162.3) million, and profit after tax amounted to SEK 77.9 (126.3) million.

  • Cash flow from operating activities amounted to SEK 182.3 (139.7) million, and cash flow from investing activities amounted to SEK -121.2 (-68.9) million.

  • By the end of the period cash and short-term placements amounted to SEK 329.3 (253.2) million.

  • Earnings per share amounted to SEK 0.74 (1.20) per share.

  • Revenue from the second quarter of 2018 are mainly attributable to Cities: Skylines, BATTLETECH, Stellaris, Hearts of Iron IV and Europa Universalis IV.

Important events in the second quarter

  • June 7, 100 % of the shares in Seattle-based development studio Harebrained Schemes were acquired. Purchase price was set to USD 7.5 million and a contingent consideration.

  • One new game was released during the period, BATTLETECH, developed by Harebrained Schemes.

  • Several expansions were released during the period; Parklife for Cities: Skylines, Distant Stars Story Pack for Stellaris and Natural Disasters for Cities: Skylines on console.

  • Paradox own game convention took place in Stockholm in May.

  • The new game Imperator: Rome, developed by Paradox Development Studio was announced with a planned release in 2019.

  • The new game Age of Wonders: Planetfall, developed by Triumph Studios was announced with a planned release in 2019.

  • Steam Summer Sale started June 21 and continued until July 5.

Words from CEO

Investing in our future

The second quarter of the year saw us release one new game and several expansions. BATTLETECH released to strong reviews and strong concurrent player numbers. Stellaris continued its run of successful releases with its latest story pack Distant Stars. Parklife for Cities: Skylines became the fastest-selling Cities: Skylines expansion ever during its first 24 hours after release, and Cities: Skylines players on console received a new expansion in Natural Disasters. During the quarter we also released a version of Cities: Skylines aimed for the educational market, in partnership with Teachergaming LLC.

Thanks to these releases, we are posting our highest-ever revenue numbers this quarter. At the same time, margins are lower than at the same time last year. There are a number of primary reasons for this: Increased royalty payments (as third-party titles accounted for a comparatively large percentage of total sales in the quarter), and one-time write-offs of two unannounced projects that have now been cancelled. This is nothing out of the ordinary. We always have many concurrent projects in early development, with regular evaluation points, and we prefer early cancellations for those projects that we do not feel are likely to meet our high-quality standards. Cash flow from operating activities during the quarter was our strongest so far.

We also saw increased investments in development, publishing and marketing during the quarter. As we mentioned in our Q4 2017 report, this means lower margins in the short term but builds the company for healthy, long-term growth through larger and more frequent releases of both first- and third-party games.

One of the things we’re most proud of at Paradox is the passionate and growing community around us and our games. For us, constant interaction with and feedback from our community is a key part of who we are. It helps us understand what our audience wants from us, which in turn ensures relevancy in our expansions and content updates, keeping players active in our games for months and years post-launch.

This philosophy is a key reason for why we invest in PDXCon, the annual gathering of Paradox fans, partners, media and influencers. This year, PDXCon took place in May and attracted over 1100 attendees from 46 countries, with record ticket sales, record media coverage and record live viewership figures throughout the event. But beyond the numbers, the real value of PDXCon lies in the unique opportunity for us to meet and discuss face-to-face with Paradox fans from all over the world. For this year’s event, we invited a small group of Emperor-class ticket holders (PDXCon Emperor tickets, priced at 499 euros each, sold out within 45 minutes of being released) to a full extra day at the Paradox offices, where they took part in workshops on sound design, character creation and game design with the Paradox Development Studio teams.

At PDXCon, we announced two new games developed by our internal studios – Age of Wonders:  Planetfall from Triumph Studios and Imperator: Rome, the hotly-anticipated new IP from Paradox Development Studio – both slated for a 2019 release. We also announced a new move into board games, whereby Paradox Interactive is partnering with tabletop publishers to develop board games based on our IP catalogue. The first project to come out of this is an official Crusader Kings board game developed by Free League Publishing, set for release later this year. The game attracted nearly 10 times its funding goal on Kickstarter in the weeks following the announcement. Board games based on the Cities: Skylines, Hearts of Iron and Europa Universalis IPs are next in development.

Our community-centric approach also plays an important part in our M&A strategy. When looking at potential acquisition targets we are particularly interested in game developers that, much like Paradox, have spent time cultivating an active fanbase around themselves and their games. This was true for Triumph Studios, creators of the Age of Wonders-series, that Paradox Interactive acquired last year. This is also true for Harebrained Schemes, creators of the recently-released BATTLETECH, that Paradox acquired in June of this year.

The studio gives us additional production capacity, adds new IP to our catalogue and new fans to the wider Paradox ecosystem. Harebrained Schemes will continue to support BATTLETECH with updates and additional content. The studio has also started concept development for a new title, to be revealed at a later date.

In april, we ran a free-to-play promotion on Steam with Crusader Kings 2, one of our longest-running live games, where the base game was made free to download and keep for 48 hours. The promotion drove a significant influx of new players and a healthy increase in revenue from expansion sales. At one point during the promotion, Crusader Kings 2 became one of the top 5 most played titles on Steam worldwide. Going forward we will see more experiments of a similar nature, as we continue to tweak revenue models and price points for the best possible results.

Starting this August, Ebba Ljungerud will take over as CEO of Paradox Interactive, while Fredrik Wester will move into a new role as executive chairman of the board. In the short-term, this is unlikely to bring significant change. Our focus will be on stability, delivering on our existing product pipeline and building an organisation that can scale quickly to manage continued growth. Long-term, we look forward to working closely together on finding new business opportunities and ways of accelerating our growth even further.  For us, this is a very natural move and a logical next step in the story of the company. The only constant during the history of Paradox so far has been change. We are confident that will continue to be true in the future as well.

Fredrik Wester, Executive Chairman of the Board
Ebba Ljungerud, Chief Executive Officer

Presentation of interim report

Ebba Ljungerud, Fredrik Wester and Alexander Bricca will host a live stream to answer report and financial related questions on our Twitch channel on August 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/paradox-q2-2018-quarterly-report-and-livestream.1113401/, 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:

Ebba Ljungerud, CEO Paradox Interactive
Alexander Bricca, 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 August 14, 2018.

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