February 19, 2019

Year-end report 2018

Fourth quarter 2018

Revenues amounted to SEK 336.9 (222.4) million, an increase by 51 % compared to the same period last year.
Operating profit amounted to SEK 146.8 (86.7) million, an increase by 69 %.
Profit before tax amounted to SEK 146.8 (86.7) million, and profit after tax amounted to SEK 114.3 (68.8) million.
Cash flow from operating activities amounted to SEK 151.3 (139.7) million, and cash flow from investing activities amounted to SEK -167.9 (-63.4) million.
By the end of the period cash and short-term placements amounted to SEK 327.0 (320.1) million.
Earnings per share amounted to SEK 1.08 (0.65) per share.
Revenues from the fourth quarter of 2018 are mainly attributable to Cities: Skylines, Stellaris, Crusader Kings II, Europa Universalis IV and Hearts of Iron IV.

Full year 2018

Revenues for the period amounted to SEK 1,127.7 (813.8) million, an increase by 39 % compared to the same period last year.
Operating profit amounted to SEK 455.1 (339.8) million, an increase by 34 %.
Profit before tax amounted to SEK 455.2 (339.6) million, and profit after tax amounted to SEK 353.9 (264.9) million.
Earnings per share amounted to SEK 3.35 (2.51).
The Board of Directors propose a dividend SEK of 1.00 (1.00) per share for the year 2018.

Important events in the fourth quarter 2018

Six new expansions were released during the period; Industries for Cities: Skylines, MegaCorp for Stellaris, Flashpoint for BATTLETECH, Space Race for Surviving Mars, Holy Fury for Crusader Kings II and Golden Century for Europa Universalis IV.
Rights and assets for the Prison Architect IP were purchased from Introversion Software Ltd.
Steam Winter Sale took place December 20 to January 3.

Words from CEO

Our best year to date

2018 was an eventful year for Paradox Interactive. I am proud and happy to announce that we are now putting our best income quarter on the books. We do this without having released any new games during the quarter, which again demonstrates the strength of our core strategy to develop and support games and brands in the long term. Continuous updates and expansions give our games a long life, both in terms of number of players and recurring revenue.

During the year, we released 16 expansions to existing games, of which six were released during the fourth quarter of 2018; Industries for Cities: Skylines, MegaCorp for Stellaris, Holy Fury for Crusader Kings II, Flashpoint for BATTLETECH, Space Race for Surviving Mars, and Golden Century for Europa Universalis IV. Many of our games continue to be popular many years after release: Europa Universalis IV and Crusader Kings II were released more than five and seven years ago, respectively, but continue to attract both new and existing players. For example, when we released Holy Fury - the most recent expansion for Crusader Kings II - in November 2018, it sold more during its first month than any previous expansion for the game in the same time.

At the beginning of the year, we released the new games Surviving Mars and BATTLETECH. In September, Paradox Interactive premiered on the Nintendo Switch with Cities: Skylines. Although only a few of our most successful games are available on console, our console revenues during the year accounted for 12% of total revenue. We ended the year by acquiring the rights to the Prison Architect game and brand, an award-winning management game created by the English studio Introversion Software Ltd. The game is currently available on PC, Mac, Linux, Xbox, Playstation, Switch and on mobile for iOS and Android, and has sold over two million copies so far.

Through the acquisition of Prison Architect, we are laying an important building block for future growth within the management genre, where Cities: Skylines and Surviving Mars are currently our most successful games. Constantly adding new games and brands to our portfolio remains a core part of our strategy. It helps ensure longevity and lessens our dependency on all releases being hugely successful from day one.

During 2018, we also grew through a number of acquisitions. We acquired the studio Harebrained Schemes LLC, creators of BATTLETECH, as well as a minority stake in Hardsuit Labs Inc, who are working on an as-yet undisclosed game on our behalf. The purpose of these investments was to secure our expertise and capacity to develop games within both strategy and other genres. We have also expanded our existing organization considerably - during the fourth quarter we passed 400 employees in the Group.

During the full year 2018, we invested 304 MSEK in game development and 155 MSEK in the acquisition of development studios and brands. We also invested more money into development of our own technical platform and in the marketing of our games. All of these investments are made possible by cash flow from our ongoing operations. It is important to point out that our growth journey is just beginning. In 2019 we will invest more than ever in building for the future. As always, our revenue and results vary greatly between quarters, depending on the timing of releases of new games and expansions. So it has been in 2018, and so it will continue to be in coming years.

In 2019, we will add two completely new games to our portfolio - Age of Wonders: Planetfall and Imperator: Rome - and, for the first time, welcome the console audience to the grand strategy genre through Stellaris: Console Edition, launching in early 2019. We will also reveal more information about games that are being developed but have not yet been announced.

For the gaming industry as a whole, 2019 looks to be a year characterized by growing competition in the distribution market. Several strong players have recently announced their plans to challenge Steam's dominance in the PC market, while the console platforms are starting to prepare for the shift to the next hardware generation.

For us, these are positive developments. We own a strong portfolio of popular games and well-known brands, content that is very attractive to anyone attempting to enter the distribution market. Our strategy continues to focus on broad cooperation with all leading distributors, both in the PC and the console space. At the same time, we remain dedicated to building our own ecosystem of players around Paradox Interactive as the world’s leading publisher of deep, complex gaming experiences of the highest quality.

Also, on a personal note, I have now completed six months as CEO, and I'm as pleased to be in this position now as I was at the start. We have an exciting journey ahead in 2019.

Ebba Ljungerud, Chief Executive Officer

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 February 19 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-q4-2018-report-and-livestream.1152608/ 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.