November 14, 2016

Interim report January - September 2016

Third quarter 2016

Revenues for the third quarter amounted to SEK 127.2 (90.5) million, an increase by 41 % compared to the same period last year.
Operating profit amounted to SEK 54.6 (32.0) million, an increase by 71 %.
Profit before tax amounted to SEK 54.6 (32.0) million, and profit after tax amounted to SEK 42.3 (24.8) million.
Cash flow from operating activities amounted to SEK 102.7 (53.8) million, and cash flow from investing activities amounted to SEK -30.8 (-39.6) million.
By the end of the period cash and short term placements amounted to SEK 215.1 (190.5) million.
Revenue from the third quarter of 2016 are mainly attributable to Hearts of Iron IV, Stellaris, Cities: Skylines, Crusader Kings II and Europa Universalis IV.

First nine months 2016

Revenues for the first nine months amounted to SEK 455.4 (477.2) million, a decrease by 5 % compared to the same period last year.
Operating profit amounted to SEK 222.1 (198.0) million, an increase by 12 %.
Profit before tax amounted to SEK 222.6 (197.8) million, and profit after tax amounted to SEK 172.3 (153.9) million.

Important events in the third quarter

One expansion for Crusader Kings II, The Reaper's Due, was released.
In August Paradox participated at Gamescom, one of the major global trade fairs.
On September 1 this year's Paradox Publisher Weekend was started, which lasted until September 5.
Cities: Skylines - Content Creator Pack: Art Deco, was released, which is the first collaboration with the community’s players to produce and sell downloadable content.
Steam Summer Sale continued until July 4.

Words from CEO

Paradox shows continued strength

We continued to show our strength during Q3, despite releasing only one expansion during the period (“The Reaper’s Due” for Crusader Kings II). Thanks to the successful releases of Stellaris and Hearts of Iron IV earlier in the year, and the revenue they continue to generate, our revenue continues to rise.

Overall, our revenue in the first nine months of 2016 is down compared to last year, but our profits are significantly higher. Our profit margin improved because the most successful games we have launched during 2016 were created by our internal team, Paradox Development Studio, and have been tied to brands owned entirely by Paradox.

We have also continued to support our most established franchises with new content. For example, Crusader Kings II launched in 2012, and this year’s “The Reapers Due” expansion followed the trend of previous expansions in reactivating old players as well as bringing in new players. This was achieved through a combination of releasing attractive free content for all players parallel to additional paid content. This is a model more and more developers are adopting today, but we are unique in that we support our titles over a greater length of time.

Building a close relationship with our players has always been a priority for us, and the balance we have struck between maintaining player relationships and expanding our business has made us recognized role models in the industry. Our early switch to digital distribution continues to yield results by allowing us to receive regular and direct feedback through sales, player behavior, and direct communication. When we make a decision that isn’t generating the desired outcome, we can act quickly with that concrete feedback and make the necessary adjustments.

I’d also state that we have one of the only development teams in the world who see a strong correlation between creating great, marketable games and keeping creativity a core part of the process.

In the spirit of community collaboration, this quarter we released our first of several planned official expansions featuring user-generated content. Our modding community has contributed tremendously over many years to keep our games fresh by creating thousands of different game modifications (mods). By highlighting some of our most appreciated modders, we get the chance to financially support the development of new content for our games and recognize the contribution our community makes.

In the beginning of September we had our ”Publisher Weekend” on Steam, a weekend when Paradox’s games are highlighted for the platform’s 125 million registered active users.* As has been the case with previous Publisher Weekends, we saw our player numbers go up significantly following the event.

Our active player number has held steady at 1.5 million monthly players, which is a good sign overall. We have a stable base of players for Stellaris and a healthy rate of new players as well, and both Stellaris and Hearts of Iron IV continue to receive high user scores from players. We look forward to developing these titles further in the years to come.

This quarter we also showed our games at Gamescom, Europe’s largest show for computer games. We demonstrated Tyranny, a project we have been working on together with Obsidian Entertainment, for the gathered press, conducted partner meetings, hosted a recruitment booth and threw a very appreciated and well-attended beach party. White Wolf also presented their future plans for the first time for a group of selected partners and received a lot of good feedback.

The listing of Paradox has had a very positive impact on our visibility in Sweden. In the past, we have focused much of our communication on the international market, but following our market debut the awareness of our business, what type of company we are, and the fact that we are Sweden’s fourth-largest games company by revenue has increased quite a bit. This has been particularly helpful for our recruiting: we are seeing greater numbers of applications for almost all of our advertised roles, and we continue to grow in order to be able to execute on our plans.

As we continue to add new employees, we will also continue working on our organization. Among other things, we want to clarify the Paradox vision and culture so that it is as clear to everyone as to the types of games we work with.

In Q4 we are releasing Tyranny together with Obsidian Entertainment, one of world’s most recognized developers within the roleplaying genre and the studio behind Pillars of Eternity.

In December we will meet our fans at our yearly “Fan Gathering.” It’s a chance for us to meet and interact directly with our most dedicated players, and is the highlight of our year!

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.