Q&A Interim Report Q2 2018
Below questions has been sent to Starbreeze in connection with the interim report. Updated 21 August 2018.
OVERKILL’s The Walking Dead
Q: Why has 505 Games chosen to postpone the console release of OTWD?
505 Games wanted a simultaneous release of the digital and retail console versions in order to maximize leverage on their marketing activities and ultimately sales. February is a good window for release.
Q: Why is the delay 3 months?
With the current milestones, the physical version of the console game would hit the stores too close to Christmas, missing the important sell-in period. The next really viable period is early February which actually is quite an attractive launch window.
Q: Is one of the reasons for the postponed release to synch with the new season of the TV series?
Q: How will the delay affect the financials for Starbreeze during 2018?
As we meet the planned submissions and approval, the advance royalty for the console version of 10 MUSD from 505 Games will be recognized revenue in Q4. Revenues from the console versions will be delayed one quarter. There is no change for revenues generated from the PC version.
Q: What was the most important outcome from E3?
There is a lot of outcome from this type of events. We came back with good feedback on OTWD and a strong sense of having created a game that people really will appreciate and will come back and play many times again.
Q: What is your strategy within Publishing?
Our strategy is to build a focused publishing portfolio containing selected major titles based on well-known brands and/or made by a team with a proven track record. At the moment, we have the major publishing projects of Psychonauts 2, System Shock 3 and 10 Crowns in development. We will continue to selectively sign new titles to ensure a steady flow of major releases.
Q: Why did you sell back the publishing rights for Deliver us the Moon?
Deliver us the Moon is a very small title in our publishing portfolio, a so called Indie title. The strategy in this segment is to test new concepts or studios. In this segment we are very selective but also opportunistic, meaning that we pull out if projects that don’t meet our expectations or that we do not share the creative vision. In this case of Deliver us the Moon it was the later reason. The deal establishes the mutual understanding between Starbreeze and KeokeN and we both think that this is the best decision.
Q: Did you lose money on the project Deliver us the Moon?
Deliver us the Moon is a small Indie title and we will get back our investment of 500 k dollars and a bit more based on the sales, when the game is releases in the near future.
Q: Why did Payday for Switch not have any revenue from physical sales in Q2?
A: Before we receive any revenues from the physical sales, sales need to exceed the initial payment (minimum guarantee) that we already received. The lead time for sell-through reports to the distributor and then Starbreeze, can take up to 3 quarters or more to be recognized – depending of the size of the minimum guarantee and how the game sell trough. The digital sales are represented in the Q2 report (10.5 MSEK in total since release).
Q: When will Geminose be launched?
A: Geminose is on track to exclusively premiere on Nintendo Switch. Work is progressing and wrapping up with the porting, what’s even more important is that we’re working closely with Nintendo to hit the right release window. The Geminose VR experience is very popular in the VR Park in Dubai.
Q: When will PAYDAY CrimeWar (mobile) be launched?
A: The exclusive beta will commence September 10, more information on how to participate will be communicated soon. Keep an eye out for announcements on OVERKILL’s social media and on the PAYDAY Steam forums. We value your feedback!
Q: Any news on Crossfire?
A: The development is proceeding according to plan and is moving into an increasingly intensive phase. Crossfire is one of our own production projects that is based on one of the biggest IP in the world.
Q: When will we get an updated timeline with ongoing projects such as System Shock and Psychonauts, etc?
A: Development is ongoing and the teams on track. As previously noted, you can follow the development on Psychonauts with Tim Schaefer and the team on the Figplatform. We will communicate launch dates when the commercial launch starts for each project.
Q: Can we expect the same sales from the VR centers going forward?
Our VR Center in Stockholm opened 31 May so there was only one month of sale in the Q2 report. In our Dubai Park we can see an uptick in the revenue stream after Ramadan that ended mid June.
Q: How much has Starbreeze invested in the two VR centers and how long will it take to recoup the investments?
Starbreeze has committed to invest 8 MUSD in the center in Dubai. StarVR has taken a large part of that investment and will in return receive half of Starbreeze’s revenues from ticket sales. Net, Starbreeze receives 20-25 % of the revenues from ticket sales from the Starbreeze experiences in the VR Park. The plan is that the VR Park will pay back its investment and more during the agreement period. The plan is not that this revenue stream will be a significant revenue source for Starbreeze though. We see the VR centers in Dubai and Stockholm as important windows for showing current and future partners and customers what we are doing in VR – boosting our content sales and StarVR’s sales of headsets and related technology.
Q: You opened your second VR center in the quarter, are you planning to open more centres?
We see our two VR centres as important windows for showing current and future partners and customers what we are doing in VR. Our strategy is not to run a lot of VR centers, but simply to demonstrate what it can offers to wide range of potential providers as well as how a premium VR experience looks like for the end-customer. To understand VR you need to experience it. As for us, we are focusing on making premium content for others while our joint venture StarVR Corporation is focusing on marketing and sales of the hardware.
Q: When will StarVR One be available to buy and to what price?
Further news will be communicated by StarVR Corporation within the next few weeks.
Q: Is StarVR One the best head-sets on the market?
We believe so! And so do others. StarVR One is the most advanced VR headset on the market. It has a nearly human field of view and the most sophisticated optics out there, with integrated eye-tracking from Tobii. Two hands-on experiences can be found here:
Q: What does the StarVR One mean for the future of StarVR Corporation?
A: A start to something fantastic! The team has finally been able to show the work of the past three years complete with a ecosystem of partners to support the launch. architects, engineers and the simulation industry finally have a tool worthy of their efforts! We can’t wait to show you the headset within a near future.
Q: Why did StarVR reverse their plan for a new share issue?
StarVR decided to focus on getting their headset on the market and start enterprise sales before sizing and undertaking any further investments. Therefore they are not in need of capital injection at this time.
Q: Does the focus on business applications mean that StarVR will stop working with destination based VR?
No, alongside the enterprise venture, StarVR is continuing its foray in the LBE market jointly with Starbreeze on the content side, as planned.
Q: Are you planning to sell your stake in StarVR?
A: We have no such plans at the moment.
Q: What is the value of your ownership in StarVR Corporation in your books?
A: Starbreeze stake in StarVR cooperation is valued at some SEK 416 million, based on the price of the listed StarVR share. The listing of StarVR Corporation’s share does not affect the value in our books since that currently is reported in accordance with the equity method. As of 30 June the book value of Starbreeze share of StarVR Corporation is 33 MSEK.
Q: What does the improved profitability in the quarter come from?
Most of it is due to the Dead by Daylight deal. Selling the rights to the game was a fantastic deal in terms of profitability. Financial performance during the quarter was also considerably better because of a downwards adjustment of the liability for the earnout for the acquisition of Enterspace and changed tax rates in the US.
Q: Does that mean that the Enterspace VR Center in Stockholm not is doing as good as you expected?
It is a great place to show partners and customers what VR technology is and can be today. In that respect it is very successful. When it comes to financial performance, it is very early days. It has only been open during summer, which most likely will be our low season as we mainly target a business event market. Earn outs usually have several components that need to be fulfilled in order for them to be paid out. In this case we see that timing is a major constraint for pay out.
Q: How did the Dead By Daylight deal affect the Q2 net sales and profit?
Starbreeze was paid royalties on 65 percent of game revenues as of 1 January 2018, instead of the previous 100 percent, and all development and marketing costs were assumed by Behaviour.
Q: Now when the deal with DBD is over, do you still feel like it was a good decision?
A: Yes, the long-term profits from the game generated by the deal well exceeds the long-term profits that we would have made as a publisher.
Q: Will Q3 be disastrous without the sales of DBD?
A: As we’ve noted in the Q2 report, Q3 will be a financially weaker but will be leading us into a Q4 with Overkill’s The Walking Dead launching. When we announced our new financial goal of 2 billion SEK, we provided some guidance that some quarters might have a negative EBITDA and cash flow until Q4 2018.
Q: Is the goal still to hit 2 billion SEK as a financial target for 2020, not including PD3?
A: Indeed, the majority is based on our own games but of course also including all our business areas.
Q: What does the agreement with Acer about the convertible bond mean?
It means that we agreed to extend the convertible bond one year and the bond will be repaid according to a one-year plan. All other terms remain the same apart from Starbreeze not having the possibility to force conversion. Acer has the right to call for conversion at any time throughout extended period of the debt to Class B shares at a price of SEK 17.61 per share.
Q: Why did they not convert the bond to Starbreeze shares now?
The conversion price is SEK 17.61 per share and as of today the Starbreeze share is traded at approx. SEK 9.