Q&A Delårsrapport Q1 2018
Below questions has been sent to Starbreeze in connection with the interim report. Updated 10 May 2018.
Games
Q: How has the sales for Payday 2 onthe NintendoSwitchsystembeen so far?
A: As per the Q1 report the digital sales contributed 8 MSEK to Starbreeze. We’ve gotten indications that the game sells best in retail and unfortunately the first batch of physical games sold out quickly. We have talked to our distribution partner and more copies are on their way out.
Q: Did Payday for Switch generate 8 MSEK in Q1?
A: Yes, but that is only the digital sales. The revenue from physical sales in stores will be reported in the following quarters due to extensive lead times for the reporting for retail sales. We see a higher demand for the physical version of the game and our hopes are that the game for the platform will sell for a longer time. We believe that PAYDAY 2 suits the platform well.
Q: When will Geminose be launched?
A: Geminose is on track to exclusively premiere on the Nintendo Switch system. Work is progressing and we are wrapping the porting. What’s even more important is that we’re working closely with Nintendo to hit the right release window. The Geminose VR Carousel experience is very popular in the VR Park in Dubai.
Q: Are you planning to release more titles on Switch?
A: We’re always investigating which of our IPs that has a strong business case for platform expansions.
Q: When will PAYDAY Crime War(mobile)be launched?
A: The soft launch in selected territories is planned to start in the near future.
Q: Can you specify “fall” for OVERKILL’s The Walking Dead. Do you have any more specific dates?
A: OVERKILL’s The Walking Dead is planned to be launched this fall. A more specified date will follow when the commercial communication starts.
Q: Will you show gameplay for OVERKILL’s The Walking Dead at E3?
A: We are indeed showing gameplay at E3! Visit us at E3 to find out more or keep your eyes open in our social media channels.
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 large internal production that is based on one of the biggest FPS IPs in the world.
Q: What’s happening with PAYDAY Asia?
A: Payday is selling on Steam to players in Asia. in 2017 23% of our total sales came from Asia. We have said that PAYDAY2 is going to be released in Asia through Smilegate’s new distribution platform, but the development and launch of their platform is not in our control.
Q: Will OTWD have a global launch?
A: Yes. Bare in mind the special regulations in China.
Q: Will OTWD be launched by Smilegate in Asia and China?
A: Smilegate is one of many potential partners.
VR
Q: When will Enterspace in Stockholm open?
We’ve focused our resources and Dubai was the priority until the park opened on 1 March. The initial phase after the opening was also intensive for our staff. They had to make sure that all experiences were up to speed and that the operational staff got a good handover. Now they can focus on the final tech implementation in Stockholm. And then it is just about timing.
Q: You said that you were going to open Enterspace in the Fall. Why have you been so quiet?
A: When we communicated the plan for the opening we did not have an agreement to become the lead partner to one of the world’s most prominent VR centers. Of course that became our focus since the VR Park in Dubai is a project of much larger scale. The project in Stockholm is an important showcase, but altogether a smaller part of the Starbreeze Group and does not have significant strategic and financial impact. We will communicate when it is time for the commercial opening.
Q: What experiences will be available in the VR Park in Stockholm?
A: Enterspace experience Ringwalker will be premiering at the Stockholm center. If there are additional content it will be revealed when we communicate the commercial opening.
Q: How much has Starbreeze invested in the two VR centers and how long will it take to recoupe the investment?
Starbreeze has committed to invest 8 MUSD in the center in Dubai. StarVR has taken a large part of that investment and therefor will receive a half of Starbreeze revenue from the 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 revenue from operations will be the significant revenue source from VR for Starbreeze. The plan is that the VR centers in Dubai and Stockholm will serve as concept stores to showcase what we can do in VR so we can market more content and StarVR Corporation more headsets and related technology.
Q: Why did you close down 2 VR projects and how much money did you loose on that?
A: We choose to discontinue 2 minor VR titles during Q1, one of them being Project Golem and the other a small unannounced project. It was a pure business decision and we do not wish to invest more in the projects. It was two smaller projects in an early phase and the total investment made was some SEK 6 million. As a reference, we invested 176 MSEK in content and tech during Q1.
Q: How is it going with the VR Park in Dubai?
A: Dubai is a flagship centre to showcase what we can do. There are a lot of people and we have received a lot of attention and are pleased with the number of visitors during the soft launch. The park generated 1.3 MSEK for Starbreeze during its first month.
StarVR
Q: Is Starbreeze planning to keep the patents regarding StarVR even if the IPO is in Taiwan?
A: That will be a discussion with Acer and StarVR. No decisions have been made.
Q: Are you planning to sell your shares in StarVR?
A: We evaluate our investments on an ongoing basis, but for the time being we are content with the current setup. Our holding, and any change therein, also need to be compliant with the local IPO rules.
Q: What is the value of your ownership in StarVR Corporation in your books?
A: Starbreeze share in StarVR cooperation has a market value by 8 May of some SEK 540 million. The listing of StarVR Corporation does not affect Starbreeze accounting since the ownership in the joint venture is reported in accordance with the equity method. The value in Starbreeze books in some SEK 40 million.
Q: What is the next step for StarVRCorporation?
A: StarVR Corporation is maturing into a separate company with the mission to take the StarVR headset to the market. The goal is an IPO on the Taiwan Exchange. We believe a future listing would put StarVR in prime position to be a leading player in the global VR industry.
Q: How are are you moving forward on establishing new venues and customers for StarVR – Sega and others?
A: With our 33% ownership we are a minority owner in StarVR – who are now listed in Taipei. Unfortunately, we can not answer on their behalf, they choose when and how much they communicate on how the business is developing.
Finance
Q: Why did you change to function-based income statement?
A: We’d change in order to better align with industry practice and facilitate improved comparability. This Profit and Loss statement is more suitable for businesses with gross revenues and direct costs, as we have. In addition, capitalized development cost isn’t disclosed on a separate line instead netted in direct cost which gives a more fair picture of our financial performance.
Q: Will there be more impairment losses coming up? You only took SEK 20 million on RAID for example?
A: All impairment tests are based on the future cash flows of the underlying asset. The tests are renewed every quarter. For example the underlying assets, RAID World War II, was tested and per 31 March 2018 and the projections for RAID was in line with the value on the books. The depreciation plans can also be updated and changed for an asset/game investment due to changes of the game’s anticipated economic lifetime.
Q: How did the Dead By Daylight deal affect the Q1 net sales and profit?
A: The deal had a positive net effect on sales of SEK 17 million during the quarter. On one hand, we received the initial payment of SEK 33 million. On the other hand, according to the new agreement, we will be recognizing only 65 percent of revenues on the topline instead of the previous 100 percent, as Behaviour has assumed all obligations related to the game. The deal significantly improved profitability because we no longer incur any costs for the game as of 1 January this year, making all revenues pure profit. Behaviour’s part of the royalty, 35% and as per IFRS not included in our P&L at all and it is not recorded as expenses as this part of sales are not recorded as revenue for Starbreeze.
Q: How much money did the share issues raise, excluding transaction costs, and how much cash to you have after?
A: The share issues raised a total of SEK 390 million before transaction costs. The transaction costs were at market level and will be fully visible in our Q2 report. In Q1 we recognised SEK 5.6 m in transaction costs and per March 31st our cash balance is SEK 295 m.
Q: Could it have been a mistake to make two new issues? Should you have made the first one bigger instead of making a second one?
A: One of our goals with the new issues was to increase long-term stable ownership in Starbreeze. Therefore, we conducted the targeted new issue. Then we also wanted to create an opportunity for all our existing shareholders to participate with a rights issue.
Q: How is Starbreeze’s economy affected by Dhruva since they by end of December are a part of Starbreeze?
A: Dhruva is included as of December 22, 2017. During Q1, they had external revenues of SEK 7 million and, above all, they contribute as subcontractors to both of our major gaming projects.
