Interim Report 2020-01-01 - 2020-09-30

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INTERIM REPORT 2020-01-01 - 2020-09-30

Interim Report

2020-01-01 - 2020-09-30

*Please note that this is a translation for information purposes only - in case of any discrepancies between this version and the Swedish, the Swedish version shall prevail.

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 1 INTERIM REPORT 2020-01-01 - 2020-09-30

INTERIM REPORT 2020-01-01 - 2020-09-30

THIRD QUARTER 2020 IMPORTANT EVENTS IN THE THIRD QUARTER 2020 • Revenues amounted to MSEK 494.8 (MSEK 282.6), an increase by 75 % • The new game Crusader Kings III was released September 1, 2020. The game compared to the same period last year. is amortised using a degressive amortisation method over 18 months, where • Operating profit amounted to MSEK 187.7 (MSEK 93.1), an increase by 102 %. 1/3 of the development cost is amortised in the first month after release. • Profit after financial items amounted to MSEK 187.0 (MSEK 92.9), and profit • The Group’s employees continue to work from home to reduce the spread of after tax amounted to MSEK 148.5 (MSEK 74.0). Covid-19. • Cash flow from operating activities amounted to MSEK 213.0 (MSEK 73.4), and • The Paris-based development studio Playrion Game Studio was acquired on cash flow from investing activities amounted to MSEK -236.4 (MSEK -32.5). July 1, 2020. • By the end of the period cash amounted to MSEK 600.0 (MSEK 434.6). • The Finland-based development studio Iceflake Studios was acquired on July • Earnings per share amounted to SEK 1.40 (0.70) after dilution. 16, 2020. • Revenues in the quarter are mainly attributable to Cities: Skylines, Crusader Kings III, Europa Universalis IV, Hearts of Iron IV and Stellaris. AFTER THE END OF THE PERIOD • No significant events have occurred after the end of the period. FIRST NINE MONTHS 2020 • Revenues amounted to MSEK 1,360.1 (MSEK 908.0), an increase by 50 % compared to the same period last year. • Operating profit amounted to MSEK 552.6 (MSEK 310.0), an increase by 78 %. • Profit after financial items amounted to MSEK 549.4 (MSEK 310.1), and profit after tax amounted to MSEK 431.0 (MSEK 243.6). • Earnings per share amounted to SEK 4.07 (2.31) after dilution. ABOUT PARADOX The Paradox group today consists of both publishing and internal development of games and brands. The game portfolio includes more than 100 titles and Paradox owns the most important brands, including Stellaris, Europa Universalis, Hearts of Iron, Crusader Kings, Cities: Skylines, Surviving Mars, Prison Architect, Magicka, Age of Wonders and the World of Darkness catalogue of brands.

From the start in 2004, the company has published its games all over the world, initially through physical distribution but since 2006 primarily in digital channels. Paradox games are developed primarily for PC and console platforms, but the company also releases games on mobile. The largest markets today include the US, UK, China, Germany, France, Russia and Scandinavia. Today, over four million gamers play a Paradox game each month and the number of registered Paradox users exceeds 14 million.

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 2 INTERIM REPORT 2020-01-01 - 2020-09-30

CEO WORD ROYAL QUARTER PROVIDES NEW REVENUE RECORDS

The third quarter of the year has for us to a large quarter was 101% higher than the same quarter extent been about the launch of Crusader Kings III. last year and for the last twelve-month period, Crusader Kings III is the third edition of our success- profit before tax was 55% higher than a year ago. ful Grand Strategy franchise based on a player’s However, I would like to point out, in the usual way, personal journey through the Middle Ages. When that our quarters are seldom comparable with each the review embargo was released shortly before other since our business is not cyclical. launch, the game received an aggregate score of 91/100 on Metacritic, which is a collected rating An important task in our business is to decide when of industry and gaming media reviews. It is our we should continue to develop a game to take highest rating ever on Metacritic and it is, of course, advantage of the long-term potential we see in the extremely positive, but what makes me happiest of franchise, and when it is better to cancel further all is that the game was received with remarkable development and instead reallocate resources enthusiasm by our players. Over 19,000 reviews on to projects that are expected to provide better Steam and over 1,000,000 units sold paints a clear returns. During the quarter, we decided to cancel picture: We have created a really good game! further development of an unannounced externally developed game. As a consequence, we wrote down The successful launch of Crusader Kings III is the full value of the game in September, which has another proof of the value in owning and methodi- reduced the quarter's earnings by SEK 28 million. cally developing our franchises. Crusader Kings III is, like most of our successful games, the result of During the development phase of our games, for several iterations of the game. Often the first game both games developed by our own studios and in a franchise is not a success, but instead lays the games developed by our external partner studios, foundation for future sequels by building a player we capitalise the development costs which are base, a brand, and the knowledge to gradually de- then amortised over 18 months from the game's velop better games. launch. For the games we have launched so far, we have applied a linear amortisation model through During the third quarter of the year, we once again which equal amortisation is made in each of the delivered a record quarter in terms of revenue. 18 months. For Crusader Kings III, we are instead Compared with the same quarter last year, our applying a degressive amortisation model, where revenue increased by 75%, while revenue for the we have written off 1/3 of the game's development past twelve months has increased by 40% compa- costs already during the game's launch month, 1/3 red with the previous year. Profit before tax for the evenly distributed during months 2-6, and 1/3 even-

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 666 Stockholm • www.paradoxinteractive.com 3 INTERIM REPORT 2020-01-01 - 2020-09-30

ly distributed during months 7-18 after the game's launch. This more forward-leaning amortisation model is more in line with how we expect revenue from Crusader Kings III, and similar games we plan to launch in the future, to be distributed. In the short term, the amortisation model means that the result decreases compared with a linear amortisation model, while the result is equally higher during the latter part of the amortisation period.

We continue to adapt our operations to the prevail- ing pandemic and, as an employer, do what we can to ensure the well-being of our employees while we continue to work from home. During the quarter, we organized webinars on the theme of mental health and initiated several different health-promoting activities.

In December, we will launch a new strategy game - Empire of Sin - which we have developed together with Romero Games. Empire of Sin follows Paradox's classic design philosophy: the game can be replayed several times with a new gaming experience each time, and as with many Paradox games, players are given the opportunity to modify the game themsel- ves and share these mods with other players. While Empire of Sin retains these core Paradox features, it represents a step outside our usual comfort zone with its role-playing elements and 1920s gangster theme. In this way, the game is a natural and smooth step for us to expand our portfolio. I am delighted to end this very special, and in many ways challen- ging, year by launching a new game and I hope our players will enjoy it.

Ebba Ljungerud, CEO

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholmtockholm • www.paradoxinteractive.com 4 INTERIM REPORT 2020-01-01 - 2020-09-30

RELEASES DURING THE QUARTER

CRUSADER KINGS III Release date: September 1, 2020 Platform: PC Description: Paradox Development Studio brings you the sequel to one of the most popular strategy games ever made. Crusader Kings III is the heir to a long legacy of historical grand strategy experiences and arrives with a host of new ways to ensure the success of your royal house. Developer: Paradox Development Studio

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 5 INTERIM REPORT 2020-01-01 - 2020-09-30

REVENUE AND PROFIT THIRD QUARTER

REVENUE AND PROFIT THIRD QUARTER Selling expenses for the period amounted to MSEK Licenses, brands and similar rights amounted to Revenues amounted to MSEK 494.8 (MSEK 282.6), an 50.9 (MSEK 40.4). Selling expenses increased due to MSEK 337.7 (MSEK 221.2). increase by 75 % compared to the same period last increased investments in marketing and sales. year. The new game Crusader Kings III was released Goodwill amounted to MSEK 21.1 (MSEK 0.0) attribu- September 1, 2020. Revenues in the quarter are mainly Administrative expenses for the period amounted to table to the acquisition of Iceflake Studios. attributable to Cities: Skylines, Crusader Kings III, MSEK 32.9 (MSEK 34.8). Europa Universalis IV, Hearts of Iron IV and Stellaris. By the end of the period property and equipment Other income amounted to MSEK 3.9 (MSEK 10.1), amounted to MSEK 33.1 (MSEK 21.0). Cost of goods sold amounted to MSEK 219.1 (MSEK and other expenses to MSEK 8.3 (MSEK 1.2). The ne- 123.2), primarily attributable to game development, gative development is primarily driven by a weaker Right-of-use assets for offices amounted to MSEK 210.2 development support, operation and maintenance price performance of USD against SEK in the Group's (MSEK 32.4). Since last year Triumph Studios, Paradox of games, as well as royalties to third parties. Costs liquid assets, operating receivables and liabilities Development Studio and Paradox Interactive have for game development has increased following during the quarter compared with the same quarter taken up new premises. game investments and releases of new games. The last year. new game Crusader Kings III is depreciated using Shares in associates amount to MSEK 26.5 (MSEK 17.2) a degressive amortisation model where 1/3 of the Operating profit amounted to MSEK 187.7 (MSEK by the end of the period, relating to 33 % of shares in development cost is amortised the first month after 93.1), an increase by 102 %. Seattle-based development studio Hardsuit Labs. The release, 1/3 is amortised month 2-6 after release, shares are valued at the equity method. and 1/3 is amortised month 7-18 after release. Wri- Financial items amounted to MSEK -0.7 (MSEK -0.2). te-downs within the function amounts to MSEK 28.4 Financial items primarily consists of interest on lease Accounts receivable amounted to MSEK 328.2 (MSEK (MSEK 8.1), relating to a not yet announced game liabilities. 143.7) by the end of the period, mainly attributable to developed by a third party where development has sales during the last month of the period. been cancelled. Work on development support as Profit after financial items amounted to MSEK 187.0 well as operation and maintenance has since the (MSEK 92.9), and profit after tax amounted to MSEK Cash and cash equivalents amounted to MSEK 600.0 beginning of the year been mainly identified within 148.5 (MSEK 74.0). (MSEK 434.6). the cost of goods sold function, which contributes to an increase of the post. Costs for royalties are FINANCIAL POSITION Shareholders' equity amounts to MSEK 1,464.2 lower than during the comparison period as a result Capitalised development amounted to MSEK 863.3 (MSEK 998.6), of which MSEK 431.0 (MSEK 243.6) of lower sales of royalty-generating games. Since (MSEK 503.9) by the end of the period. consists of accumulated profit for the year. the end of the year, the item is referred to as cost of goods sold, since it is considered to be a more accurate description of the function's content.

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 6 INTERIM REPORT 2020-01-01 - 2020-09-30

Long term lease liabilities amounts to MSEK 178.0 FIRST NINE MONTHS SUMMARY ACCOUNTING PRINCIPLES (MSEK 27.7) consisting of liabilities for office Revenues amounted to MSEK 1,360.1 (MSEK 908.0), This interim report has been prepared in accordance premises. an increase by 50 % compared to the same period with IAS 34, Interim Financial Reporting. The parent last year. Cost of goods sold amounted to MSEK company applies the Swedish Financial Reporting Deferred tax liabilities amounts to MSEK 168.8 553.5 (MSEK 367.6), primarily attributable to game Board's recommendation RFR 2, accounting for legal (MSEK 106.2), mainly relating to untaxed reserves. development, development support, operation and entities. The same accounting principles have been maintenance of games, as well as royalties to third applied as in the latest annual report. It is judged Other long term liabilities amounted to MSEK 47.0 parties. Costs for game development has increa- that the fair values of all financial assets and liabi- (MSEK 61.2) by the end of the period. The other long- sed following game investments and releases of lities are approximately equal to their book values. term liabilities consists of purchase prices attributa- new games. Write-downs within cost of goods sold Financial instruments valued at fair value is compri- ble to acquisitions. amounts to MSEK 32.3 (MSEK 23.2). Cost of royalties sed of contingent considerations. These are repor- is in line with the comparison period. Operating ted at fair value through profit or loss. The valuation Short term lease liabilities amounts to MSEK 34.3 profit amounted to MSEK 552.6 (MSEK 310.0), an is based on other observable data for the asset or (MSEK 4.8) consisting of short term liabilities for increase by 78 %. Profit after financial items amoun- liability, that is, level 3 according to IFRS. No reclas- office premises. ted to MSEK 549.4 (MSEK 310.1), and profit after tax sifications have been made between the different amounted to MSEK 431.0 (MSEK 243.6). Cash flow levels during the period. Accrued expenses and prepaid income amounts to from operating activities amounted to MSEK 739.2 MSEK 375.9 (MSEK 168.2). The change is mainly re- (MSEK 462.3). Cash flow from investing activities RISKS AND UNCERTAINTIES lated to an increase in prepaid revenue from games amounted to MSEK -551.2 (MSEK -239.0). Cash flow Paradox is, like most companies, exposed to certain sold where revenue is accounted for at a later date. from financing activities amounted to MSEK -140.0 risks in its operations. The risks and uncertainties (MSEK -117.7). are described as a whole in the Annual Report for CASH FLOW THIRD QUARTER 2019, page 23. Risks to be specifically mentioned Cash flow from operating activities amounted to PARENT COMPANY THIRD QUARTER includes a dependency on key employees, depen- MSEK 213.0 (MSEK 73.4), primarily attributable to The parent company consists of the publishing dency on a few sales partners, delays of game pro- the operating profit and adjustments for items not branch, and the parent company provides adminis- jects, low revenues from game releases, and foreign included in the cash flow. Cash flow from investing trational services to subsidiaries. The subsidiaries currency. These risks and uncertainties may have activities amounted to MSEK -236.4 (MSEK -112.5), mainly have intercompany revenue from game a direct or indirect impact on the group's financial mainly referring to investments in game developme- development invoiced to the parent company, why position and results. nt. Cash flow from financing activities amounted to the financial development of the parent company MSEK -12.1 (MSEK -4.2) mainly relating to amortisa- to a great extent follows the group's development. tion of lease liabilities for office premises. Parent company revenues for the quarter amounted to MSEK 486.2 (MSEK 280.2). Operating profit amounted to MSEK 191.3 (MSEK 100.7). Profit after financial items amounted to MSEK 191.7 (MSEK 100.8). Profit after tax amounted to MSEK 150.7 (MSEK 79.3).

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 7 INTERIM REPORT 2020-01-01 - 2020-09-30

CONTACT Additional information about the company can be found on the corporate website www.paradoxinteractive.com. The company can be contacted by e-mail, [email protected], or by post Paradox Interactive AB, Magnus Ladulåsgatan 4, 118 66, Stockholm, Sweden.

CALENDAR Paradox intends to distribute financial reports on the below dates.

Year-end report January - December 2020 2021-02-23 Interim report January - March 2021 2021-05-11 AGM 2021 2021-05-18 Interim report January - June 2021 2021-08-10 Interim report January - September 2021 2021-11-16 Year-end report January - December 2021 2022-02-22

ASSURANCE BY THE BOARD OF DIRECTORS The board of directors hereby provide an assurance that the interim report provides a true and fair view of the parent company's and the group's business, positions and earnings, and also describe the significant risks and uncertainties faced by the companies making up the group.

Stockholm November 17, 2020

Fredrik Wester Ebba Ljungerud Chairman of the Board Chief Executive Officer

Håkan Sjunnesson Josephine Salenstedt

Mathias Hermansson Linda Höglund

This information is information that Paradox Interactive AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication on November 17, 2020.

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 8 INTERIM REPORT 2020-01-01 - 2020-09-30

REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION

INTRODUCTION CONCLUSION We have reviewed the accompanying balance sheet Based on our review, nothing has come to our atten- of Paradox Interactive AB (publ) as of September 30, tion that causes us to believe that the accompanying 2020 and the related statements of income, changes interim financial information does not give a true and in equity and cash flows for the nine-month period fair view of the financial position of the entity as at then ended, and a summary of significant accounting September 30, 2020, and of its financial performance policies and other explanatory notes. Management is and its cash flows for the nine-month period then responsible for the preparation and fair presentation ended in accordance with IAS 34. of this interim financial information in accordance with IAS 34. Our responsibility is to express a Stockholm November 17, 2020 conclusion on this interim financial information based Grant Thornton Sweden AB on our review.

SCOPE OF REVIEW We conducted our review in accordance with Inter- Carl Niring national Standard on Review Engagements 2410, Authorized Public Accountant “Review of Interim Financial Information Performed by the Independent Auditor of the Entity.” A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 9 INTERIM REPORT 2020-01-01 - 2020-09-30

KEY FIGURES FOR THE GROUP 2020-07-01 2019-07-01 2020-01-01 2019-01-01 2019-01-01 2020-09-30 2019-09-30 2020-09-30 2019-09-30 2019-12-31

Revenues, KSEK 494,791 282,551 1,360,131 907,994 1,289,332

Operating profit, KSEK 187,658 93,079 552,575 310,037 473,530 Profit after financial items, KSEK 186,957 92,931 549,397 310,102 466,849 Profit after tax, KSEK 148,512 73,966 431,034 243,580 374,080

Operating margin 38% 33% 41% 34% 37% Profit margin 30% 26% 32% 27% 29% Equity/assets ratio 59% 68% 59% 68% 58%

Equity per share before dilution, SEK 13.87 9.46 13.87 9.46 10.66 Equity per share after dilution, SEK 13.77 9.46 13.77 9.46 10.66 Earnings per share before and after dilution, SEK 1.41 0.70 4.08 2.31 3.54 Earnings per share before and after dilution, SEK 1.40 0.70 4.07 2.31 3.54

Number of shares by the end of the period before dilution 105,600,000 105,600,000 105,600,000 105,600,000 105,600,000 Number of shares by the end of the period after dilution 106,353,350 105,600,000 106,353,350 105,600,000 105,600,000 Average number of shares before dilution 105,600,000 105,600,000 105,600,000 105,600,000 105,600,000 Average number of shares after dilution 105,985,561 105,600,000 105,807,816 105,600,000 105,600,000

Average number of employees 596 470 539 446 453 Number of employees by the end of the period 606 472 606 472 479

For definitions of key figures, see the annual report.

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 10 INTERIM REPORT 2020-01-01 - 2020-09-30

GROUP INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME (KSEK) 2020-07-01 2019-07-01 2020-01-01 2019-01-01 2019-01-01 2020-09-30 2019-09-30 2020-09-30 2019-09-30 2019-12-31

Revenues 494,791 282,551 1,360,131 907,994 1,289,332 Cost of goods sold -219,055 -123,209 -553,461 -367,568 -500,286

Gross profit 275,735 159,342 806,670 540,426 789,046

Selling expenses -50,892 -40,426 -156,392 -129,419 -193,582 Administrative expenses -32,863 -34,759 -97,782 -113,910 -173,665 Other income 3,949 10,080 25,141 15,344 63,553 Other expenses -8,271 -1,159 -25,061 -2,404 -11,821

Operating profit 187,658 93,079 552,575 310,037 473,530

Profit from shares in subsidiaries - 34 - 34 34 Financial income 450 0 451 582 583 Financial expense -1,151 -182 -3,629 -550 -7,298

Profit after financial items 186,957 92,931 549,397 310,102 466,849

Tax -38,445 -18,966 -118,363 -66,522 -92,769

Profit for the period 148,512 73,966 431,034 243,580 374,080

Profit for the period is attributable to the shareholders of the parent company

Earnings per share before dilution, SEK 1.41 0.70 4.08 2.31 3.54 Earnings per share after dilution, SEK 1.40 0.70 4.07 2.31 3.54

OTHER COMPREHENSIVE INCOME Items that may be reclassified to profit or loss

Translation differences 499 4,736 1,722 6,830 2,919

Total comprehensive income for the period 149,011 78,701 432,756 250,410 376,999

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 11 INTERIM REPORT 2020-01-01 - 2020-09-30

GROUP BALANCE SHEET (KSEK)

2020-09-30 2019-09-30 2019-12-31

ASSETS Non-current assets Capitalised development 863,282 503,902 580,736 Licenses, brands and similar rights 337,727 221,159 200,561 Goodwill 21,232 - - Property and equipment 33,102 21,040 32,583 Right-of-use assets 210,239 32,357 235,521 Investments in associates 26,529 17,156 18,835 Other long term assets 3,462 3,462 3,462

Total non-current assets 1,495,573 799,075 1,071,698

Current assets Accounts receivable 328,198 143,713 249,716 Other receivables 10,769 13,936 18,646 Prepaid expenses and accrued revenue 61,637 81,687 48,019 Cash and cash equivalents 600,025 434,593 554,227

Total current assets 1,000,629 673,929 870,609

TOTAL ASSETS 2,496,202 1,473,004 1,942,307

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 12 INTERIM REPORT 2020-01-01 - 2020-09-30

GROUP BALANCE SHEET (KSEK)

2020-09-30 2019-09-30 2019-12-31 EQUITY AND LIABILITIES Equity Share capital 528 528 528 Other capital contributed 27,994 27,994 27,994 Reserves 10,829 13,018 9,107 Retained earnings 993,849 713,467 713,467 Profit for the period 431,034 243,580 374,080

Total equity 1,464,234 998,587 1,125,176

Long term liabilities Lease liabilities 178,035 27,724 194,034 Deferred tax liabilities 168,834 106,172 126,078 Other liabilities 47,009 61,227 23,293

Total long term liabilities 393,877 195,123 343,404

Current liabilities Accounts payable 72,336 46,164 45,030 Current tax liabilities 87,020 50,584 40,467 Lease liabilities 34,283 4,849 42,247 Other liabilities 68,580 9,457 12,144 Accrued expenses and prepaid revenues 375,872 168,239 333,837

Total current liabilities 638,091 279,294 473,726

TOTAL EQUITY AND LIABILITIES 2,496,202 1,473,004 1,942,307

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 13 INTERIM REPORT 2020-01-01 - 2020-09-30

CHANGE IN GROUP EQUITY (KSEK) Other capital Share capital contributed Reserves Retained earnings Total equity

At the beginning of the period 2019-01-01 528 27,994 6,188 819,067 853,777 Dividend -105,600 -105,600 Profit for the period and total income for the period - - 2,919 374,080 376,999

At the end of the period 2019-12-31 528 27,994 9,107 1,087,547 1,125,176

At the beginning of the period 2020-01-01 528 27,994 9,107 1,087,547 1,125,176 Dividend -105,600 -105,600 Profit for the period and total income for the period - - 1,722 431,034 432,756 Items reported directly against equity 12,144 12,144 Repurchase warrants -242 -242

At the end of the period 2020-09-30 528 27,994 10,829 1,424,883 1,464,234

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 14 INTERIM REPORT 2020-01-01 - 2020-09-30

GROUP CASH FLOW STATEMENT (KSEK) 2020-07-01 2019-07-01 2020-01-01 2019-01-01 2019-01-01 2020-09-30 2019-09-30 2020-09-30 2019-09-30 2019-12-31

Operating profit 187,658 93,079 552,575 310,037 473,530 Adjustment of depreciations, amortisations and write-downs 125,233 67,499 274,654 188,125 262,205 Other adjustments 8,237 -904 5,176 -1,663 -41,684 Interest received 450 0 451 0 2 Interest paid -1,151 -182 -3,629 -550 -7,298 Tax paid -23,756 -16,032 -85,772 -47,637 -63,104 Cash flow from current operations before changes in working capital 296,672 143,461 743,454 448,312 623,652 Changes in working capital

Change in current receivables -187,252 -30,624 -64,431 -8,021 -118,733 Change in current liabilities 103,616 -39,449 60,217 22,034 222,852

Cash flow from current operations 213,035 73,388 739,241 462,324 727,770

Investing activities Investments in capitalised development -154,380 -101,144 -453,739 -301,284 -421,986 Proceeds from capitalised development - 80 000 - 80,000 80,000 Investments in licenses, brands and similar rights - - -10,578 - 350 Investments in equipment -565 -11,364 -4,282 -17,732 -32,806 Investments in subsidiaries -81,447 26 -82,556 26 26

Cash flow from investing activities -236,393 -32,481 -551,154 -238,990 -374,416

Financing activities Received deposits - - 422 - - Amortisation of lease liability -11,862 -4,157 -34,595 -12,112 -23,464 Paid dividend - - -105,600 -105,600 -105,600 Repurchase warrants -242 - -242 - -

Cash flow from financing activities -12,104 -4,157 -140,015 -117,712 -129,064

Cash flow for the period -35,462 36,750 48,071 105,622 224,291 Cash and cash equivalents at the beginning of the period 637,237 396,350 554,227 327,044 327,044 Exchange rate effect -1,750 1,493 -2,274 1,926 2,892

Cash and cash equivalents at the end of the period 600,025 434,593 600,025 434,593 554,227

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 15 INTERIM REPORT 2020-01-01 - 2020-09-30

PARENT COMPANY INCOME STATEMENT (KSEK) 2020-07-01 2019-07-01 2020-01-01 2019-01-01 2019-01-01 2020-09-30 2019-09-30 2020-09-30 2019-09-30 2019-12-31

Revenues 486,183 280,215 1,351,085 900,763 1,289,081 Cost of goods sold -208,306 -112,113 -534,317 -329,752 -463,661

Gross profit 277,877 168,102 816,768 571,011 825,421

Selling expenses -48,948 -39,876 -154,638 -128,041 -193,582 Administrative expenses -29,865 -34,423 -95,080 -111,384 -174,596 Other income 538 8,067 17,402 11,399 13,713 Other expenses -8,290 -1,143 -23,887 -1,143 -10,548

Operating profit 191,311 100,726 560,564 341,841 460,407

Profit from shares in subsidiaries - 34 0 34 34 Financial income 443 - 443 0 2 Financial expense -33 -1 -222 -5 -7

Profit after financial items 191,721 100,760 560,785 341,870 460,436

Year-end appropriations - - - - -111,500 Income tax expense -41,028 -21,471 -123,774 -72,845 -77,745

Profit for the year and total income for the year 150,693 79,289 437,010 269,026 271,190

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 16 INTERIM REPORT 2020-01-01 - 2020-09-30

PARENT COMPANY BALANCE SHEET (KSEK)

2020-09-30 2019-09-30 2019-12-31 ASSETS Non-current assets Capitalised development 859,294 484,358 566,006 Licenses, brands and similar rights 92,624 85,153 111,464 Property and equipment 20,503 14,973 24,287 Shares in subsidiaries 303,973 145,059 106,454 Receivables from group companies - 50,301 - Investments in associates 16,766 16,766 16,766 Other long term assets 3,462 3,462 3,462

Total non-current assets 1,296,621 800,072 828,440

Current assets Accounts receivable 323,868 143,007 249,522 Receivables from group companies 4,491 28,788 20,426 Other receivables 6,787 12,879 16,437 Prepaid expenses and accrued revenues 60,797 81,729 48,602 Cash and cash equivalents 519,428 396,277 519,333

Total current assets 915,372 662,681 854,320

TOTAL ASSETS 2,211,993 1,462,753 1,682,760

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 17 INTERIM REPORT 2020-01-01 - 2020-09-30

PARENT COMPANY BALANCE SHEET (KSEK)

2020-09-30 2019-09-30 2019-12-31 EQUITY AND LIABILITIES Equity Restricted equity

Share capital 528 528 528 Capitalised development reserve 859,294 484,358 566,006 Non-restricted equity

Share premium reserve 27,994 27,994 27,994 Retained earnings -223,645 -26,448 -107,850 Profit for the period 437,010 269,026 271,190

Total equity 1,101,181 755,458 757,869

Untaxed reserves 472,875 361,375 472,875

Long term liabilities Other liabilities 47,009 61,227 23,293

Total long term liabilities 47,009 61,227 23,293

Current liabilities Accounts payable 69,819 42,884 38,539 Liabilities to group companies 31,932 31,947 27,859 Current tax liabilities 79,991 49,677 39,030 Other liabilities 55,303 2,267 2,353 Accrued expenses and prepaid revenues 353,882 157,917 320,942

Total current liabilities 590,928 284,692 428,723

TOTAL EQUITY AND LIABILITIES 2,211,993 1,462,753 1,682,760

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 18 INTERIM REPORT 2020-01-01 - 2020-09-30

NOTES (KSEK) NOTE 1 SEGMENT REPORTING Group Management has determined the operating segments based on the information processed by the President and which is the basis for making strategic decisions. The operations consist of one segment.

Group revenue from clients based on where the distributor is located is divided into the following geographical areas;

2020-07-01 2019-07-01 2020-01-01 2019-01-01 2019-01-01 2020-09-30 2019-09-30 2020-09-30 2019-09-30 2019-12-31

USA 431,754 240,654 1,160,641 758,527 1,090,842 Sweden 23,750 3,157 39,599 20,143 24,366 Rest of Europe 34,042 35,662 139,427 117,996 156,957 Rest of the World 5,245 3,077 20,464 11,328 17,168

Total 494,791 282,551 1,360,131 907,994 1,289,332

Group revenue divided into major product categories;

2020-07-01 2019-07-01 2020-01-01 2019-01-01 2019-01-01 2020-09-30 2019-09-30 2020-09-30 2019-09-30 2019-12-31

PC 436,059 231,480 1,163,897 749,243 1,071,588 Console 52,646 47,106 173,274 145,220 199,256 Mobile 7,076 1,325 13,480 5,186 6,597 Other -990 2,639 9,480 8,345 11,891

Total 494,791 282,551 1,360,131 907,994 1,289,332

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 19 INTERIM REPORT 2020-01-01 - 2020-09-30

NOTE 2 DEPRECIATIONS, AMORTISATIONS AND WRITE-DOWNS DIVIDED PER FUNCTION

2020-07-01 2019-07-01 2020-01-01 2019-01-01 2019-01-01 2020-09-30 2019-09-30 2020-09-30 2019-09-30 2019-12-31

Cost of goods sold 117,590 62,063 250,876 172,234 233,246 Selling expenses 1,335 - 3,960 - - Administrative expenses 6,308 5,436 19,818 15,891 28,959

Total 125,233 67,499 274,654 188,125 262,205

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 20 INTERIM REPORT 2020-01-01 - 2020-09-30

NOTE 3 ACQUISITIONS Iceflake Studios Playrion Game Studio On July 16, 2020, 100% of the shares were acquired in Iceflake Studios OY, based in Tampere, Finland. On July 1, 2020, 100% of the shares were acquired in Playrion Game Studio SAS, based in Paris, Fran- Paradox has paid a fixed purchase price of MEUR 2.6, of which MEUR 1.3 was settled at the time of ce. Paradox has paid a fixed purchase price of MEUR 15.9, of which MEUR 9.9 was settled at the time of purchase, MEUR 0.3 is settled one year after the time of purchase, and MEUR 1.0 is settled two years purchase, MEUR 3.5 is settled before year-end 2020, MEUR 1.3 is settled by June 30, 2021, and MEUR after the time of purchase. 1.3 is settled by December 31, 2021.

The acquisition will increase Paradox development capacity for upcoming games. The cash flow effect The acquisition will increase Paradox development capacity for upcoming mobile games. The cash of the acquisition at Group level is MSEK -20.5, where MSEK -0.4 regarding expensed acquisition costs flow effect of the acquisition at Group level is MSEK -136.5, where MSEK -1.6 regarding expensed acqui- are included in administrative expenses. sition costs are included in administrative expenses.

If Iceflake had been acquired on January 1, 2020, the acquisition had contributed revenue of MSEK 0.5 If Playrion had been acquired on January 1, 2020, the acquisition had contributed revenue of MSEK million and a positive result of MSEK 1.8. Iceflake contributed with MSEK 0.1 in revenues and MSEK -0.6 37.8 million and a positive result of MSEK 15.9. Playrion contributed with MSEK 8.9 in revenues and in loss from the date of acquisition until September 30, 2020. MSEK 1.7 in profit from the date of acquisition until September 30, 2020.

Purchase price: Purchase price: Cash consideration 13,438 Cash consideration 103,986 Cash consideration, settled within 1 year 2,688 Cash consideration, settled within 6 months 36,101 Cash consideration, settled within 2 years 10,750 Cash consideration, settled within 1 year 13,153

26,876 Cash consideration, settled within 2 years 13,153 166,394 Reported amounts on identifiable net assets

Cash and cash equivalents 6,807 Reported amounts on identifiable net assets Other assets 431 Licenses, brands, and similar rights 181,817 Other liabilities -1,183 Cash and cash equivalents 29,851

6,055 Other assets 18,119 Deferred tax liabilities -50,909 Goodwill 20,821 Other liabilities -12,484

166,394

Goodwill 0

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 21 INTERIM REPORT 2020-01-01 - 2020-09-30

NOTE 4 WARRANT SCHEMES Warrant scheme 2020/2023 The Annual General Meeting on May 15, 2020, decided to introduce a warrant scheme aimed at employees of the Group. The number of outstanding warrants amounts to 289,000 with the right to subscribe for the same number of shares in Paradox Interactive AB (publ). Allotted warrants were issued free of charge at a market price of SEK 15.66 according to a valuation based on Black & Scholes. The exercise price for the warrants was set at SEK 264.26 and subscription for shares can take place June 15, 2023 to June 30, 2023. Personnel-related costs including social security contributions for the program amount to MSEK 4.8, reported during the third quarter of 2020. In the event of full subscription of these warrants, the parent company's equity will be increased by MSEK 76.4.

Warrant scheme 2019/2022 The Annual General Meeting on May 17, 2019 decided to introduce a warrant scheme aimed at employees of the Group. The number of outstanding warrants amounts to 253,350 with the right to subscribe for the same number of shares in Paradox Interactive AB (publ). Allotted warrants were issued free of charge in two rounds at a market price of SEK 16.97 and SEK 21.07, respectively, according to a valuation based on Black & Scholes. The exercise price for the warrants was set at SEK 175.01 and subscription of shares can take place from June 15, 2022 to June 30, 2022. Personnel-related costs including social security contributions for the program amount to MSEK 5.9, of which MSEK 4.5 was reported during the third quarter of 2020. I In the event of full subscription of these warrants, the parent company's equity will be increased by MSEK 44.3.

Warrant scheme 2018/2021 The Annual General Meeting on May 18, 2018, decided to introduce a warrant scheme aimed at employees the Group. The number of outstanding warrants amounts to 211,000 with the right to subscribe for the same number of shares in Paradox Interactive AB (publ). Allotted warrants were issued free of charge at a market price of SEK 17.42 according to valuation based on Black & Scholes. The exercise price for the warrants was set at SEK 241.72, and shares can be subscribed for during the period June 15, 2021 to June 30, 2021. Personnel-related costs, including social security contributions for the program, amount to MSEK 5.3, of which MSEK 4.0 was reported during the third quarter of 2020. In the event of full subscription of these warrants, the parent company's equity will be increased by MSEK 51.0.

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 22 INTERIM REPORT 2020-01-01 - 2020-09-30

Paradox Interactive AB (publ) • Org.nr: 556667-4759 • Magnus Ladulåsgatan 4, 118 66 Stockholm • www.paradoxinteractive.com 23