Starbreeze’s ‘liquidity shortfall’ may see the studio shut by the end of the year

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PayDay developer Starbreeze has revealed it lacks funding to keep the studio operating for the next 12 months.

In its candid Q1 2019 financial report, Starbreeze acknowledged it was “in a challenging situation” and that it is expected to have a “liquidity shortfall” before mid-year 2019 if no additional funds are found. Gross profit for Q1 2019 came in at a loss of SEK -122,773, whilst its operating profit came also recorded a loss, this time of SEK -156,619.

While Q1 sales generated SEK 47.8m – of which PayDay 2 accounted for SEK 26.7 million, up from the previous period – EBITDA (earnings before interest, tax, depreciation and amortisation) amounted to a loss of SEK -106.7 million, more than twice the SEK 48.8 lost in the same period of FY18. The company states its decrease in earnings is “due primarily to lower net sales, higher administrative costs related to the reconstruction and the negative accounting effect of the sale of System Shock 3” amounting to SEK 68.1m.

“My main task is to secure financing for the company’s future operations,” said acting CEO, Mikael Nermark. “This involves both long-term financing we can use to build the Starbreeze of the future, but also making sure that the assets we have determined are unrelated to the core business are managed in a commercially viable way. Once this financing has been secured, we will be able to look ahead and present a more detailed strategy for the future.”

“Starbreeze and some of its subsidiaries have been in reconstruction since 3 December 2018,” the company wrote in its financial summary. “The company currently lacks sufficient secured funds to guarantee continued operations for the next 12 months and is expected to have a liquidity shortfall before mid-year 2019 if no additional funds are provided. These conditions indicate that there are significant uncertainties that can lead to significant doubts about the company’s ability to continue its business.”

“We are in a challenging situation,” Nermark added. “I stand united with the entire Starbreeze team in the efforts to get the business in order. We have a very strong asset in Payday, which is the foundation upon which we will build Starbreeze future.”

Skybound Games terminated its contract with Starbreeze Studios, stating the FPS zombie game based on Robert Kirkman’s The Walking Dead “did not meet [its] standards nor is it the quality that [it was] promised”. According to the company’s Q1 financials, Starbreeze continues to “disputes the termination” and is purportedly attempting to “come to a resolution” with Skybound.

After the “disappointing” launch of Overkill’s The Walking Dead, Starbreeze’s board of directors announced it was reviewing operations costs and implementing a program “to reduce costs and sharpen focus on core business”. The plan initiated a cost-cutting program, which included scaling back both internal and external development and was expected “to generate significant cost savings during the full year 2019 compared to 2018”.

The developer confirmed initial sales revenues from Overkill’s The Walking Dead were “lower than forecasted”, but attributed the revenue issues to “the share of sales in low-price countries, such as China and Russia, [being] significantly higher than expected”.

Consequently, Starbreeze filed for reconstruction with the Stockholm District Court following a “shortage of liquidity” that requires the company to “negotiate a long-term financial solution”. Starbreeze’s headquarters were then raided by police following reports of insider trading, leading to at least one arrest and the seizure of equipment, including computers and documents.

Starbreeze currently employs 580 members of staff – down from 622 last year.