Swedish publisher Starbreeze Studios AB (STO: STAR-B) has submitted a request to the Stockholm District Court to extend its reconstruction period.
The company and five of its Swedish subsidiaries first applied for reconstruction in December 2018, at the demand of its board of directors. At that time, Bo Andersson stepped down as CEO and was replaced with Deputy CEO Mikael Nermark.
This is the third extension Starbreeze has sought for its reconstruction period. It petitioned for its first extension in February, and its second in May. This extension will take Starbreeze to December 2019, one year since it first applied for reconstruction.
Starbreeze relying on core titles, cost-cutting for profitability
Starbreeze cited the poor performance of Overkill’s The Walking Dead as a factor that would prevent it from meeting sales projections and generating profit for when it initially applied for reconstruction in December 2018. In February 2019, Robert Kirkman’s Skybound Entertainment terminated its partnership with developer Overkill Software, leading to the effective cancellation of the project.
The company’s strategy to achieve profitability, guided by Administrator Lars Söderqvist, was to re-focus on internal games development. Additional cost-cutting strategies have included selling off subsidiaries, selling previously secured publishing rights, and laying off staff.
In February 2019, Starbreeze sold the publishing rights to System Shock 3 back to developer OtherSide Entertainment — the title currently does not have a publisher. That following April, the company sold the publishing right to 10 Crowns back to developer Mohawk Games.
In May, the company was forced to divest its majority share of Studio Dhruva, an Indian art production studio. Starbreeze sold its 91.82% stake in the company to Rockstar Games, a subsidiary of Take-Two Interactive (NASDAQ: TTWO), for $7.9 million.
In June, Starbreeze terminated 60 of its approximately 240 positions. Later the same month, the company sold the publishing rights to Psychonauts 2 to Microsoft (NASDAQ: MSFT), following Microsoft’s acquisition of developer Double Fine Productions. The sale was made for $13.2 million.
Reconstruction ongoing, but Q2 results dire
For the quarter ending August 20, Starbreeze reported decreased sales and continuing deficits.
Net sales were approximately SEK 160 million ($16.28 million USD), SEK 137.1 million ($13.95 million USD) of which was attributable to the sales of the publishing rights for Psychonauts 2 and 10 Crowns. The Payday series generated SEK 14.4 million ($1.46 million USD) for the quarter.
EBITDA for the quarter was SEK -25.8 million (-$2.62 million USD), a severe drop from Q2 2018’s SEK 52 million ($5.29 million USD).
Regarding the company’s struggles during its reconstruction, acting CEO Mikael Nermark said:
As an effect of the refocusing to our core business, game development with own IP, we have now taken actions on most of our non-core businesses. In parallel, we have adjusted the company and its organization for the core business and made the necessary adjustments in head count, which will have full effect on our cost base during the third quarter. The restructuring of the group to clarify our assets and simplify the legal structure is complete.
STAR-B sat at 1.34 SEK at the close of the market.