Embracer Group AB (publ) Q3 Earnings Call Highlights

Embracer Group AB (publ) (LON:0GFE) reported third-quarter results that management said came in above plan on both revenue and adjusted EBIT, while highlighting continued momentum from key owned game franchises and ongoing portfolio streamlining following the Coffee Stain spin-off.

Q3 performance led by core IP and catalog strength

Management pointed to the performance of Kingdom Come: Deliverance II as a central driver in the quarter. The company said the title has reached 5 million copies sold, a milestone announced the same day as the call and achieved within the first year from launch. The third DLC, Mysteria Ecclesia, launched in Q3 and was cited as supporting continued engagement.

In addition, Embracer discussed the imminent release of Reanimal, noting the review embargo had lifted and that the game was one day from launch, with what management described as a “strong set of reviews” from critics.

Financial results: revenue down organically, EBIT ahead of plan

For the quarter, Embracer reported net sales of SEK 5.2 billion, which management described as an 8% organic decline year-over-year. Executives emphasized that figures presented exclude Coffee Stain, which has been reclassified as discontinued operations, and that year-on-year comparisons continued to be affected by divestments, particularly Easybrain.

Adjusted EBIT was SEK 528 million, down from SEK 696 million in the comparable period when excluding divested invest assets, but management said the result was ahead of internal expectations and represented a clear improvement versus Q1 and Q2. Gross profit for the quarter was 55%, down three percentage points year-over-year, with management attributing the decline primarily to divestments; excluding divestments, they said the gross margin improved by three points.

Marketing spend totaled SEK 419 million (8% of net sales). User acquisition cost (UAC) investments were SEK 254 million, down sharply year-over-year, which management said was driven by the Easybrain divestment; excluding Easybrain, UAC was down SEK 115 million year-over-year and represented 45% of mobile net sales.

Segment results: PC/console steadier, mobile down, seasonal uplift in services

In PC/console, Q3 net sales were just under SEK 2.0 billion, a 3% organic decline. Management said core IP and catalog performance was ahead of expectations, while new releases were “somewhat soft.” SpongeBob SquarePants: Titans of the Tide was described as the biggest new release, with solid reviews, but it came in short of digital sales plans; management said the THQ team had a plan to improve through Q4. Dead Island and Tomb Raider were also cited as contributing to catalog performance, with Tomb Raider seeing an uptick around the series announcement.

The PC/console adjusted EBIT margin for the quarter was 13%, which management called an improvement over Q1 and Q2, but also said it was below the company’s ambition.

In mobile, net sales were SEK 566 million, a 15% organic decline year-over-year. Management attributed the decline to lower UAC growth investments and noted that sequentially the segment showed positive revenue and margin growth from Q2 to Q3. The company said Sled Surfers, launched in Q2, has scaled well and delivered revenues ahead of plan.

Entertainment and services generated SEK 2.6 billion in revenue, down 10% organically year-over-year, which management said reflected tough comparisons tied to PLAION Partners’ strong releases in the prior-year period. The company said the seasonal revenue and margin uptick came in line with plan. Management also highlighted a Middle-earth partnership with Asmodee, saying it supported margin improvement in the segment and describing it as a long-term arrangement for tabletop games and accessories tied to The Lord of the Rings and The Hobbit.

Cash flow, balance sheet, and capital actions

Free cash flow after working capital was -SEK 75 million in Q3, versus SEK 719 million in the prior-year quarter, with management attributing the change mainly to working capital timing. Working capital for the quarter was -SEK 437 million, driven primarily by increased receivables from seasonal sales near calendar year-end, which the company said it expected to unwind in Q4.

Embracer ended December with a net cash position of SEK 2.9 billion and available funds of SEK 5.8 billion. Management also detailed quarter movements, including:

• SEK 428 million used for share repurchases under a SEK 500 million buyback program
• SEK -495 million net cash impact related to the Coffee Stain spin-off
• SEK 219 million net cash proceeds from divestments of non-core assets
• SEK 516 million in earn-out payments

Management said remaining earn-out obligations are “relatively limited” at SEK 730 million spread over the coming six financial years, with just under half due in fiscal 2026/2027.

Outlook: higher EBIT forecast and focus on pipeline discipline

Looking ahead, management raised its underlying full-year adjusted EBIT expectation to at least SEK 750 million, reiterating that the figure excludes Coffee Stain. Executives noted the earlier “at least SEK 1 billion” view referenced in Q2 included a full-year contribution from Coffee Stain.

On the pipeline, Embracer said it has 30 announced titles, with Screamer slated for March 26. The company also referenced Tomb Raider announcements made with partner Amazon at The Game Awards, describing Tomb Raider: Legacy Atlantis as “the first up,” followed by Tomb Raider: Catalyst as the next major chapter.

For the next fiscal year, management said it expects one long-awaited, currently unannounced, major in-house developed and in-house published title alongside a range of “important mid-size titles,” while emphasizing that execution discipline will be critical for improved profitability and cash generation.

Executives also discussed shifting investment toward higher-return core IP. Management said core IP has delivered an ROI of roughly 3x historically versus 1.8 across all titles, and that the share of CapEx allocated to core IP has increased from 20% to 40% over the past year, with a longer-term aim of moving toward 80%. In Q3, the company also divested several non-strategic and unprofitable businesses in third-party publishing and work-for-hire, which management said had a combined trailing-twelve-month adjusted EBIT impact of about -SEK 180 million.

On artificial intelligence, management said the group is exploring AI-driven tools to enhance development and operations, describing current use cases as most visible in concept work and pre-prototyping. Executives added that AI is intended to support teams, while world-building, storytelling, and creative direction remain human-led.

About Embracer Group AB (publ) (LON:0GFE)

Embracer Group AB (publ), together with its subsidiaries, develops and publishes PC, console, mobile, VR, and board games for the games market worldwide. The company also publishes films and comic books, as well as engages in the trading of card games. It distributes games through retailers, physical stores, and digital distributors. The company was formerly known as THQ Nordic AB (publ) and changed its name to Embracer Group AB (publ) in October 2019. Embracer Group AB (publ) was founded in 1990 and is headquartered in Karlstad, Sweden.