Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Embracer Group AB (THQQF, Financial) reported net sales of close to SEK8 billion and an adjusted EBIT of SEK828 million for Q1 2024/25.
- The company achieved a significant year-over-year improvement in free cash flow, amounting to SEK47 million, with a trailing 12-month free cash flow exceeding SEK2 billion.
- The mobile segment delivered a strong quarter with sales of SEK1.4 billion and an adjusted EBIT margin increase to 37% from 29% year-over-year.
- The company confirmed the global release date for Kingdom Come Deliverance 2 on February 11, 2025, generating excitement among gamers.
- Embracer Group AB (THQQF) is making progress on its plan to separate into three standalone publicly listed entities, which is expected to sharpen strategic focus and offer distinct equity stories to shareholders.
Negative Points
- Overall Q1 net sales were down 24% year-over-year, indicating a challenging period for the company.
- The PC console segment saw a 34% decrease in net sales compared to the same period last year, primarily due to fewer notable new releases.
- The entertainment and services business reported a weak quarter with SEK848 million in sales and a negative EBIT of SEK29 million.
- The company continues to face challenges in improving profitability within the PC console segment, with a focus on better capital allocation and process improvements.
- There is a significant debt burden, with net debt amounting to SEK14.3 billion at the end of June, which could restrict future acquisitions and growth opportunities.
Q & A Highlights
Q: Kingdom Come and Killing Floor 3 are both now scheduled for the fourth quarter?
A: Kingdom Come 2 is scheduled for the fourth quarter, and Killing Floor 3 is scheduled for the second half of the year. - Lars Wingefors, CEO
Q: Can you provide insights on the potential magnitude of the new releases, Star Wars Unlimited and the upcoming Lego games?
A: We launch games to last, aiming for long-term engagement. Star Wars Unlimited has a multiyear development program, and we expect it to have a lasting impact. The Lego games also have strong potential, but it's difficult to predict exact numbers. - Thomas Koegler, Deputy COO, Asmodee
Q: How do you view the impact of the SEK9 billion debt on your ability to acquire companies?
A: We have operated under higher leverage before and it has not prevented us from being successful. - Thomas Koegler, Deputy COO, Asmodee
Q: Is the shift of Kingdom Come Deliverance 2 to February due to competition?
A: Yes, November is a competitive period with higher marketing costs. February is a more optimal release window, allowing for better quality and market conditions. - Lars Wingefors, CEO
Q: What drove the 14% organic growth excluding Dead Island 2 in the quarter?
A: Growth was driven by a stable and growing catalog business, new releases like MotoGP, and solid contracted development revenues. - Lars Wingefors, CEO
Q: Can you elaborate on the slower performance of distribution in parts of Europe?
A: It's related to the nature of our deep portfolio; some areas see fluctuations. However, strong launches like Star Wars Unlimited offset slower performance elsewhere. - Thomas Koegler, Deputy COO, Asmodee
Q: What is the long-term growth expectation for the board games market?
A: We expect mid-single-digit growth over the long term, based on external consulting firms' insights. - Thomas Koegler, Deputy COO, Asmodee
Q: Why is there a significant delta in the free cash flow improvement year over year?
A: The improvement is due to reduced CapEx and better operational efficiency, despite lower EBITDA. - Johan Ekstroem, CFO
Q: What is the adjusted EBIT for PC console in Q1, excluding contributions from disposed businesses?
A: Gearbox contributed negatively with around SEK30 million in the quarter. - Johan Ekstroem, CFO
Q: Can you update on the financing progress for the Sabre disposal?
A: We are confident the buyer will pay according to plan, supported by top-ranking investors if needed. - Lars Wingefors, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
