THQQF - Embracer Group AB (publ) (THQQF) Q3 2024/2025 Earnings Call Transcript

2025-02-13 20:50:36 ET

Embracer Group AB (publ) (THQQF)

Q3 2024/2025 Earnings Conference Call

February 13, 2025 3:00 AM ET

Company Participants

Amar Galijasevic – Equity Analyst, Carnegie Investment Bank

Lars Wingefors – Chief Executive Officer

Müge Bouillon – Chief Financial Officer

Martin Frývaldský – Chief Executive Officer-Warhorse Studios

Conference Call Participants

Martin Arnell – DNB

Simon Jönsson – ABG Sundal Collier

Presentation

Amar Galijasevic

So, good morning, everyone, and welcome to Embracer's Q3 2024/2025 Presentation. My name is Amar Galijasevic. I'm an Equity Analyst at Carnegie Investment Bank here in Stockholm, and I will be moderating the Q&A session after today's presentation. Embracer reported solid organic growth in the quarter and after the quarter's end also had a very successful release of Kingdom Come: Deliverance II, which I hope we'll hear more about in a couple of minutes. As always, we'll start off with a presentation by CEO, Lars Wingefors; and CFO, Müge Bouillon, and potentially will also have a secret guest with us today. I'll come back for the Q&A session where you can ask questions in the room, on the teleconference and also through the web.

Without further ado, I'll hand the word over to you, Lars.

Lars Wingefors

Thank you so much, and hello, everyone, and welcome to this beautiful morning in Stockholm. Let's dive straight into the business highlights for the quarter. Yes, I'm trying to solve a technical problem here. Perhaps the technical team could change the slide for me. Meanwhile, I could start telling you what happened in the quarter. The quarter exceeded our expectations. The organic growth amounted to 7% with net sales of SEK7.4 billion. Adjusted EBIT came in at close to SEK1.2 billion, a more limited decline of 11% year-over-year compared to management expectations before the quarter, impacted by tough comparison figures in mobile games. Really pleased to announce that we had free cash flow of SEK900 million in the quarter with positive effects from PC/Console and previously executed CapEx savings. Müge will talk more about the financial performance later in the presentation.

But first of all, we saw a healthy organic growth in Q3, as well as improved margin in PC/Console. The organic growth was driven primarily by Entertainment & Services, and a much improved organic growth trend for mobile to 3% from minus 7% in the preceding quarter. The profitability was supported by a strong performance in PC/Console Games, which had a 21% adjusted EBIT margin despite limited new releases in the quarter. And now worth reminding with limited new releases in the quarter, I'm really looking forward to the future. We have SEK7 billion in invested games pipeline by end of December. And we will talk very soon about Kingdom Come II. That's part of that SEK7 billion.

And talking about Kingdom Come: Deliverance II, it was successfully released after quarter end. The medieval role playing game has been initially successful, not only in terms of player critics and reception, but also in terms of financial performance. This reflects the dedication and hard work of our development studio, Warhorse Studios, and our publisher, Deep Silver. The game sold over 1 million copies in the first 24 hours and is fast approaching 2 million, with an especially strong performance on Steam with over 250,000 peak concurrent players during last weekend. Our strong belief is that the game will continue to generate substantial revenues over the coming years, highlighting the exceptional quality immersion and appeal of Kingdom Come: Deliverance II.

And looking back when Warhorse joined us 2019, I remember that they very much and they already back then had been working on the game. And now six years later, I'm glad that we have been allowing them to really create the game they wanted to create. I think we allowed them more than two years more than the original plan. And I've been asked many times about our interference in the game. And obviously, we let the creative team make their game, and we have not been dictating that game from Sweden. I never try to dictate our products from Sweden, by the way.

Martin is our secret guest, the CEO of Warhorse Studios, and he will join us in a minute. But before that, thirdly, I would like to say our – a highlight in the quarter is our strong financial position post the divestment of Easybrain. Over the past 18 months, we have created a stronger foundation for long-term value creation with lower CapEx and a significant net debt reduction. With a pro forma net cash position of around SEK5 billion as of end of the quarter, we have a strong financial position, and we are also reassured by the performance and free cash flow generation in the quarter....

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