Embracer Group AB (publ) Q2 Earnings Call Highlights

Embracer Group AB (publ) (LON:0GFE) reported second-quarter sales and cash earnings ahead of its internal plan, helped by licensing royalties from a Hobbit-themed trading card game and growth in its mobile and entertainment businesses.

Net sales rose 14% year over year to SEK 4.1 billion in the fiscal 2026/27 second quarter. Organic growth was 20%, while cash EBIT improved to SEK 203 million from a loss of SEK 66 million a year earlier. Free cash flow was SEK 55 million, compared with an outflow of SEK 508 million.

CEO Phil Rogers said both of the company’s operating segments, Fellowship Entertainment and Embracer, performed above plan. The company reiterated its full-year forecast for cash EBIT of at least SEK 1 billion, with Rogers describing that figure as “our floor, not our ceiling.”

Licensing Boosts Fellowship

Fellowship Entertainment generated just over SEK 1 billion in sales, broadly stable from a year earlier. Royalties from Magic: The Gathering | The Hobbit offset lower sales in publishing and development, where there were no new releases during the quarter.

Rogers said Wizards of the Coast had reported that The Hobbit was already its fourth best-selling Magic set. He declined to predict the size of any further royalty contribution, saying the company was still assessing the data. A previous Lord of the Rings card set generated its largest contribution in its launch quarter, although the following quarter was also significant, he said.

Fellowship’s publishing and development sales fell 26% year over year, while catalog sales were about SEK 510 million. Cash EBIT for the segment rose 28% to SEK 124 million, despite capital expenditure increasing to SEK 350 million from SEK 271 million as the company invested in upcoming games.

CFO Müge Bouillon said Fellowship’s adjusted EBIT margin rose to 37% from 23%, helped by limited depreciation and amortization amid low recent release activity and a focus on licensing and catalog sales. She expects marketing costs to rise in the second half as the company prepares for new releases.

Mobile and Distribution Drive Embracer Growth

The Embracer segment reported sales of SEK 3.1 billion, up 21% year over year, or 29% organically. Mobile and entertainment and services each grew sales by around 40%, while PC and console sales increased 2%, Bouillon said.

Rogers attributed mobile growth to the continued performance of Sled Surfers and improving traction for Glow Fashion Idol. He said he did not currently see a reason to doubt the longevity of either title, while describing mobile gaming as a highly competitive market.

Segment cash EBIT improved by SEK 237 million to SEK 128 million. Bouillon attributed the improvement to mobile growth, lower capital spending in entertainment and services, and the continuing effect of prior-year divestments. The segment’s gross margin fell seven percentage points to 51%, reflecting a greater share of distributed products in sales.

Rogers said distribution partnerships were deepening, including with Sony PlayStation for physical consoles. Asked about Sony’s broader physical-media strategy, he said that was for Sony to discuss.

Release Schedule and Outlook

Embracer expects third-quarter cash EBIT to be broadly in line with the same period last year. Bouillon described that as the company’s base expectation, citing a strong prior-year catalog comparison alongside upcoming releases and differences in sales mix.

Fellowship’s near-term releases include Warhammer 40,000: Dawn of War IV on Dec. 3 and Stage Tour on Dec. 10. METRO 2039 is scheduled for Feb. 4 and Tomb Raider: Legacy of Atlantis for Feb. 12. The full launch of Titan Quest II in the Embracer segment is scheduled for Jan. 19.

Rogers said METRO 2039 had surpassed 2 million wish lists across platforms, ahead of Kingdom Come: Deliverance II at a comparable stage. He also said early pre-orders for Stage Tour game and hardware bundles were ahead of expectations, with several hardware products past their launch allocations.

The company expects full-year free cash flow to strengthen in line with cash EBIT, with delivery weighted heavily toward the fourth quarter. Bouillon said entertainment and services is a significant driver of working-capital swings and that the company expects a more normalized working-capital buildup in the third quarter.

Spin-Off Preparations Continue

Embracer’s planned spin-off of Fellowship Entertainment remains on track for calendar 2027, executives said. Preparations have included work on governance, financing and the carve-out structure. Bouillon said the capital structures of the two businesses would be refined in coming quarters; no date has been set for a capital markets event.

At quarter-end, Embracer had net cash of SEK 3.3 billion and available funds of SEK 8.3 billion, including undrawn facilities. Bouillon said the company secured a new SEK 2 billion revolving credit facility in September.

Asked about a cyber incident at Warhorse Studios, Rogers said the company was working with cybersecurity specialists and relevant authorities. Based on what the company knew at the time of the call, he said, there was no material change to release plans or its outlook.

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.