Embracer Group AB (EMBRAC B), the Swedish video game holding company, has reported its first-quarter results for the 2024-2025 fiscal year, presenting a mix of robust and weaker segment performances. Net sales reached SEK 8 billion, with an adjusted EBIT of SEK 828 million and a free cash flow of SEK 47 million.
The company announced the global launch date for "Kingdom Come: Deliverance II" and detailed their plans to restructure into three separate entities. Despite a decline in the PC console and entertainment and services segments, Embracer Group remains optimistic about the market's growth, driven by the PC and mobile segments.
Key Takeaways
- Embracer Group's Q1 net sales were SEK 8 billion, with an adjusted EBIT of SEK 828 million.
- The mobile segment showed strength with SEK 1.4 billion in sales and a 37% EBIT margin.
- Asmodee, set to become a standalone entity, saw a 5% year-over-year decrease in net sales, reaching SEK 3 billion.
- The entertainment and services segment had a challenging quarter, with sales of SEK 848 million and a negative EBIT of SEK 29 million.
- The company confirmed the release of "Kingdom Come: Deliverance II" for February 11, 2025.
- Embracer Group anticipates a 2% market growth in 2024, with PC and mobile gaming as primary drivers.
Company Outlook
- Embracer Group expects market growth of 2% to SEK 188 billion in 2024, buoyed by the PC and mobile segments.
- The company plans to separate into three standalone entities, with Asmodee hosting a Capital Market Day in Q3 and spinning off in 2025.
Bearish Highlights
- The entertainment and services business reported weaker results with a negative EBIT.
- The absence of notable releases and the lack of profits from a previous deal with Amazon (NASDAQ:AMZN) contributed to a challenging quarter.
Bullish Highlights
- Embracer Group is confident about the upcoming quarters, with more products, contracts, and game concepts in the pipeline.
- The Middle-earth Enterprises investment and the Dark Horse business are showing progress.
Misses
- The company experienced a slowdown in parts of Europe due to market fluctuations.
- Free cash flow was impacted by the payment of personnel costs related to acquisitions and the sale of Gearbox.
Q&A Highlights
- Embracer Group holds the rights to publish any future game from 4A Games, regardless of the company's ownership.
- The board games market is expected to grow at a mid-single-digit rate.
- Embracer Group no longer provides guidance but expects similar adjusted EBIT and plans to release SEK 3.9 billion worth of PC console games in the current financial year.
In summary, Embracer Group's first quarter showed resilience in the mobile segment and a promising outlook for its gaming pipeline, despite some challenges in other areas of the business. The company's strategic reorganization and upcoming game releases, including "Kingdom Come: Deliverance II," set the stage for future growth and market expansion. Embracer Group's management remains confident in their ability to navigate the dynamic gaming industry and deliver value to their stakeholders.
InvestingPro Insights
Embracer Group AB's recent first-quarter report has certainly drawn attention to its mixed performance across various segments. To provide a deeper understanding of Embracer's financial health and market position, here are some insights based on the latest data and InvestingPro Tips:
- The company's market capitalization stands at a robust $2.95 billion, reflecting its significant presence in the gaming industry as a prominent player. This is especially relevant considering their strategic reorganization into three separate entities and their confidence in the upcoming release of "Kingdom Come: Deliverance II".
- Despite recent challenges, Embracer Group's valuation implies a strong free cash flow yield, according to InvestingPro Tips. This suggests the potential for good returns on investment, especially as analysts predict the company will turn profitable this year.
- Embracer Group's share price has seen a notable decline, falling by 25% over the last three months. While this might raise concerns, it's important to note that the company has historically provided a high return over the last decade, indicating resilience and the potential for recovery.
For investors looking for more detailed analysis and additional InvestingPro Tips on Embracer Group, there are currently 8 other tips available at https://www.investing.com/pro/EMBRACB. These tips could provide valuable guidance on the stock's performance and future prospects, especially in light of the company's strategic moves and the dynamic nature of the gaming industry.
Full transcript - Embracer Group AB (THQQF) Q1 2025:
Rasmus Engberg: Good morning, everyone, and welcome to Embracer's Q1 2024-'25 Results Conference. My name is Rasmus Engberg, Gaming Analyst with Kepler Cheuvreux and I will be your host for today and lead the Q&A. Today, we have Lars as usual, and Johan, and also a special guest from France. So I'll leave it to that and thank you.
Lars Wingefors: Thank you Rasmus, and welcome, everyone to Embracer Group's Q1 presentation from here in Stockholm. I'm pleased to share our performance of our first quarter fiscal '24-'25 and provide an update to our strategic progress. We began this year in-line with our management expectation, generating close to SEK8 billion in net sales and our adjusted EBIT stood at SEK828 million, and our free cash flow amounted to SEK47 million. Our Q1 performance was driven by a strong quarter from our tabletop and mobile segments. As anticipated, our PC console and entertainment and services segments faced a softer year-over-year performance due to fewer new releases. Overall, as a Group our Q1 net sales were down 24% year-over-year. Cash flow continues to be a major focus and we’ve reported a significant year-over-year improvement in free cash flow of SEK650 million. When we look at our trailing 12 months basis, our free cash flow exceeded SEK2 billion, a milestone for us. That cash flow generation, coupled with our divestment processes enabled us to lower our debt. Our transformation of our PC console segment continues and we’re optimistic about our pipeline. I'm excited that earlier this morning, we confirmed the global release date for Kingdom Come: Deliverance II to be released on 11 February 2025, and it is great to get this date confirmed for gamers and to feel the launched excitement continue to build. We are eager to share more updates around our pipeline to gamers at the biggest trade show and consumer event in the industry, Gamescom, next week. Overall, we still expect the value of completed game development for the year to be around SEK3.9 billion which is a step up versus last year. We are making good progress on our plan to separate into three standalone publicly-listed entities. This move will allow each entity to sharpen its strategic focus and to offer a distinct equity story to our shareholders. Asmodee, the first spin-off, will host a Capital Market Day in our third fiscal quarter, ahead of its listing. And Thomas Koegler, the Asmodee Deputy COO, is joining us today to share more about our Q1 performance. So let us jump into the segments. Just to say, the image you see here is taken from the Netflix (NASDAQ:NFLX) upcoming anime series Tomb Raider: The Legend of Lara Croft, scheduled to be premiered on Netflix in October 2024. And we will start with PC console. Here, net sales in the quarter amounted to SEK2.7 billion, a decrease of 34% compared to the same period last year. The decrease were anticipated due to lack of notable new releases and tough comparison given the successful release of Dead Island 2, in the corresponding quarter last year. Just to call out one of the new releases, MotoGP 24. This got off to a good start with favorable reviews and already achieving its ROI targets. Looking at the adjusted EBIT margin which you shouldn't really do in a separate quarter in our industry, but now we are in a quarter and we're looking at it. It's low and it is dragged down by lower ROI from releases in the past 24 months. This will improve in the course of the year. However, new content that came out in Q1 for Deep Rock Galactic, Remnant II, and Dead Island 2 performed well in line with our expectations. Gamers continue to enjoy our deep rich catalog of games and we actually saw engagement increase year-over-year. If you look at the catalog titles, you will see it's topped by Remnant II, Dead Island 2, Star Trek, Deep Rock Galactic, and Neverwinter. Games being served with fresh content to deepen player engagement. And for Deep Rock Galactic with the launch of Season 5 this quarter, we actually hit an all-time high of player activity with over 50,000 concurrent gamers. A fantastic achievement from our family friends at Ghost Ship in Denmark. Games released this past quarter are shown on the far left and you can see it was a mixed result with two titles immediately got to breakeven, but one small tight struggle from launch on the ROI chart here. This chart you see here is clean from divested assets. Our average ROI stands at 2.1. The challenge we have highlighted in the past remain in focus and we have a clear plan to improve profitability within PC console. First, our resources are increasingly focused on our owned and controlled IPs. Secondly, with improved capital allocation and process to help us achieve better quality and stronger margins. And to be clear, we are expecting our ROI to improve over the coming years, as our pipeline matures post our past year restructuring progress. We believe our studios and creative talents are best-in-class and believe our outlook for the long term is bright. Now looking at investments and the completed game development. As you see here release date was the smallest quarter over the past two financial years just SEK336 million in value of new games were released. Looking at the investments and pipelines spend in game development tracked down to SEK900 million. This was expected given our past efforts to reduce and better control our CapEx. It's in-line with the annual run rate targets we have previously communicated. We believe our portfolio -- we believe in our games pipeline to focus on owned IPs and better development processes. We believe we are laying the foundation for strong organic growth going forward. Now looking at some of our most important releases for the year. Here you see eight of them. Kingdom Come: Deliverance II, coming out now on February 11th in our fourth quarter. This quarter, we will have also Epic Mickey being released from our family friends at Purple Lamp in Vienna in the end of the second quarter. We are expecting our family members at Arc Games being shipped this year. In this quarter, we're expecting Monster (NASDAQ:MNST) Jam Showdown from our friends at Milestone. Gothic: Remake and other iconic RPG that are being remade in -- at Alkimia in Barcelona being published by THQ coming out during this financial year, as well as Killing Floor 3 from Tripwire, a highly anticipated AAA sequel. And finally from our friends at Coffee Stain Skovde, we are expecting the full release of Satisfactory after many years of development. We are also expecting that game to be shipped on consoles later in the year. Also, we are expecting the first gamers to get their hands on -- gamers to get their hands on Titan Quest II from our friends at Grimlore Games and THQ Nordic during -- in the course of the year. And this is just a selection of the pipeline for this financial year. Now let's look at mobile. As we covered right at the top, mobile delivered another strong quarter with sales of SEK1.4 billion and adjusted EBIT of SEK500 million. Adjusted EBIT margin increased to 37% from 29% year-over-year. This was driven by a product mix shift and lower user acquisition costs. This is according to the management plan. If you look at the strongest performance titles, you could recognize many titles from before Sudoku.com, BlockuDoku, Alien Invasion, Art Puzzle and Jigsaw Puzzles. Worth mentioning is the continued success from Easybrain to in-house create new global successes that drive growth. Recently, they have released crossword masters that are showing very promising KPIs. I really admire the talents and people we have within our mobile segments and the skills they have demonstrated to navigate the complexities in the business, constantly performing and delivering strong results. We believe the market is stabilizing and so condition to scale user acquisition and top-line growth improve towards the end of the quarter. Now let's welcome Thomas Koegler to the stage to talk about Asmodee.
Thomas Koegler: Thank you, Lars. Thank you everybody. While at Asmodee with Embracer with the advisors, the teams are fully working on the proposed spin-off. As a management we remain focused on delivering the business. In Q1, we have delivered net sales of SEK3 billion, in-line with our expectations. Reported net sales were down minus 5% year-on-year impacted by the divestment at the end of the last fiscal year of Miniature Market, our former direct-to-consumer business in the US. On an organic and pro-forma basis, at constant currency, net sales were down 3% year-over-year. We saw growth in the US, continued strong global performance of Star Wars: Unlimited, although sales were impacted by a softer performance of distributed products in Central Europe and in the UK. On a profit level, the adjusted EBIT margin improved by 2 percentage points versus last year same quarter. The improvement was driven by better product mix supported by Star Wars: Unlimited; inventory -- lesser inventory clearances actions this quarter; and the benefit of run rate savings from the Group's restructuring program. On a commercial side, we were delighted to announce last week an exciting multi-year partnership with the LEGO Group. Monkey Palace, the first new game will be released in fiscal Q3. We are very excited about this and will be followed next year by another new game currently in development called Brick Like This. These games join the strong existing pipeline of upcoming new releases which also include Star Wars: The Mandalorian, a fan beloved character. Lord of the Rings: Duel for Middle-earth, or Altered the highly anticipated and innovative TCG. All of those games were showcased last week at Gen Con or two weeks ago at Gen Con, the largest US consumer show that again broke its attendance record with over 71,000 daily attendees. Talking of new releases, Star Wars: Unlimited continues to show very strong performance in the quarter. It's trending above our expectations. Set 3 will be releasing in Q3 fiscal year. We at Asmodee are investing a lot on this product. We have a multi-year development program. Several sets are already finished. We have announced the names of the sets four, five, and six at Gen Con at the inflight report of our studio FFG. It's an event that was long awaited by the fans because we hadn't held it since five years. So it was the first time we held the inflight report and the event was completely sold out with 1,000 attendees from the board game fans. In the digital board game space, we are extremely happy also to announce that Board Game Arena, our online board gaming platform, has breached its 10th million member. It is a huge success. It's 5 million hours that are played every month on the platform. Finally, during the quarter, we also saw the release of the new Netflix trailer for Werewolves of Millers Hollow, based on Asmodee IP, a movie that will be released in October 2024. Netflix also released the Exploding Kittens TV show in 90 countries and localized in 38 languages. Overall, as a management, we were satisfied with the business performance in fiscal Q1, which is generally one of our seasonally quieter quarters. Thank you very much.
Lars Wingefors: Thank you, Thomas. Very happy with the execution from you and the Asmodee team. So let's look at the entertainment and services business which is a mixed business group reported under one roof here. And we had the weakest quarter for quite some time with SEK848 million in sales. EBIT actually came in negative of SEK29 million in the quarter. However, it is definitely worth pointing out this performance. It was really a quarter without any notable big releases in the distribution business. And if you compare it to last year, they had a few notable releases and that gives very difficult comps. Also on the profit side, last year, we had a significant contribution from a major deal we made with Amazon within Middle-earth Enterprises, and for accounting reasons, this quarter we did not have any profits or royalties booked from that deal. But obviously, it's a multi-year deal. There will be more royalties coming through. We are expecting the coming quarters of the year to have more products, contracts, and things coming through in entertainment and services. We are giving some further color in our reporting this morning and I'm very pleased that to the progress that we are making on the Middle-earth Enterprises. It is now two years since we made that investment and I think it is a fantastic asset with such -- so much rich content to be developed on multiple formats. And obviously, games are close to our heart and we are working on multiple new game concepts, some that we have been working on for quite some time, both with some of our best internal studios, as well as external studios. So this gives me confidence, looking over the coming decade, how we could explore and deliver things to the communities of Middle-earth. Moving from Middle-earth to the other businesses. We see improvement in the Dark Horse business that had a bit of hangover from COVID. They had a great performance, a better performance this quarter with some notable highlights. For example, now after the quarter here, they premiered their fourth season of the Umbrella Academy. And the team -- management team of Dark Horse has a very strong business plan to improve their business and improve their profitability going forward. Looking at the overall market, we are in a fantastic industry and if you deliver the right content to consumers, you have a fantastic business. And looking into the segment, we see that. When I look at the business, really PC goes from strength to strength. We’re expecting PC to be one of the best growth drivers in the market this year, but we also expect mobile to grow as well as tabletop. Console will have a more muted year, but still it is a fantastic console market if you bring out the right content to consumers. Overall, we are expecting the market to grow 2% to SEK188 billion this calendar year. And this is numbers by the external party news[ph]. Johan, welcome on stage.
Johan Ekstrom: Thank you, Lars.
Lars Wingefors: Potentially for the last time.
Johan Ekstrom: Yes. So thank you very much and let us have a look at an overview of our financial development. As expected sales are significantly lower than last year, mainly due to that there were fewer larger releases in the quarter. The lower top-line were mitigated by lower cost of goods, marketing, and operating expenses but reduced the EBIT to SEK0.8 billion. It is worth noting that last year included the successful release of Dead Island 2 and licensing the Middle-earth Enterprises that jointly generated net sales of SEK1.8 billion and adjusted EBIT of SEK1.1 billion in the corresponding quarter last year. We note that overall marketing as a percent of net sales amounts to 10%. Marketing expenses outside of the mobile segment are clearly lower compared to last year as a result of fewer releases to support. In mobile, we note less user acquisition costs in the quarter, which is in-line with the increased focus on profitability in the segment. Operating expenses remained at a lower level of SEK2.4 billion which is 12% below the corresponding period last year. Full-year sales reached SEK39.7 billion with an adjusted EBIT of SEK6.2 billion or 16%. The divested Saber and Gearbox contributes negatively on an annual basis with SEK0.3 billion. If we turn to the cash flow for the period, as said, free cash flow amounted to SEK47 million, which is SEK650 million better than last year. It's also worth noting that the lower EBITDA is more than compensated by reduced CapEx in the quarter, a testament to the achievements of making Embracer a more efficient and cash generative company. Cash flow from financing activities includes the refinancing of Asmodee SEK10.5 billion; related debt repayment at Embracer, SEK9 billion; dividend to minority owners of Asmodee, SEK0.5 billion; and additional debt repayment of SEK3.2 billion following the closing of Gearbox. Net cash flow from divested companies was SEK2.7 billion in the quarter, where SEK3.1 billion relates to net cash inflow after payment of relevant accelerated earnouts and 0.4 concerns scheduled earnout payments. Cash flow effect of items affecting comparability relates to payments made on the restructuring program which ended 31st of March. Looking at the full-year free cash flow generation, we see a solid growth in the period, reaching SEK2.1 billion on an annual basis driven by reduced CapEx and working capital. At the end of June, the net debt amounted to SEK14.3 billion. This is not including the interest-bearing receivable of SEK2.1 billion that we have towards the buyers of Saber. In April, Embracer secured a financing agreement at Asmodee level. The financing amounted to approximately SEK10.5 billion with a maturity of up to 18 months. The loan is secured by Asmodee assets alone and ring-fenced with no recourse to Embracer. In the beginning of July, we announced that we had completed the refinancing of our revolving credit facility at EUR600 million with a two-year maturity and an extension option for one year. Later in July, we announced that we had signed a SEK500 million loan with the Swedish Export Credit Corporation at similar terms and maturity. Embracer Group has leveraged covenant in its credit agreements and has substantial headroom to it. At the end of June, available funds amounted to SEK5.2 billion. This increased to SEK6.8 billion at the end of July. Looking at pro forma financials. Here we see Embracer's performance, excluding the divested assets related to Saber and Gearbox for the last two fiscal years, as well as the trailing 12 months per Q1 '24-'25, and they are also split by the three new entities following the announced separation. As mentioned earlier, this shows a slight positive effect on profitability, but more importantly, a large positive effect on cash flow generation, here measured as EBITDAC, where EBITDAC would have been SEK1.8 billion higher for the full year if the divested companies were excluded for the period. Turning to the liability side. There are three important areas, net debt, cash earnout obligations, and number of shares. As we saw earlier, net debt amounted to approximately SEK14.3 billion at the end of June. If we include the SEK2.1 billion for divested assets still to be received, net debt would amount to approximately SEK12.2 billion where SEK9.4 billion is related to the ring-fenced Asmodee structure. Earnout obligations to be settled in cash has been reduced by SEK1.4 billion in the quarter and amounts to SEK4 billion at the end of June. Of the SEK4 billion, approximately SEK600 million is to be paid until the end of March, this fiscal year, and SEK500 million in the next fiscal year. The estimated number of shares to be issued in order to settle earnout obligations amounted to 10 million by the end of June. And if you look at quarter end, there are approximately 1,350 million shares outstanding, and adding the estimated shares to be issued, the number of shares would be 1,360 million. Over to you, Lars.
Lars Wingefors: Thank you, Johan. Just to give a bit more color on the planned spin-off processes, and I'm pleased to say, it is proceeding according to plan. And just to remind everyone of the rationale unlocking the value in the high-quality assets of Embracer Group, enabling each entity to better focus on the core strategies and to drive long-term value creation. Looking at Asmodee, the first planned spin-off, it has been very active three months since the last quarterly report. Several things have happened and several things are planned to happen in the short term. We have appointed a new CFO that previously were Head of M&A that really have contributed well into this process. We had our introductory meetings with Nasdaq and a listed auditor. We are planning the formal kickoff with Nasdaq now in September. We have a very detailed time plan and all the advisors are appointed and there is a large group working on this on a daily basis. Most importantly, we today are announcing that we are planning to hold Capital Market Day in our third quarter in the time period October to December, and we are planning to announce that date in a not-too-far distant future. You would all be very welcome to take part to meet the management and to hear more about the business. And it's a fantastic business to dig deeper into. The plan of the reminder spin-offs and new entities, Coffee Stain and friends and Middle-earth and friends are proceeding according to plan, but that is earlier in the process and we are expecting to spin off Coffee Stain and friends during the calendar 2025. So that was it from the management. So I would like to hand over to Rasmus.
Q - Rasmus Engberg: Yes. So we will host a Q&A with questions from the room, from the telephone conference, and also from the chat. So you can post your questions either way you want to. Okay. Welcome to the Q&A. And as said, we will take questions first here in the room, and then on the telephone conference, and then on the chat after that. That said, I think I will take the opportunity I have to put the first questions out here. So I'm starting with you, Lars. Kingdom Come and Killing Floor 3, are they both now scheduled for the fourth quarter?
Lars Wingefors: Kingdom Come II are scheduled for the fourth quarter. Killing Floor 3 are scheduled for the second half of the year.
Rasmus Engberg: Okay. Okay. I read somewhere that they said early 2025, but maybe that's...
Lars Wingefors: The thing is that it's difficult sometimes to be a public company and talk about products. And first, it's the consumers, it's the fans, it is the communities we are talking to. And we need to let our companies and publishers talk to them first. We had a bit of a difficult situation with Kingdom Come this morning, but now we are globally announcing this release date. But in general, we're letting the publisher talk first, and then if needed, we will talk.
Rasmus Engberg: Yeah. And I guess it's important for people to understand the scope of these products. So if we look at the predecessors, I saw that Kingdom Come has sold 6 million copies. Something like that. Is there a figure for Killing Floor 2 somewhere?
Lars Wingefors: No, I don't have it in the top of my head, but it's millions. And there is a huge fan base of that product. And happy to see that we had a lot of consumers engaging again now in Killing Floor 2 when it was heavily promoted and discounted during the spring. So there is so many fans for these products out there. And next week, we will have a 500 square meters [Bohemia] (ph) 1400 exhibition stand, where fans could really explore and engage with Kingdom Come: Deliverance II at Gamescom.
Rasmus Engberg: Amazing. And we must take the opportunity to talk to Thomas when he's here. So you have your first launch, really big launch since becoming part of Embracer with Star Wars: Unlimited. And on the heels of that, almost, you're already going to launch games with LEGO already in Q3, you said?
Thomas Koegler: Exactly.
Rasmus Engberg: Yeah. Fantastic. And how -- but how do you think about the magnitude of these potentials without giving us any numbers, but --.
Thomas Koegler: It's always pretty difficult to predict. But what we do at Asmodee is that we launch games for them to last. That's the most important thing. And tabletop games, I mean, if you take the example of Catan or Ticket to Ride, they last for decades. Star Wars: Unlimited, for instance, it's something we're here for long. We have, I think, nine sets of which the development is complete. That's three years of product releases. We know the fans will have a huge commitment and have already started to show a very huge commitment to the game. They are investing a lot of their time, their energy, their passion. And what we want is to give them an experience that will last for decades. So hard to give numbers. What we try to do is make sure that the entire ecosystem is there for this to last for, if not ever, at least as long as possible.
Rasmus Engberg: And the Asmodee business, it's bigger in Europe than in the US. It's been a couple of really difficult years for European consumers, and Asmodee has been growing. Is that a fair -- do you think about it that way that consumers are having a hard time, it's difficult to grow?
Thomas Koegler: It's true that consumers might have a hard time, but what consumers found out during the pandemic especially, is that actually playing board games, tabletop games, card games, all of those games creates the opportunity first to spend time together. And second, they realize that it's actually a fairly cheap leisure. Because if you buy a EUR50 game, it's a big game. You can entertain three, four, five friends for hours and hours and hours. So actually, it's a good way of putting your money and having a very good time for quite some time.
Rasmus Engberg: And just one final question which has been talked about quite a lot by people that think about this and that is that the SEK9 billion rough debt. Is that something that sort of would restrict you to go out and buy companies in the pace that you would want to do with, or --- I know it's not finalized that it's going to be that debt level, but it seems anyway to be a fairly high debt level.
Thomas Koegler: The only answer I can make is we've been operating under private equity before joining Embracer with higher leverages, and it has never prevented us from being successful.
Rasmus Engberg: It's a good answer. I think we'll leave it to the telephone conference or the room first, of course. Questions in the room.
Operator: We have a few on the teleconference. Or do we have any in the room? No? So the first question from the teleconference from Simon Jonsson from ABG Sundal Collier. Please go ahead.
Simon Jonsson: Thank you and good morning, guys. So first I want to come back to the Kingdom Come: Deliverance II that you have shared is expected to release in February. You said before Lars, that you expect at least, I believe you said that Q3 was supposed to be the biggest release quarter this year. Is that still true, or should we think that the mix has changed more towards Q4 now or -- yeah, can you give us some color on that?
Lars Wingefors: Yeah. So obviously. And morning, Simon. There is some shift obviously, by now confirming Kingdom Come: Deliverance II shifting from third quarter to February. However I’d like to point out it's -- in this industry, it is hard to exactly say on forehand how much that would impact the numbers. The game would be a few months more polished and better to the fans with potentially a more optimized time window for release. So I wouldn't necessarily that this is financially heavily impacting the year or impacting the year at all. But, yes, there is a delay and a bit of shift from the completed games value from Q3 to Q4.
Simon Jonsson: All right. Thank you. And that shift, is that especially for Kingdom Come, is that like the main reason for that – many reason…
Lars Wingefors: No. Well, I think the main reason is that we obviously look at all the data points to start with. I think I believe November is in general, a very competitive difficult time period. You could succeed very well in November, but it is more expensive to globally market a product. The competition from some very big game releases are always tougher in November. So you can say that February, it is a more optimal time window. It's still a fantastic period for fans to engage with games. And we had successes, great success releasing games in February before. That's on the release window. On the quality side, Kingdom Come, the team has been working on this for many years, over five years. And it's an enormous, fantastic product, but it's very complex. And now we are in the final stages to complete the product and we decided together with the team and the management decided with the team that the product needed that extra time to secure the absolute best quality when hitting the market. I think the expectations of the game has increased from the initial release of the first Kingdom Come back in the day, and we just need to make sure that the game is optimized when shipping.
Simon Jonsson: Got it. And comparing Q3 and Q4 in terms of releases, is it fair to assume that -- to assume then that Q3 will be more sort of a quarter of many smaller releases and Q4 more of big titles-heavy quarter?
Lars Wingefors: I can say that Kingdom Come: Deliverance II would be by far our biggest release of the year. That's the color I can give you.
Simon Jonsson: All right, thanks. And one more from me on the cost base or CapEx levels here. You have continued to close down some studios during this quarter. And how should we think about the CapEx in coming quarters here? And when do you think we could see a bottoming out and maybe potentially an increase in the underlying CapEx levels?
Lars Wingefors: No, I think we provided a more firm guidance on the run rate CapEx at SEK4.3 billion in the last quarterly. We didn't repeat this in the communication this morning. We are trying to move away from this very specific forecast every quarter and look more long-term on the business. But in general, I don't see any major deviations from the previous quarter. We will have some, especially external studios, completing the games in the course of the year and next years, that would lower the CapEx levels. Potentially not all of that will be replaced, but it is too early to start talking about growth in CapEx. We are still in the process of optimizing the PC console business and to have a rigorous cost control and control of all our processes within that business.
Simon Jonsson: All right. Let me phrase it this way. So you -- I assume at least you had CapEx impact from Gearbox as well this quarter. So, I mean, should we -- what can we read into that, I think?
Lars Wingefors: Not too much. Johan, do you have any further color on the CapEx -- reported CapEx level in this first quarter? How much was Gearbox if any?
Johan Ekstrom: No. It was -- Yeah, so there was some in the quarter, approximately SEK80 million.
Simon Jonsson: All right. Thanks, guys. I'll get back into the queue.
Operator: The next question is from Martin Arnell from DNB Markets. Please go ahead.
Martin Arnell: Hi. Good morning, everyone. My first question is, Lars, can you elaborate what 14% organic growth, excluding Dead Island was mainly driven by in the quarter?
Lars Wingefors: Well, first of all, we saw a growth in the catalog business. The catalog business are stable, and it is been growing year-over-year. And then, obviously we had a number of releases in the quarter. We were pointing out MotoGP, for example. We also had a quite solid quarter within other revenues, contracted revenues, development revenues, with business partners of more than SEK800 million in the quarter.
Martin Arnell: Okay, thanks. And then I have a question for Thomas, Asmodee as well. And I think you mentioned that there's slowed performance for distribution in parts of Europe. Could you elaborate on that comment, please?
Thomas Koegler: Actually, we do not comment on specific especially partner IPs. So I will just keep to what has been put on the -- in the report.
Martin Arnell: Okay. But that was some kind of slowdown there that offset the growth from your Star Wars game. And are you able to say anything on why the performance was slower in parts of Europe?
Thomas Koegler: No, I think it's more related to the fact that we have a very deep portfolio of products. And sometimes in certain areas, you have products that go up and down. But the chance we have is that we have hundreds of products present in 22 countries. So when there is slowdown somewhere usually it pickups somewhere else, and it’s a case with Star Wars: Unlimited, that's performing great. Other very strong launches like Harmonies or others. So it's just the nature of the business and the nature of consumer consumption in various countries.
Martin Arnell: Okay, thanks. And one long-term question to you. What do you think the growth for the board games market could be in a long-term perspective, say, five years from here?
Thomas Koegler: It's a very good question. And unfortunately, in our industry, we do not have the like (inaudible). So your job is quite difficult in trying to find relevant information on the market dynamics. What we see and with the help of external consulting firms, is that our expectation for the long term is to have somewhere around a mid-single-digit growth of the market.
Martin Arnell: Okay. Thank you. And my final question is to you, Johan. On the free cash flow improvement, there is a quite big delta in your alternative measures, where you show the payment personnel cost related to acquisitions. It's a SEK1 billion delta that is supporting the free cash flow after working capital, this SEK650 million increase year on year. Why is it such a big delta?
Johan Ekstrom: I think when you look at -- first of all, when you look at our operational P&L measures, like adjusted EBIT or EBITDA, we exclude the effects of M&A activities. And as highlighted within or related to the Gearbox transaction, there are cash. It's a net contribution after cash earnout payments. So from an operational perspective, that is reducing the funds in from the sale of Gearbox as opposed to EBITDA.
Martin Arnell: Okay, thank you. That's all from me.
Operator: Thanks. The next question from (inaudible) from Barclays (LON:BARC). Please go ahead. Your line is open.
Unidentified Analyst: Hello. Hi. Thanks for taking the question. So, I have three. So first is, can we know what is the adjusted EBIT for PC console in Q1, assuming no contribution from the disposed businesses? And the second is, can we get any update on progress on the financing for the Saber disposal? And by that I mean for the funding for the acquirer. And finally, so for FY25 guidance at FY24, we learned, like you said, that we should expect a similar performance compared to the actual adjusted EBIT in FY24. And by, that we think we should compare it to around SEK7 billion in FY24, including Saber and Gearbox. Are you still happy with this number or not? Thank you.
Lars Wingefors: So, to start with, your first question was the reported adjusted EBIT on PC console in the first quarter. I would say, a specific question, impacted from the divestments.
Unidentified Analyst: So adjusted EBIT. But if basically, we didn't have any contribution from the Saber or Gearbox in Q1.
Lars Wingefors: Yes. So Saber is excluded, as it was -- it's not part at all of Q1, but Gearbox contributed negatively with around SEK30 million in the quarter.
Unidentified Analyst: Okay, thank you so much. Thank you.
Lars Wingefors: And on your second question, the payment for Saber from the buyers. I'm confident that the buyer will be able to pay according to plan. Obviously, we are and I'm involved with the buyer on almost a daily basis because we have ongoing projects together, post the divestments, a few development projects, and I'm confident in the buyer's ability to get actually top-ranking investors into his business if needed. So there is no change from my previous communication around this matter. This will be paid this calendar year. On your last question, I’d like to come back to the fact that we are not providing guidance anymore. We previously -- just going back in history, we previously had a two years guidance and being in this industry, it was sometimes a bit painful to have that every quarter. So we decided to move out from having a hard guidance every quarter because there is a bit of lumpiness in the PC console business. And however, we decided to give some color and not the guidance. Decided to give some color in our first reporting, how investors should look at this year and we said we see a similar adjusted EBIT this financial year. That was our statement in last quarterly reporting. Now, I think businesses are performing according to expectations. There might be some shifts within the year, but in general, we see around the same amount of products being shipped this financial year. It's still SEK3.9 billion of PC console games that we are expecting to release within the year. The same number we provided in last quarterly. So that's kind of the color I can give you. In the end of the day, Asmodee is a fantastic businesses to own from the perspective. You always are very stable in your deliverance of your numbers and the mobile. The PC console guy is the bad guy because it's a bit volatile. But I'm very confident and excited about the future outlook of that business as well, especially now post-restructuring.
Unidentified Analyst: Thank you. Thank you so much.
Operator: No more questions from the telco.
Rasmus Engberg: Alright.
Lars Wingefors: Okay, Rasmus. Any final?
Rasmus Engberg: Yes. Yeah. Let's see if we have something here. Yes, there is a question here which I found quite interesting. 4A Games is a business that the buyer of Saber has an option to buy. How do you manage that business now? Do you see it as a part of Embracer or is it something that is...
Lars Wingefors: Yeah, it's a great question. To start with, 4A, led by Dean, it's a fantastic company that's been around for many, many years. Very experienced developers, both based in Malta and Ukraine, and they are working hard on their next big game to be shipped in the not too distant future. And we are in regular contact, obviously from Embracer's side with Dean. In general, our companies are fairly independent. They are founded by entrepreneurs. They used to run their businesses. Financially and legally, we are owning that business fully. Yes, the buyer of Saber has an option to acquire that business, but we need to wait and see in the end what the final conclusion is. I think 4A is a fantastic company. But regardless if it's owned by us or the buyer, Embracer holds the rights to Metro (TSX:MRU). We will be the publisher of any future game without confirming the name of that game. So I'm confident in our ability to capture, the great output the hard work the developers are doing.
Rasmus Engberg: Yes. I think we have been through most of the questions here. There are of course, many questions relating to the similar performance guidance in the previous report that wasn't there this morning. But I think...
Lars Wingefors: I understand the market love to hear hard guidance and it makes life easier, but it makes our life sometimes more difficult when there is shifts in release late and other things.
Rasmus Engberg: And how do you think about the non- Asmodee business? It is volatile. Should it be run without debt or you're going to work down the debt or how do you think about that?
Lars Wingefors: Yeah. So now looking at the pro forma debt post payment from the Saber buyer, we have fairly little debt relating to overall profitability left within the business. So let's see how much debt actually we'll have in the end of the year. In general, I'm not a big debt guy. However, a business like Asmodee, I think, could carry some debt. But in general, I don't think we should have a high leverage within the business.
Rasmus Engberg: And then just one question. I guess it is more of a household thing. But we have seen working capital -- we have seen cash flow improve materially now. Are there any sort of -- is that going to be lumpy or should we sort of expect it to continue to improve going forward?
Lars Wingefors: Generally, it would improve, but lump is the wrong word. There is a seasonality in the industry and there is the impact from releases and the working capital tying to that. So if you release a game in the end of the quarter, you actually would have that cash flow in the next quarter. So yes, there is some up and downs, but if you are a long-term investor and shareholder as myself, that is not the problem. It's a problem for a specific quarter.
Rasmus Engberg: Very good. I think we'll round off there unless we have any more questions. Thanks, everyone, for attending.
Lars Wingefors: Thank you, Rasmus.
Thomas Koegler: Thank you very much.
Johan Ekstrom: Thank you very much.
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