Embracer Group AB publ) (LON: 0GFE reported a first-quarter increase in net sales and a return to positive Cash EBIT and free cash flow, driven primarily by growth across its Embracer operating segment and continued cost discipline.
The company said it has begun reporting under two new operating segments, Fellowship Entertainment and Embracer, while adopting Cash EBIT as its key earnings measure. Management said the changes are intended to increase focus on operating performance, capital discipline and cash-flow conversion as it prepares for the planned spin-off of Fellowship Entertainment in calendar 2027.
Group net sales totaled SEK 3.9 billion, up 24% year over year. Excluding divestments and foreign-exchange effects, organic and pro forma net sales growth was 33%. Divestments, primarily Arc Games, and currency translation had a combined negative impact of about SEK 210 million on quarterly sales, according to management.
Cash EBIT was SEK 47 million, an improvement of SEK 146 million from the prior-year period, while free cash flow turned positive. On a trailing 12-month basis, free cash flow was SEK 192 million, nearly SEK 400 million higher than a year earlier.
Management reiterated full-year guidance for Cash EBIT of at least SEK 1 billion, saying it had increased confidence following the first-quarter performance. It also expects year-over-year Cash EBIT improvement in the second quarter, though free cash flow is expected to remain weighted toward the second half because of seasonal working-capital needs.
Fellowship segment faces tough comparison
Fellowship Entertainment generated net sales of SEK 810 million, representing an organic decline of 22% from the prior-year period. The segment faced a difficult comparison with the February 2025 release of Kingdom Come: Deliverance II and had limited new publishing, development and licensing content during the quarter.
Fellowship’s Cash EBIT was negative SEK 32 million, for a Cash EBIT margin of negative 4%. Gross margin remained stable year over year at 85%, while operating expenses before marketing fell to SEK 373 million as prior savings initiatives took effect. CapEx was SEK 288 million.
Phil Rogers said Fellowship nevertheless performed above internal expectations, supported by catalog sales from franchises including Kingdom Come: Deliverance, Metro, Remnant and Dead Island.
“The worlds we steward keep earning,” Rogers said, describing catalog performance as the foundation for the business ahead of a more active release schedule.
The company expects two titles in the third quarter: Warhammer 40,000: Dawn of War IV, now expected in December rather than the second quarter, and Stage Tour. Management said Dawn of War IV had surpassed 1 million Steam wishlists.
Looking further ahead, Fellowship expects Metro 2039 and Tomb Raider: Legacy of Atlantis to be released in February. Rogers said Metro 2039 reached 1 million wishlists faster than any title in the company’s history. A new Kingdom Come game, Darksiders IV, and Tomb Raider: Catalyst are expected in the following fiscal year.
Management said the next Kingdom Come title has been in development “for quite some time” and will be a full-size game built around Warhorse Studios’ open-world expertise.
Licensing business gains attention
Management highlighted licensing as a durable, potentially high-margin revenue stream for Fellowship, although it did not provide financial targets for the business. The company expects licensing to help offset a lighter publishing and development content schedule in the second quarter.
The launch of Magic: The Gathering — The Hobbit, developed with Wizards of the Coast, was scheduled for the day after the call. Management said it was tracking well with fans, though it noted that trading-card game releases can be difficult to model.
Fellowship also cited future opportunities involving feature films with Warner Bros., tabletop games with Asmodee, merchandise, location-based experiences and video games. While The Lord of the Rings remains a core intellectual property, management said it is pursuing licensing opportunities across a broader portfolio.
Embracer segment drives quarterly growth
The Embracer segment was the main contributor to group growth, reporting SEK 3.1 billion in net sales, up 63% organically year over year. All three business areas—PC and console, mobile, and entertainment and services—grew during the quarter.
- PC and console benefited from the launch of Gothic 1 Remake, which sold 500,000 copies in its first week and was close to recouping development and marketing spending, according to management.
- Mobile revenue and profitability increased, led by Subway Surfers.
- Entertainment and services posted particularly strong sales growth, supported by distributed titles from Plaion Partners, including Crimson Desert.
Cash EBIT in the Embracer segment was SEK 136 million, an improvement of more than SEK 300 million year over year. Management said about SEK 40 million of the improvement resulted from decisions during the past year to divest or close certain entities.
The segment’s gross margin fell 10 percentage points to 49%, primarily because entertainment and services represented a larger share of sales. Management characterized the lower margin as a revenue-mix effect rather than a measure of business health.
Operating expenses excluding marketing declined to SEK 543 million, while CapEx fell SEK 76 million year over year to SEK 389 million. User-acquisition costs totaled SEK 300 million to support mobile growth, and marketing costs increased with higher PC and console release activity.
Cash position and outlook
At quarter-end, the company reported net cash of SEK 3.5 billion and total available funds of SEK 6.4 billion, including undrawn facilities. Remaining obligations related to historical acquisitions were SEK 214 million, after earn-out payments in the first quarter covered most obligations for the fiscal year.
Management said CapEx had trended lower than last year and did not expect significant swings in current investment levels. It added that most restructuring initiatives in the Embracer segment have already been implemented, with the company focused on sustaining its cost discipline while converting its project pipeline into higher profitability and cash generation.
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.
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