Embracer Group AB (publ) (EMBJ) Q1 FY2026 Earnings Call Transcript & Summary

Welcome to Embracer Group Q1 Interim Report 2025/'26. [Operator Instructions] Now we'll hand the conference over to CEO, Phil Rogers; and CFO, Muge Bouillon. Please go ahead.

Thank you, and good morning, everyone. And thank you for joining our webcast today on our Q1 results. Today marks a change from our most recent quarterly updates in that we're talking to you from our Stockholm office. We have a short presentation to cover the main beats for our operating segments, a look at our performance and then closing on how we're seeing the outlook in the times ahead before turning over to Q&A. It also makes a change for me to be here becoming the Group CEO on the 1st of August, just a couple of weeks ago. It's an honor to lead Embracer at this pivotal moment of our evolution. And I'm grateful to the Board and to Lars, in particular, for the trust placed in me. And with that, I'll jump straight in. Overall, our group Q1 results reflects a quiet quarter for PC/Console releases. Net sales were SEK 3.4 billion, which represents a 31% year-over-year decline, but a much tighter 2% organic decline when we consider the impact of our divestments last year. On adjusted EBIT, well, that came in at SEK 75 million. This was down from SEK 579 million reported in Q1 last year or down from SEK 250 million when we factor in those divestments again. Now I don't want to spend too long on this slide because we'll dive into more details as we look at the segments. But I do think it's important to highlight the free cash flow generation over the trailing 12 months or TTM at SEK 1.2 billion. Muge will talk more about this in the financial performance. But for me, I want to highlight the significant progress we've made in strengthening the group's balance sheet. Just looking beyond the data a little and as I said in the introduction, this really is a pivotal moment for our group. Coffee Stain is on track for its separate listing later in 2025. With a powerful combination of strong IPs, engaged communities and innovative talent, we're confident in its future as a stand-alone company. And as Embracer evolves from a collective to a cohesive business in Fellowship Entertainment, it will hold one of the most exciting IP portfolios in the games industry with globally recognized franchises, including The Lord of the Rings, Tomb Raider, Kingdom Come: Deliverance, Metro, Dead Island, Darksiders and Remnant, to name just a few. And we really believe we're laying the groundwork for a more agile and more empowered organization centered around such IPs. So here we're looking at the PC/Console segment, and our Q1 net sales were SEK 1.6 billion, a quarter with no major releases. Our focus in the quarter was really on extending the player reach of Kingdom Come: Deliverance II, but sales did fall short on where we had initially planned. Our thesis is that despite early price promotions and a DLC activity, there were some competitor titles launched in the quarter, which absorbed significant player time and attention. So mid-quarter, we decided to double down efforts on Q2 and beyond. Our team is now finalizing the next major new content drop, Legacy of the Forge, and this is shaping up to be a deep gameplay drop, one we hope our loyal player audience will love. The team is focused, the plan is in motion and we're fully on it. We're delighted that Kingdom Come: Deliverance II is widely regarded as a Game of the Year contender, and we want this to be one of the success stories of the year for players, for the amazing creators at Warhorse and for our wider group. A smaller release, but Milestone's annual MotoGP game got off to a solid start launching 30th April. Touching on the adjusted EBIT margin where it was down slightly on a year-over-year basis reflecting the negative sales growth, while we had a softer quarter for new releases and catalog, we're not happy with the margin and underlying profitability in the quarter. Just touching and looking into Q2 a little where Killing Floor 3 released in July. Sales have come in below our initial expectations. Now this is a core co-op first person shooter, FPS, and the team at Tripwire is working hard on updates with open communication with players. And on 1st of August, Titan Quest II started its early access. We've got some encouraging engagement and player data and we're looking forward to the full release, including console for this action RPG. We're showing this slide for consistency with our recent quarterlies. And whilst we're used to seeing the data points, I do want to stress some key thoughts. Firstly, as we said before, we're not happy with how our returns have been trending. Second, we know our future is focused on our core IP. And when we look at the deeper -- or when we look deeper into the underlying data set, our returns on core IP trend above 3, whereas noncore is below 2. And perhaps this is no surprise because our core IPs got deeper, and in many cases, longer relationship with our players for whom we're making better games, helping us drive better returns. Finally, on this data, and as I wrote in the broader CEO comments this morning, our investment allocation into our core IP projects is growing, expecting to reach 40% this year, up from 20% last year. Now of course, the backdrop here is an overall lower CapEx spend as we've cut back on noncore capital allocation and also factoring the divestments I mentioned earlier, but this shows a clear direction of strategic intent. Let's look at the pipeline. Well, as of today, we've got 39 announced titles. It was fun to see the gamer reaction to the recent THQ Digital Showcase. Several of those games that we revealed then are shown here, and our talent teams are working hard on getting those games ready for release. Darksiders 4 from Gunfire Games certainly caught attention and trended well with notable wish lists on Steam. Whilst that's not a game for this fiscal year, it is one we and certainly the players based on that reaction are excited about. If our team at Gunfire can bring that same magic to Darksiders as they bought to Remnant, then players are in for a real treat. And of course, Gamescom next week, we're excited about that. It will be another key beat for sharing information on our games. Standing back, and we'll cover this certainly in the outlook session, we retain a strong confidence in our pipeline. Now we move to Mobile Games. And for Mobile, we delivered SEK 520 million in net sales. And whilst this is a significant drop on the reported basis, so quarter-on-quarter, it's again a much tighter drop at minus 5% this time factoring in the divestment of Easybrain. Listening to teams at DECA, and of course, CrazyLabs, part of the DECA Group, I'd use the word smart and careful to describe how they approach Q1. Generally, we faced some increased competition, some user acquisition cost headwinds, so decided to lower our Q1 spend, however, generally maintaining margins. Glow: Fashion Idol was our top-performing revenue title this quarter and we're really excited it continues to grow, and we're confident it will continue to scale over the coming quarters. On Entertainment & Services, this segment, well, we had a stable quarter and delivered to plan with strong organic growth from PLAION's partner business. We also had a higher year-on-year contribution from Middle-earth Enterprises positively impacting the margin. The team at Middle-earth continues to build a strong pipeline across multiple product verticals. And fandom really is the heart of what we do and what they do in particular, connecting directly with fans and bringing our IP to life across multiple touch points. Just last month, Middle-earth, in collaboration with Dark Horse and TheOneRing.net, which is the world's most famous Lord of the Rings community, teamed up at the San Diego Comic-Con, creating a fantastic moment to engage fans and celebrate the world we create. And with that, I'll hand over to Muge.

Thanks, Phil. Good morning, everyone. As we have seen in recent quarters, the reading of our financials continued to be impacted by divestments affecting comparability with prior periods. So as I take you through the slides, I'll try to provide clarity on the underlying trends and performance on a like-for-like basis. Net sales for the quarter of SEK 3.4 billion were impacted by both the divestments as well as FX translation effects. If we exclude these impacts, as Phil also mentioned, our organic and pro forma growth stands at minus 2%. For context, Q1 last year included SEK 1.2 billion from the divested entities. Our Entertainment & Services segment led the quarter with plus 52% organic and pro forma growth, driven by a strong performance in PLAION's partner distribution business with the start of a new distribution deal with Sony. This was offset by PC/Console, which we mentioned, which was down 22% year-on-year pro forma due to lower catalog revenue and no major releases. Mobile was also slightly down year-on-year, excluding divestments. However, as Phil also said, Glow: Fashion Idol continues to grow and is expected to scale further in the coming quarters. Gross margin for the quarter, as you say, was 69%. Divestments and the shift in segment mix had notable impacts here. Divestments resulted in a reduction of 5 percentage points. Excluding divestments, Entertainment & Services represented 36% of total pro forma net sales, which is up from 23% last year. So while PC/Console and Mobile gross margins were stable year-on-year on a like-for-like basis, the increased share of Entertainment & Services, which typically generates lower margin, led to a reported gross margin percentage decline of further 6 percentage points. Looking at marketing, total marketing spend was SEK 332 million or 10% of net sales, down 4 points year-on-year and 2 points lower excluding divestments. Non-user acquisition cost marketing decreased by SEK 57 million reported, largely due to divestments and was stable on a like-for-like basis. User acquisition cost investments dropped by SEK 282 million year-on-year to SEK 222 million driven by the Easybrain divestment. Easybrain accounted for SEK 314 million in Q1 last year. So excluding Easybrain, user acquisition cost represented 43% of Mobile net sales, up from 32% last year. The operating expenses, excluding marketing, were SEK 1.2 million, (sic) [ SEK 1.2 billion ], down SEK 515 million year-on-year and representing 35% of net sales, in line with last year. Q1 last year included SEK 400 million of OpEx from divested entities. On a like-for-like basis, OpEx decreased by SEK 115 million and remained stable as a percentage of net sales. This remains and will remain a key focus area as we continue to maintain tight control over our cost base. As we've mentioned, Q1 was a quiet quarter with no notable releases, activity delivering adjusted EBIT of SEK 75 million. Last year's Q1 included SEK 331 million from divested entities. Aside from the divestments effect, adjusted EBIT was impacted by the soft PC/Console top line and the resulting segment mix shift towards Entertainment & Services, which impacted the margins, as I mentioned earlier. Overall, this led to a 10-point impact in adjusted EBIT margin or minus 5 points when we exclude the impact of divestments. Turning to cash. This remains a key area of focus. We have seen a step change in trailing 12 months free cash flow after net working capital, as Phil also mentioned, now at SEK 1.2 billion compared to minus SEK 196 million a year ago. Q1 free cash flow after net working capital was minus SEK 223 million versus minus SEK 120 million last year. Excluding the free cash flow contribution from divested entities last year, we see an improvement on a like-for-like basis. This improvement was driven by better net working capital movements with receivables collection post KCD II launch and lower net investments year-on-year, partly offset by softer EBITDA performance. Looking below free cash flow, the cash inflow from financing activities of SEK 164 million in Q1 contrast to the significant outflow last year, which related primarily to the repayment of loans with the net proceeds from the Gearbox divestment. Net cash flow from acquired or divested companies relate to the payment of earn-outs and the acquisition of shares in Starbreeze. At 30 June, this results in a net cash position of SEK 4.9 billion and available funds of SEK 12.7 billion. That concludes the overview of the quarter's financial performance, and we turn now to an update of the [ Coffee Stain Group ]. As Phil mentioned, this is a transition year as we continue to reshape and transform the group. We've been very happy to see the success of Asmodee, and we look forward to delivering another successful spin-off with Coffee Stain Group. As we announced in May, the plan is for the spin-off on the Nasdaq First North Premier to happen by the end of calendar 2025. Since then, we've onboarded advisers, held the kickoff meeting with Nasdaq early this month and we are progressing well with listing preparations. We have good momentum, and the teams are fully mobilized and on track to deliver within that time line. In parallel, we're also working on the evolution of the group post spin-off. I think that's a good point to hand back to Phil who'll speak more about the future including the immediate priorities of Fellowship Entertainment. Phil, over to you.

Thanks, Muge. So looking ahead, so this really is a year of transition, we've mentioned that several times today, as we lay the foundations for Fellowship Entertainment and focus on building a business led by key IP and empowered teams and a structure enabling focus and operational discipline. And it's paramount with that, we concentrate on the quality and long-term value of our releases rather than chasing short-term gains. So we now expect our current financial year to deliver at least SEK 1 billion in adjusted EBIT. On the whole, versus last year, we have incorporated further release shifts of one or several of the more important releases currently scheduled for Q4 as well as a slower growth trajectory for Mobile, we've got some FX headwinds and lower catalog sales. This conservative view really does provide upside potential, which we will work tirelessly to realize. For Q2, we expect to be roughly in line with Q1 in adjusted EBIT, driven by the performance of already-released titles in July and August. Now looking forward, we see no material changes to the management expectations of fiscal '27 and fiscal '28. We have one of the most exciting pipelines in the industry. We still have 9 AAA games currently slated. Now as we previously discussed, one or a couple of these games will most likely slip into FY '29. But even with that, we do see a clear increase in release cadence compared to an average of just over 1 AAA game per year when we look back over the last 5 years. What will that bring? Well, we expect the increased release pipeline, in combination with the lower fixed costs, which we talked about we're going to get under control, will notably improve free cash flows FY '27 and beyond. Important to note, Coffee Stain Group is performing in line with expectations with an intact outlook. We see there are challenges ahead related to Fellowship Entertainment, and we fully recognize these challenges. Nevertheless, we also see potential for great, long-term value creation. And with that, it brings us to the last slide of our notes today. And this is about firing up the engine that needs to power us to transform into Fellowship Entertainment. It's been fantastic talking and listening to our teams across all of our businesses about the potential we have and to feel that resonate. It really excites me as a leader, and I just hope it excites you as shareholders, too. But we have to fire the engine up. IP-led. As we said, we have one of the most exciting IP portfolios in the industry. And you've seen today how we're already on this path of making sure we're focusing our precious capital against IPs, which have the power to engage players for decades. When we talk about a PC/Console powerhouse, we're not suggesting one massive single studio, but a group of studios collaborating on the creative, production and the commercial opportunities ahead. Now there will be streaming as we set up the right shared services. And as studios today are seeing AI as increasingly supportive force, I heard it called a potential power multiplier, that should really excite us all. We're focused on continuous improvement on cost as well as targeted cost initiatives relating to underperforming businesses, which will free up capital to deploy with better returns. Well, that really brings us to the end of the key messages we want to deliver today. But before we hand over to Q&A, I'd just like to express my thanks to all our teams across the group for their hard work, dedication and passion. And with that, we'll open the lines for Q&A.

[Operator Instructions] The first question comes from the line of Simon Jonsson from ABG Sundal Collier.

Welcome to the stage, Phil. I want to start with the guidance and PC/Console more specifically. I understand that there are limitations to what you can say about the pipeline, but in terms of the backlog, it is trending downwards and that is despite the inclusion of KCD II here this quarter. So can you maybe talk a bit more about the dynamics behind that? I know you mentioned platform deals, for example. But more than that, are there some specific units where you have seen bigger declines and for what reasons? And with the limited new releases coming in coming quarters, should we expect further declines in the backlog, you think? So I'll start there.

Just to make sure, that's the back catalog really. Yes, I mean...

Yes, exactly.

I think -- I mean, firstly, I find the word back catalog in today's world where we're very digital served, I think I refer to it as catalog and I think it's a very live business today. I think what we saw in Q1 was more just some temporary headwinds. I mean, we generally had some surprises as the industry did in terms of other games that launched and certainly took some gamer time and attention away. What I like, though, is that we can see that and then we can react, and as I say, we'll double down for Q2. But perhaps there's some prevailing headwinds and we're trying to reflect that today. So I think nothing that I'd say is structural. I think it's just an overall level of caution. And again, that's what we're expressing today. But nothing that I see as overly structural. I don't think we commented too much -- I mean, you also asked a question about the sort of one-off deals, I don't think we're really commenting on that. I mean, the deals -- these one-off deals are actually becoming more common in our industry as we work with platforms for subscription. There's nothing notable in the first quarter. But I think as we move forward, they will become more commonplace, especially as we plan on sort of on this IP basis. So that's probably how I'd respond to that.

I see, I see. But you say it's sort of temporary, but yes, I see that maybe more content coming up for KCD II and all that. But KCD II aside, it seems like there is a negative trend. So I mean, is there anything you can actually do to sort of slow that trend down? Or do you really think that you -- do you actually think that underlying is more stable and it could come back to slightly higher levels coming quarters? Or what does temporary mean in that regard?

Well, I think we see this as a very active part of our business to drive forward and we've got confidence in our catalog. And obviously, as we know, I mean, the better quality generally of the games that we're producing, the better outcome that comes in as we transition into catalog and managing that cycle. So I think, again, we're just expressing a little bit of sort of caution in this revised forecast, but that shouldn't be read as sort of down confidence. I think there's plenty of levers that we can pull whether it's community activation, whether it's marketing activations. We're looking and using price, which is a topic in the industry right now to drive engagement as well. I mean, generally, we're seeing how players are coming into our product through data and we can take smart decisions as we go along. So I think we're confident on it, and I think the confidence will grow as we get to higher and higher quality games.

I see. But looking at the sort of pro forma performance in the back catalog, you have closed down a lot of studios and projects. So is it fair to assume that catalog will remain at a lower level because of that? That you had revenues coming in from acquired studios and projects that are no longer in development, especially in our external projects?

Yes. I could maybe just jump in referring to KCD II as well. As you know, the catalog or back catalog, the way we define it, is also dependent on the releases in the most recent quarters. So as you know, KCD II was the main release in Q4. So we should be mindful when looking at Q1 performance from that aspect. So we are very happy from that aspect in the overall performance on a soft quarter, obviously. I think we should take a look judging those percentages, but it's also dependent from the Q4 from last year, and we are totally conscious of the potential of KCD II, which will be contributing in the coming quarters.

Yes. I mean, and I'll take the mic back down, I mean, just to stress that confidence on KCD II. I mean, we're in a great relationship with players. We have a very loyal player base. We dropped the first DLC in the quarter. We knew it was going to be smaller, so there's no surprises there. But really, the next DLC drop, which we're lining up and we're going to talk more about next week is a much deeper gameplay experience, I think one that really our fans will love. And that's how we continue to grow and believe in that business as we move forward.

Got it. Okay. Just moving on to one question about Mobile as well. A few quarters ago, you were investing more heavily and you were sort of talking about more growth and you actually saw a bit better organic growth. But now you're back to negative or an organic decline basically. And despite that, the margins remained lower here. Maybe it's temporary, but what is the plan for Mobile, you think, in terms of investment and margin potential? Is the sort of low double-digit margins where you need to be to protect the top line? Or do you think you can sort of remain stable on top line and get back the margins to like 15%, 20%? Or what do you think about that?

So as we briefly mentioned, we were also negatively impacted by FX on top line and we saw some competition as well in our hybrid casual portfolio that impacted the period. But we have a good team in place in DECA and CrazyLabs, and obviously, we are still confident in our strategy. We believe, for example, that the Glow that we mentioned has the possibility to scale over the coming quarters and remain cautiously optimistic that the coming quarters are going to scale back and deliver better.

Yes. And I'd stress that, I mean, again, I think I don't want to sort of [ over spiel ] with the smart and careful comments. I mean, when you talk to the teams there, the precision with which they're looking at that business is really quite remarkable. I know we've talked about that in the past how they're approaching the market with competition, which is very dynamic, but then also reading and understanding the data that we're seeing in titles. So I certainly feel there's confidence. I mean, again, just reiterate with Glow, that is on a growth path. We're confident that will continue to scale over the coming quarters, and I think we'll see that margin growth coming back in as we come back.

The next question is from Rasmus Engberg from Kepler.

I had, firstly, a question on -- you delayed some titles now into next year. What's your thinking around there's one very big release in the industry coming in May next year. Are you tactically going to sort of avoid coinciding with that? Or are you going to release titles when they're ready? How do you think about that?

I think we -- it's a great question. I think we're all looking at that May window and what it might do. I mean, of course, it's a very particular genre, but it will take up time and attention and consumer interest. But often -- of course, that consumer interest then brought more interest into other games. There is a sort of halo effect. But yes, I don't think we will be looking to go head-to-head with it. I think there is space around some of the monster releases like a GTA. For us, it's really making sure we've got the right activation for the gamers that we're particularly targeting. And as you know, we have taken a more cautious approach as we looked at our outlook and our release slate.

It sounds though that if you delay it from '25, '26 to '26, '27, you do not mean the first quarter there because that's when GTA comes out. It's rather in the autumn or something?

Well, yes. Look, I think for every game, we're looking to find that optimal window and that's multiple facets on when that is. So I think that's the planning we're going into now. But yes, that's how I answer that.

Okay. And the second question, more generally, what do you mean with the more cohesive group? Looking at some of the releases, especially externally developed titles, they do not seem to have done particularly well. Are you thinking about cutting there? Or am I misreading it?

No, I think there is -- as we narrow, I mean, the whole transformation we've been on is really moving the Embracer vision forward in very particular ways with spin-outs and with spin-outs we're individually sort of narrowing in the focus. And that's what I mean then when we talk about how we describe Fellowship. I think we talked -- we're internally thinking about things like centers of excellence, shared services. We don't want to be solving the same problem in multiple places. I'm really pleased when I talk around the studios that there is a want to collaborate, right? I think if we look at the industry today versus, say, 20 years ago, today we're talking about common technology and tool chains which really open up that ability to fuse people together more. There's more commonality. Perhaps we've even seen through the pandemic how working remotely we can really power things up around, again, development studios whereas 10 years ago we all have to be thinking we're on the same site. So I think these are opportunities that we really want to lean into. So that's really some of the background on why we would choose to say it's a more cohesive approach.

And maybe I could add that would obviously emphasize the focus on our core IPs, which is going to get more and more traction that should translate into a better use of our core IP.

The next question is from Nick Dempsey from Barclays.

I've got 3, please. So just first of all, I just want to understand whether this reset on guidance is simply a reflection on what you've seen so far in the year? Or is it also an attempt to take a new, more cautious approach to guidance as a new senior management team talking to us for the first time. The second one, when we think about the shape of the year, you guided on Q2, fine. We also know you have some releases in the Q4 time frame planned. Should the natural seasonality also mean a decent-sized jump up in Q3 adjusted EBIT versus Q2? Or will the year weigh heavily to Q4 in your thinking? And my third one, just on free cash flow. I know you're being more efficient on CapEx, but at this level of expected adjusted EBIT, does it now seem likely that you will have negative free cash flow in FY '26?

Well, thanks. Let me -- thanks, Nick. Let me take the first one. Yes, I mean, I think it's a little bit of both, if I'm honest with you, you sort of said either/or. I do think we're trying to get in front of what we're seeing sort of sooner. So we have taken a more cautious approach as we see games moving naturally from Q3 to Q4, and that's what we're reflecting today. But also just generally, we want to set targets out there that we want to smash through. So I think that is part of our approach in this conservative view that we're putting out today. We do believe there's potential upside. And we, as we said, want to work tirelessly to go and achieve against that. It's a tricky one with guidance with video games. We've got sales mix, we have digital so when games released in certain months can impact sales and results quite considerably. So that's what we're trying to get back to, just use all the best information we have to come up with what we feel is a conservative outlook to present. Maybe the second question on the EBIT split Q2, Muge, you want to take those?

Yes, let me take the second or third. So indeed, regarding the seasonality, PC/Console more fluctuating with release. But there is also Entertainment & Services and partly Mobile, as you know. So that helps us also shift and navigate between that window. So from that perspective, nothing more to highlight from the Q3 versus Q4. As far as cash flows, again, the forecast we provided for season, we'll do our best to come with upside, obviously. But we maintain monitoring the cash flow with tight control, and we have a range that is going to follow the EBIT performance, I would say.

The next question is from Jesper Stugemo from Handelsbanken.

I'm just wondering here, Phil, what your approach is as a new CEO of Fellowship? And do you have another view on the operations compared to what Lars had considering the new guidance here in this quarter? And maybe are these postponements more of a polishing, finishing big games in a good manner or is it more related to that you want to give Coffee Stain a good start of 2026 as a stand-alone company?

So thanks, Jesper. Thanks for the question. Well, again, I use that word about Fellowship as we -- it's collective to cohesive. I think that's a natural trend, by the way, as we looked at the -- as we've been on this journey as we form Fellowship, sort of where can we work in a more collaborative sense. And I'd say, I don't want to say this is some force, but there's logic to it. I mean, many businesses they will talk about shared services. We see that optionality to have that within a studio world. So I think it's a natural evolution in our business versus something different to the past, let's say, different sort of policy, let's say. It's naturally how we're evolving. I think on the individual games, our philosophy remains the same. We do want to get them to the highest possible level of quality, whether that's polishing or just really reading the data to make sure that we're working in the most efficient and effective way a little bit team by team. How teams close out games, some teams finish production very early and have long polish. Some teams coming fast. So it's really understanding that dynamic about how they've shipped in the past as well. So there's multiple facets there, yes, and strong belief as we talked about. We have got a big pipeline -- major pipeline. And overall, we're very confident on that pipeline, the 9 AAA games. There's lots of excitement to deliver.

And given the ROI on your internal IPs, you mentioned about 3x. What's your expectations in the coming years? And are you satisfied with 3x or what more actions are necessary to reach beyond this level, you think?

Yes, it's a great question. Well, I mean, there aren't many peers, again, that we can get access to see what the full potential is. So when we look at our own data, we certainly have belief around that. It's really a function of a couple of things. There's obviously control over the debt spend. I'd say right now, there's not a team internally that is not focused on that as a topic. Development costs have increasingly come into the vocabulary and discussions of studios worldwide and with great focus here as well that there are -- as we look to delight gamers with more and more, those costs, obviously, as you've seen, have gone up. So I think that's one factor. There's a lot of focus on how we can really optimize around the development investment. This could be, again, collaborations between studios, which we're seeing, and very exciting progress there as we look at those collaborations. But I don't know, as we look out and perhaps think about comps, I can certainly squint and see how with core IPs, again, with those lower costs, we are into the 4s. And in some cases, I think when we look at some external games, into the high 4s. Again, I think that's a combination there where we really can focus on. Our core IP, certainly internal IP as well. So we don't have sort of outbound licensing costs. But also there's a longer trend here, but the -- if you imagine, if you're only releasing a game every 5 years on a certain IP, then you're sort of capturing that audience once. And then, of course, 5 years later you have to go and find them again. I think now as we look forward, especially with our storied IPs, the way to introduced potentially smaller games in and around those IPs, whether it's larger DLCs or even spin-off sequels/prequels, this is the sort of really exciting, the planning that we're doing right now. Again, this is what really is galvanizing the studios because then we're sort of capturing and we're, if you like, never releasing that gamer. So in macro terms, we are lowering those sort of acquisition or today we talk about marketing costs, and all that can drive greater efficacy to that ROI. That's the challenge we've got and that's what we're seeing, but we really do believe in that potential.

Yes. And just a last one for me here. You have a quite solid cash position, net cash SEK 5 billion. Could you -- do you have anything new to share with us here, given your view on buybacks, dividends or capital allocation between Coffee Stain and Fellowship?

Well, as we've said, Coffee Stain Group's spin-off project is on track and is planned for the end of the calendar year. So before we say anything, we need to assess and see the needs, the balance sheet needs, and the position for Coffee Stain Group and further details on that will be announced ahead of the spin. So that will be the right moment to follow in terms of sequence, I would say.

The next question is a follow-up from Rasmus Engberg from Kepler Cheuvreux.

I had the same question about the significant overcapitalization. I mean, right, but I'll leave that. Titan Quest was a very appreciated release. Do you think in terms of a full release, should we sort of -- is that going to happen this year? Or what's the thought there?

We've not -- I think the thing with Early Access is you really got to take the time to see how players are enjoying it. That's the benefit of having that step in the development program. So it's quite fresh, Rasmus. I mean, firstly, I appreciate that you've perhaps seen it, too, and have seen the positive comments. So I think our focus right now is really understanding that as we push forward in that development cycle then to do the best with it. I think we'll come back and get more precise with the team as how they're seeing that console release. But again, it's nice to see some upside against our plans for August. It's certainly been a great tonic for the team at THQ and the studio. And we'll come up with more news as we really digested and interpreted what we're seeing now in Early Access.

And just back to the capital situation. I mean, Coffee Stain has very high EBITDA margins. and you have overall sort of flattish, at least cash flow, if I get it right. I haven't been through it. So what's the point of sitting on a ton of cash until Coffee Stain is spun off?

So again, I mean, we do remain committed to distribute any excess cash to shareholders as we had also said during last quarter. So our commitment remains the same, and we'll be getting back to the market with further information in the coming months ahead of the Coffee Stain Group's spin-off.

The next question is from Amar Galijasevic from DNB Carnegie.

Just 2 questions from me here. Firstly, on the adjusted EBIT outlook, it's significantly different from a couple of months ago when you discussed it, I hear what you see on the reasons behind. But could you maybe give us some more color on how much of the revisions are related to -- is it Console delays, how much is on Mobile and how much is FX just to give us some sense for what is what. Is it 90%, is it Console or how should we think about that first?

Amar, thanks. By far, the most important part is coming from our PC/Console business, obviously. It is -- so I won't be commenting on specific numbers, but in terms of order of magnitude, so the slate changes and the performances on PC/console represent the highest. And afterwards, I would say the Mobile part as well as FX performance to a less magnitude.

Okay. That's clear. And then just one more. Maybe a bit more detailed question, but could we get some more color on the performance of Coffee Stain here in Q1 and maybe what you expect for the rest of the year? If we can have some comparison to last year? Anything on the release slate. Anything would be very helpful.

As we said, Coffee Stain is fully focused on the spin-off process and things are going on track. As part of the preparation ahead of the listing, information will be provided. So while I can't give specific numbers, what we can repeat is that Coffee Stain Group is doing things on track and in line with our expectations.

There are no more questions from the telco at this time. So I hand the word back to you, Phil, for closing comments.

Okay. Thanks. Well, thank you, everyone, for attending this morning. Thank you for your questions. That is all from us here, and have a good day.