Embracer Group AB

Muge and I welcome you today from our Stockholm office and as usual we'll run through the main updates for our operating segments and the financial performance and then open it up for Q&A. One important reminder From this quarter, we report in our new operating segments, and we've introduced cash EBIT as our key earnings measure. Together, these changes sharpen our focus on operating performance, capital discipline, and stronger conversion of earnings into cash flow. This is the operating model we are building the future on, and it sets us up for the spinoff of Fellowship Entertainment in calendar 2027. So let's get going. Overall, our quarterly results reflect another delivery above plan on both the revenue and cash EBIT side. Net sales were 3.9 billion sec, a 33% organic growth year over year, driven by the Embracer segment, with broad growth across its business areas, PC console, mobile, and not least entertainment and services, which had a standout quarter. Following a strong Q4, we delivered positive cash EBIT and positive free cash flow on a group level in a quiet quarter from a major game release perspective. Now that's the power of the catalogue we are building, that our core franchises keep delivering quarter after quarter. For the full year, we confidently reiterate our cash EBIT forecast of at least 1 billion SEC. The year is anchored by Metro 2039, expected to be released in February next year. And the momentum is building fast. After its reveal, Metro 2039 raced to one million wishlists, reaching this milestone faster than any title in our history. And wishlists continue to grow ahead of expectation. Our team is lining up a major marketing beat for Metro at this year's Gamescom, just in a couple of weeks now. with new content at the opening night live show on Tuesday, the 25th of August. There's also a huge show floor presence where players can get hands-on with the game for the first time. During the quarter, we made further progress in building the future fellowship entertainment organisation toward the planned spin-off in 2027 with IP increasingly at the centre of our operating model, investment decisions and long-term value creation. Rather than simply replicating existing structures, we're creating a leaner model where experienced people take broader responsibility across clearly defined areas. This includes ongoing strengthening of green light and portfolio decisions, while bringing community insight closer to game development and live operations. The organisation continues to evolve, but the direction is clear. IP is at the centre of our operating model, investment decisions and long-term value creation. And starting this quarter, we've made several changes to our reporting to improve the relevance and clarity of the information presented for the group ahead of the fellowship spin-off. From my side, the message is clear. The groundwork is done, the progress is visible, and we're moving into the next phase from a position of strength. Now, let's just step back and look at the longer-term picture because it tells a powerful story. The trough is behind us. After FY25-26, the trajectory has turned. On a trailing 12-month basis, as of Q1, organic growth is running at 5% versus fiscal 25-26 and our cash EBIT margin is climbing. Two things I think make this genuinely impressive. First, we've achieved this improvement with no major game releases for fellowship in the period and limited sizeable revenue drivers for licensing. and that's while being measured after the February 2025 launch of Kingdom Come Deliverance 2 and the momentum that followed through FY25-26. This is what a diversified business looks like when it's working with multiple segments and business areas all pulling their weight. Second, please note that our historic numbers in FY23-24 and FY24-25 include a significant positive contribution from EasyBrain. So the absolute numbers are not fully like for like. The underlying momentum is stronger. So here's the key point. Today's trailing 12 month levels are the floor, not the ceiling. The hard work is behind us, the release engine is ramping up, and there is substantial growth ahead across both operating segments, and we intend to capture it. As a quick recap from May, from this quarter we report our business across two segments, Fellowship Entertainment and Embracer. Fellowship Entertainment is built around one strategic focus, IP or worlds that fans return to again and again. In Q1, Fellowship delivered net sales of 810 million sec, a headline 22% organic decline. Now, let me put that in context. We had limited new content across both publishing and development and our licensing businesses. And we were up against tough comps with Kingdom Come Deliverance 2 releasing in February 2025. From a cash EBIT perspective, the margin was minus 4% in the quarter. I'll be straight with you, not a strong quarter on the headline. But here's what it proves. We came in above our internal expectations, powered by solid catalogue performance, especially Kingdom Come Deliverance, Metro, Remnant and Dead Island. The worlds we steward keep earning. And that's really the foundation this business is built on. And it's exactly why the release slate ahead matters so much. On the next slide, let's look at some earnings dynamic that drive fellowship. This chart shows the engine of the publishing and development business. New releases drive the revenue peaks, feed the catalog, and ultimately power cash EBIT margins and cash EBIT. You can see it clearly, the release of Kingdom Come Deliverance 2 in February 2025 drove a significant revenue peak, followed by solid catalogue performance in FY26, boosted by three DLC releases. Over the past five quarters, new releases have been limited, so the model has been running on catalogue alone. That's about to change. First up, we have two titles lined up for Q3. both Dawn of War 4 and Stage Tour, and both are showing promising early traction. From a publishing perspective, the big one this year, Metro 2039, is scheduled for February, and it's expected to be a key driver, bolstered by Amazon's publishing of Tomb Raider, Legacy of Atlantis. Our collaboration with Amazon continues strongly on all things Tomb Raider. GAMESCOM GAMESCOM GAMESCOM That's the rhythm this business was designed for. We spent the past two years putting the studios, the pipeline, the discipline and the empowerment in place to sustain it. And it will power the growth and profitability of Fellowship Entertainment.

Thanks, Phil. And good morning, everyone. Looking in a bit more detail at Fellowship's financial performance, Well, Phil has just spoken about the top-line performance, where Fellowship delivered net sales of 810 million SEC, down 22% on an organic basis. The gross margin percentage for the quarter remained stable year-on-year at 85%. The impact of the top-line evolution was partly offset by lower operating expenses, which came in at 373 million SEC before marketing costs, reflecting the realization of prior year savings initiatives. CAPEX remained relatively stable at 288 million SEC for the quarter. Adjusted EBIT margins were relatively stable due to lower DNA as a result of no new releases in the quarter. Cash EBIT amounted to minus 32 million SEC with the year-on-year evolution, mainly due to the strong top-line comparator mentioned earlier and limited NIEV content in both publishing and development and licensing during the quarter. We'd like to emphasize that cash EBIT margins will be impacted by the level of capital we decide to deploy in growth capex relative to the revenue generated in a particular year. In the short term, These margins may be lower as we build the revenue engine field referred to earlier. But as that ramps up and release cadence has increased, we can expect a steady improvement in the cash EBIT margins over time.

Now to the pipeline. And there's a lot to be excited about. The current financial year is anchored by Metro 2039 and Tomb Raider, Legacy of Atlantis, both expected to be released in February. To touch on Warhammer 40,000 Dawn of War 4, this is now expected in Q3, December, rather than Q2, and fan excitement is building strongly. The game looks really promising, and early indicators show the excitement amongst fans is building, with over 1 million wishlists on Steam already. The fan engagement for Stage Tour from Red Octane Games is also very real. This game is being built with community at the heart and it was great to see their reaction at the recent San Diego Comic Con. And as mentioned, in the year after, a further strengthening pipeline with Darksiders, Kingdom Come and Tomb Raider Catalyst, the next chapter in our Tomb Raider series, published again by our friends at Amazon. In May, we talked about our new licensing business area, and our conviction has only grown since. This is a durable, high-margin revenue stream that sits alongside development and publishing, and the foundations are already producing. There is a lot of exciting stuff going on, some near-term and some further out, starting tomorrow with the launch of Magic the Gathering, The Hobbit, the trading card game from our great partners at Wizards of the Coast. So far, it's tracking very well as a fan favourite and follow-up to the 2023 successful release of The Lord of the Rings Tales of Middle-Earth. In Q2, we expect our licensing business to compensate for the lighter new content quarter in publishing and development. Further out, the slate is genuinely exciting. Multiple feature films with our partners at Warner Brothers, a strong collaboration with Asmodee across tabletop games, plus merchandise, location-based experiences, and of course, video games. In closing, The Lord of the Rings is one of our core IPs, but as we highlighted in our May update, we've got a great roster of other amazing IPs to fuel our licensing business. Now let's turn to the Embracer operating segment which delivered a strong earnings improvement. The PC console business area led the way with a successful launch of Gothic 1 Remake and continued momentum for Re-Animal. Gothic saw a strong reception from players, reaching 500,000 copies sold within the first week. The game is, as of today, already close to recouping its full development and marketing spend. And the strength ran right across the segment. Mobile grew net sales and profitability year over year, driven by sled surfers. Entertainment and services delivered very strong top line growth with high profits, driven by distributed titles and play on partners, including Crimson Desert. Embracer is much more than a games business, and that's a strength. With the diversity of activities and stable revenue generating businesses in the E&S and mobile business areas in particular, we expect Embracer to deliver a steadier, more predictable revenue profile on a like-for-like basis going forwards. These businesses share a lot of DNA, but they are different in terms of revenue and profit dynamics. In Q1, each business area grew. Every one. ENS grew the strongest driven by PlayOnPartners' physical business spanning software, hardware and retro. True specialists. Cash EBIT showed a strong improvement, though the gross margin was notably lower year-on-year due to the sales mix. Going forward, sales or revenue mix between the business areas will be the primary variable driving gross margin and cash EBIT margin year-over-year. That's a mix effect, not a health question. The underlying businesses are performing.

Turning to the more detailed Embracer financials. The Embracer segment was the main driver of Group top line performance with 3.1 billion SEC of net sales representing 63% organic growth year on year. As Phil has mentioned, the PC console, mobile, and entertainment services business areas all contributed to this growth. The very strong growth in the entertainment services business area resulted in an adverse mixed effect, which reduced the gross margin by 10 points to 49% for the quarter. Operating expenses, excluding marketing, declined to 543 million SEG. This was driven by targeted savings actions, including divestments over the last year. User acquisition costs for the quarter amounted to 300 million SEG, supporting revenue growth in mobile. The increase in segment marketing costs resulted from higher release activity in PC consoles. CAPEX of 389 million SEC was down 76 million SEC year-on-year, also benefiting from savings actions taken over the course of last year. Adjusted debit margins improved by 10 points due to the gross margin contribution of NIV releases in PC console and the effects of the OPEX savings. Cash EBIT for the quarter of 136 million represents a significant improvement of over 300 million SEC year on year, with around 40 million of that arising from the impact of decisions to divest or close certain entities over the course of last year.

Now to the Embracer pipeline, and it's packed full of fun. In the second quarter alone, we have several exciting releases. Hot Wheels Infinite Rush from Milestone, Way of the Hunter 2 for console from Nine Rocks Games and THQ Nordic, and the early access release of The Guild Europa 1410 from Ashbourne and THQ Nordic. Although not on this slide, I also want to spotlight ReAnimal, again, developed by the talented team at Tarsia and published by THQ Nordic. With solid continuum momentum, ReAnimal's main expansion, The Expanded World, will release in three chapters. In chapter one, The Prisoner, just launched on 7th of August. On top of that, there's a stream of new iterations of previous releases and asset care plays for some great IPs, as you can see here. This is an area where Embracer truly excels. Embracer today has the strongest, most focused PC console project pipeline it has had in years, with an improving ROI and profitability outlook. The strategy is decided, the portfolio is set, Now it comes down to execution and converting this pipeline into significantly higher profitability and cash generation, which is exactly what this team is built to do. And with that, I'll hand over to Muge to take us through the group financial performance.

As you've already seen this morning, we have delivered a strong start to the year with net sales for the quarter of 3.9 billion SEC, up 24% year-on-year and above our expectations. The top-line performance was primarily driven by strong performance across all business areas in the Embracer segment, including the successful release of Gothic 1 remake, and partly offset by negative growth in the Fellowship segment due to a strong comparator we mentioned. Sales growth was also partly impacted by divestments, primarily from ARK games, as well as moderate FX translation effects, which had a combined impact of around minus 210 million SEC for the quarter. Now, if we exclude the divestment and FX impacts, our organic and pro forma net sales growth stands at 33%. The gross margin percentage for the quarter was 56%, down 12 points year-on-year. The primary driver is the revenue mix, with a higher proportion of revenues in the entertainment services business area in Embracer and a lower revenue contribution from publishing and development in Fellowship. Operating expenses excluding marketing costs decreased from 1.1 billion to 972 million SEK supported by targeted savings actions including divestments. User acquisition costs increased around 80 million SEK to 300 million SEK supporting the sales growth seen in mobile within the Embracer segment while other marketing costs increased by around 60 million SEK due to higher release activity also in Embracer. In total, operating costs as a percentage of net sales reduced by 10 points year-on-year. We are happy to maintain discipline and focus on our operating expenses. CapEx for the quarter amounted to 677 million SEC, down slightly from 736 million SEC in the prior year, driven by Embracer, and largely stable since Q4. This results in cash EBIT for the quarter of 47 million SEC, up 146 million year-on-year, a strong start to the year in the context of our expectations. Similar to the net sales drivers, the improvement is mainly driven by higher near-release activity and the effects of savings actions in Embracer, partly offset by the effect of a strong KCD2 comparator in Fellowship. Moving on to cash flow. We delivered positive free cash flow for the quarter, a significant improvement compared to minus 383 million SEC in Q1 last year. On a trailing 12-month basis, free cash flow amounted 192 million SEC, up almost 400 million SEC compared to last year. We're happy to see another quarter where TTM free cash flow continues to trend positively. The improvement was driven by improved profitability, and lower capex, which I've described on previous slides. Lower tax payments and improved net working capital movements also contribute. Below free cash flow, cash flow from financing activities mainly relates to drawing of local facilities, but also includes an outflow of 94 million SEG related to the share buyback. The net cash flow from acquired or divested companies is primarily driven by earn-out payments. The earn-outs paid in Q1 cover the vast majority of earn-out obligations for the fiscal year. Total remaining obligations related to historical acquisitions amount to 214 million SEG. At quarter end, we have a net cash position of 3.5 billion SEK and total available funds of 6.4 billion SEK taking into account undrawn facilities. Finally, looking ahead, we are reiterating our full year guidance of at least 1 billion SEK cash EBIT with improving confidence following our Q1 performance. For Q2, we expect cash EBIT improvement year-on-year following a similar pattern to Q1. Free cash flow is expected to be weighted still towards H2 with some seasonal build-up of working capital expected in Q2 with significant improvement in full-year free cash flow generation in line with the improvement expected in cash EBIT. Overall, we are happy with the quarter. and we're working hard with our teams to continue delivering on the ongoing business while also preparing for the separation and spin-off of fellowship. With that, I'll close out the presentation part of this morning's call and we'll move on to Q&A. Operator, over to you.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to move yourself from the question queue, you may press star and 2. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and 1 at this time. The first question is on Jasper Stugemo, Handelsbanken. Please go ahead.

Yes, thank you, operator, and good morning. A few questions from my side. The first question is on cash EBIT and CAPEX here. As more of the year-on-year cash EBIT improvements appear to come from lower CAPEX and leases, how much of these lower investments should we invest? Structural versus quarterly phasing

Thank you very much for the question. We had already mentioned during last quarter that we expected the capex levels to continue trending lower than last year. But I shall say, as the structuring group has already made big progress, the levels represent a higher portion of our underlying activity. We don't expect big swings or big changes in the levels we are having on our CapEx levels now.

All right, that's clear. And secondly, on fellowship and licensing business, if you could give some more. colour around this one? How large do you think it could be? What annual growth rates could we see in the next three years? And is this more a lumpy business for you?

That's a great question. I think it's too early right now to predict the sort of percentages and get overly precise. I think what we see is, as we've mentioned, it's very durable and we believe high margin revenue stream We're getting going with it and we've got a number of initiatives right now between the sort of further out and the nearer term and we'll see growth certainly in the quarter we're in now when we get through the launch tomorrow of Magic the Gathering The Hobbit but we see it as really something that can grow well for us if we look at other licensing streams from different organisations and see how they've approached it and the sort of scale they get we certainly see that's well within our reach but I don't think right now is the time to get drawn on particular growth rates. Will it be lumpy? I think there's going to be some element of lumpiness. Of course, it all depends on the relative scale you're looking at. We certainly see growth. We see the importance of building up a broader portfolio on the licensing. We have a broader portfolio now, but of course, a lot of the focus is always on the Lord of the Rings and the Hobbit primarily, but we have more licensing opportunities and we're executing on that on a number of our IPs. So I think we'll, over time, come and present back more on this business, but certainly see big growth opportunities for us. Okay, thank you for that.

It would be interesting to hear your view on Sonne's decision here to stop support physical copies. What implications do you see from this, given that you had quite good sales growth in entertainment and services from distribution in this quarter?

Yeah, I think, you know, we know it's something I guess we've always known in some ways is potentially this can happen. So to get that news out and delivered is something now that we're planning hard for. I think, firstly, to say with our physical distribution businesses, there is always, already today, a natural diversity. We have distribution of retro products. We're also distributing physical consoles as well. So I think it's too early to get too precise again on what that could mean for us, especially if other solutions, it's going to be interesting to see from a broader perspective how the code in box works with GTA. and what a great example that could be. See how that sort of trends going forward. But, you know, we're always adapting and, you know, we'll judge the impact over time.

All right. Thank you for that. I jump back in line here.

The next question is from Rasmus and Berg. Please go ahead.

Yes, hi. Hi, good morning. Thanks for taking my question. Just on the guidance for the second quarter, so you don't have any real releases of any significant size, but so the driver for the better profit is a combination of, is it the licensing and lower costs and capex or what is the sort of, how does that play out in your guidance?

First, we had already indicated that the first part of the year would be more quieter because, as you know, primarily metro is already lined up in the second part. But as you have seen today, embracer segment, for example, has contributed on all business areas to both sales and earnings growth. And we expect the following quarters to benefit from all our business areas, it will be a combination of both new releases, which are lined up in the coming quarters with different depth, as well as the underlying performance, so the catalogue performance, and obviously the right level of capex monitoring. So we don't expect any surprise or it isn't relied on any unexpected or uncommon performance initiative, if you will.

So basically, if I was trying to take the two businesses separately, there is licensing to help in fellowship, and then in both businesses, I guess, or you have the you have the current momentum in embracer group then. So from from mobile and the releases you had in the previous quarter, that's how it works or

The momentum in Embracer is correct. On our fellowship activity, we expect to benefit from licensing, but our PC console activity is also expected to contribute to our year-to-year growth with the releases we've shaved earlier.

But I mean, just in the coming quarter, there isn't anything from fellowship, right?

No major release.

No. Okay. All right. Thank you. Thank you.

The next question is from Simon Johnson, ABG. Please go ahead.

Hello and good morning everyone. I just have a question on the new game from Warhorse scheduled for next year. If I understand correctly this is a Kingdom Come game. Can you maybe elaborate a bit on how long it has been in development and the scope of the game given the the short timeline since the last game?

Yeah, I'll take that question. Thanks, Simon. It's a big game. You know, when we talked about it in May, you know, I think we wanted to sort of make that announcement in May. It really is quite symbolic because it helps put colour on the fellowship pipeline. But it really is for the game team to talk more about the title, you know, with the right time with players. But we think it's something that, you know, if you stand back, we know we got a great player count now through Kingdom Come Deliverance 2. We see through, you know, their play styles, what they're looking for. So you can imagine we're building something really that's going to, we believe, hopefully excite the audience. in that Kingdom Come, you know, sort of setting. So, but it's a full-size game. I mean, this is what Warhorse is supreme at, you know, building these rich, really vast open-world sims. And it's something we're very excited about. That's the development time. It's been in development for quite some time. It's a full project and it's going to have a very, this is part of our planning, to have that better cadence coming off. Kingdom Come Deliverance 2 there's a lot of smart work between the respective teams and that's really when we talk about the rhythm and the structural changes but primarily it's by having world class studios like Warhorse who can really deliver in that way so it's a I'm excited so hope you will be too alright got it and when you say it's like a full sized game

Does that mean like a regular sequel or could there be some kind of spin-off?

I don't know what regular sequels mean in today's world, but, you know, I think we're building worlds and I think we can find lots of story arcs in the worlds we build. So, you know, that's, again, it's the game team we talk more, but I think what's great, you know, a great day for me when I'm at work is seeing creative teams who are thinking about sequels, prequels, you know, spin-outs, spin-offs, you know, so I think there's lots of planning and creative thought that goes in, but very much within that Warhorse Studio DNA and expertise. So fans should be excited.

Yeah, okay. Thanks. It's a very impressive cadence from Warhorse indeed. That's all for me. So thank you so much.

Thank you, Simon.

The next question is from Amar Kalyasevic, DNB. Please go ahead.

Good morning, guys. Just two follow-up questions from me here. Obviously, Metro seems to be doing well with the high number of wish lists and good reception. As of the release, let's see more on Gamescom. I just want to touch upon your increased confidence here in the target of at least one billion in cash EBIT. Is that related to Q1 being good, or is it related to higher expectations for Metro, or anything else in the pipeline here which you can tell us about?

Do you want to start with me?

Yeah, I'll start with that one. Hi, good morning, Amar. I think it's multiple facets. I mean, I know we get this question sort of is it either or, but it's a multiple of contributors. We do respect Q1 was a relatively small quarter, but just the momentum that's behind beating sort of forecasts coming in ahead is is very real and I certainly feel we're taking momentum into Q2 and you know step by step that's how we build the fiscal plan going forward so that's really where I think the confidence thought comes to if we look at something very specific like Metro the wish list cadence was great to see I mean this is a very new relatively new sort of indicator but see how fans engage when there's so much choice out there for entertainment see how they sign in is really pleasing and obviously it's relatively late reveal Metro 2039 so it's exciting just to get that out and see the reaction and you know we'll get more from Gamescom it's going to be great to people get their hands on so I think this is how confidence generally builds through the fiscal year I think as we get towards the half year and looking forward you know we'll come back and comment on that even further but it's multiple factors and You know, getting that business delivery in line with what we're seeing in production terms and game reaction. Really, these are the three that, you know, we're trying to balance and get right all the time.

And good morning, Ammar. So we are reiterating our guidance with increased confidence. Obviously, when we work on our projections, it's a very thorough process where we slice and dice things by line, but also by period. So every quarter has its importance. So this is a quiet quarter, but we're not taking it light. So every quarter is an achievement, makes the year to go longer. shorter, if you will. However, every quarter ahead of us is filled up with deliveries that we take seriously. When we work on the forecast, as you know, it's a mixture of different risks and opportunities that are embedded. So we'll be staying humble, but we'll be working really hard to achieve the upside, as we've indicated.

What are the current statuses of those games? Are they entirely finalized and complete? Do you have any more milestones that you need to achieve for them to hit their planned release dates?

Yeah, for sure. Ultimately, there's multiple milestones left. I mean, we're close in now. as ever. So, as ever with games, there's level of polish, there's performance, there's play testing, you know, all the debug and QA, final tuning, you know, getting that content ultimately locked as soon as possible as well. So, you know, this is the pattern we're on now. It's a pattern, you know, and thankfully again the world class studios in 4A and Crystal Dynamics who are working with Flying World Hogs and also recently with Eidos Montreal too so this is what these studios do and we work through those milestones step by step every day Okay perfect thank you guys that's all for me I'll put back into the queue

The next question is from Thomas Nilsson, Nordea. Please go ahead.

Thank you for taking my question. I would like to ask a bit about the embracer segment profitability. It delivered 136 million cash EBIT this quarter versus a negative 193 million last year. How much of that improvement reflects structural cost reductions versus stronger releases and what would you say is a reasonable average through cycle operating margin for the embracer segment going forward?

As you have seen, the embracer segment is composed of a diversity of activities, each of which having their seasonality, business profile, and margins. It would be fair to assume that the margins and the business cycle of PCConsul is very different than entertainment services, which itself is very different than mobile. So I'm not sure if it would be relevant. At least, it isn't the way we to try to look at a blended margin or forecast because it really depends on the activity. On your question around cost versus new releases, we did enjoy the successful release of Gothic 1 Remake in the PC console business area of Embracer with a high margin, obviously, which did contribute. But from a sales perspective, entertainment services, was the main driver with an adverse mix effect. So overall, I shall say, we maintain a cost discipline, a vast majority on embracer segment of the initiatives have taken place. So we'll be ensuring that we maintain them. We don't expect much volatility there, which would mean that all right business, good business in the year to go is going to deliver cash EBIT and earnings, but it wouldn't be relevant or easy to guide on a blended margin percentage.

Okay, thank you very much.

The next question is from Ayush Gosh Barclays. Please go ahead.

Thank you. Yeah, so just to follow up on Metro 2039, obviously we've got it coming out and landing in February 2027, and it's likely to be a far more important contributor to profit than Legacy of Atlantis. But just wondering whether it'd be possible to achieve your cash EBIT guidance if Metro 2039 in particular slips a couple of months and therefore lands in FY28?

Good question. Of course, metro is clearly important, and here is backhanded, but we expect positive earnings in all quarters, and not to underestimate the portion of Q3 as well. So it is important, yes, but we've got other important things lined up as well on other lines and on other quarters.

Thanks. And just another question. So could you just give more color specifically on how your licensing deal with Wizards of the Coast works in relation to the upcoming release of Magic the Gathering, The Hobbit? And like, you know, obviously you mentioned your expectations, but if that release is even better than expected, could it make a notable difference to 2Q27 cash EBIT?

I'll take that one. I mean, I'm not going to get into specifics of the licensing deal, but if you look back to the 2023 release and imagine the structure behind that deal, you could imagine something quite similar. The trading card game category has been really interesting for us as partners, but also players and consumers and seeing how that's grown. So I certainly see momentum and I think Hasbro themselves talk about momentum they've got. And in particular, I think they had some comments on The Hobbit in their earnings call just a few weeks ago. So we're encouraged that they see and talk about the growth and the fan engagement. We're obviously a step behind that, right, in terms of, you know, that we're a licensing partner and they're driving that business. But, you know, we're excited by it and we certainly see, you know, more potential than we did a few months ago. And that's just because, you know, in some ways it's hard to predict. I think again it was a comment similar to Hasbro that these games are quite hard to model but every pack is different in terms of skew count and cards composition but there's certainly great potential for it.

Great, thank you so much.

The next question is from Jakob Edler, Danske Bank. Please go ahead.

Hi Phil and Megan, thanks for taking my questions. I just have two short follow-ups here, but starting off a bit and getting back to game specifics on Legacy of Atlantis or Tomb Raider, I'm just curious to hear your thoughts on what you've baked into guidance regarding this title. Is it mainly, because I suppose, you know, day one you'll probably start getting some IP royalties, but then I guess you start getting the rev share post-recoupment from your publisher, right? So just would like to hear some thoughts on what you baked into the guidance for Legacy of Atlantis, if possible.

Yeah, that's a great question. Thanks, Jacob. You know, I think, again, all deals are quite different. So I think it'd be dangerous to assume every deal looks like this or every deal looks like that. I would just guide you broader and just feel like we're trying to consistently be sort of conservative and not overly cautious, but just thoughtful. as to how we approach launches and as we've seen from you know if you look at recent releases like Kingdom Come Deliverance 2 I know it's a game we keep referencing a lot but you know the launch was of a certain size but really the real power of that game then came through in the ensuing you know four and now you know fifth quarter sixth quarter as well so You know, I think the launch is really just the start. I know it's right at the end of the fiscal year and how pivotal it could be, but I think it's difficult to try and gauge too much about the deal itself. I mean, Amazon is the publisher. um you know we don't have the full economics um so it's not necessarily a key financial driver in this fiscal year due to these dynamics but it's hugely important for us in the long term you know especially as for us as an ip company yeah uh very clear thanks for that answer and then just a second question i mean here in november we obviously have a major release from a competitor being take two with gta6 and it's a

Looking at the historical GTA games, it's been quite console dominated, right? And in your PC console business, you have, you know, a relatively good share of console sales, right? I just would like to pick your brains on how we should think about, you know, the competition in Q3, not only from a release perspective, but also from kind of a catalog perspective from this major title releasing in the market.

Yeah, that's a great question. I mean, you know, every single launch of Grand Theft Auto, if you go back through, well, certainly through five and four, have left their watermark on the market and player behaviours. I think since those times, you know, more and more players in the market, more and more choice. But, you know, we recognise that in terms of player time and wallet, critically, it will take time out. We've been strategically... as a business thinking about that for some time. That said, if I perhaps reference the game we slated or announced yesterday with Dawn of War and December, that's a PC launch and it's a really particular gaming audience there, a very core RTS community. and we think although it's a few weeks then or a couple of weeks after GTA we think we can find that audience and really capture their attention which we've already got but maintain that attention and launch successfully through that time as well but I think again we've reflected what we expect to be the GTA 6 impact really in our planning and in our guidance for this fiscal year I'd say

Very good. Thank you for those answers.

My pleasure.

As a reminder, for questions, please press star and 1. Ladies and gentlemen, that was the last question from the phone. I would now like to turn the conference back over to Phil Rogers.

Well, thanks, everyone. And thank you, Operator Sherry. Thanks for joining our conference today. Thanks for our teams around the world working hard and delivering. We look forward to joining you again at our next quarterly meeting. So with that, wish you a good morning.