Embracer confirms 900 layoffs following net sales upswing

Swedish conglomerate Embracer Group laid off 900 people during the last three months after actioning a restructuring program designed to turn the company into a "highly cash flow generative business."

Those layoffs represent around 5 percent of Embracer's total workforce, and were made despite net sales increasing by 13 percent year-on-year to SEK 1.8 billion ($170.5 million) during Q2.

As noted in the company's latest fiscal report, Embracer CEO Lars Wingefors described that second-quarter performance as "stable."

"We expect to reach the forecasted range for this year. The free cash flow of SEK 0.4 billion shows a clear improvement compared to Q1," he added. "Our restructuring program is making good progress, with opex (operating expenses) savings ahead of plan and capex (capital expenditures) savings expected to contribute notably in the second half of the year.

"We continue to take important steps for the future and I am confident that we will emerge as a stronger company."

Although net sales were up overall, Embracer noted that sales within its PC/Console Games segment declined by 5 percent year-on-year. Revenue from new releases, however, totalled SEK 1.4 billion–representing one of Embracer's "strongest quarters for new releases ever."

"Remnant II, internally developed by Gunfire Games and published by Gearbox Publishing, was successfully released on July 25 and has now sold more than 2 million units and generated more than SEK 700 million in net sales in Q2," continues the report. "That said, we have seen a mixed reception and performance for the externally developed game Payday 3 and a few smaller releases in the quarter."

Despite its rocky start, Embracer noted Payday 3  made a "positive" earnings contribution "with the investment recouped in Q2" The Swedish firm now expects the shooter to contribute "positively [...] but below management expectations" due to the matchmaking issues encountered at launch.

On the whole, Embracer said its litany of internal studios made a "positive start" to the fiscal year and described the launches of Dead Island 2, Risk of Rain Returns, Teardown (for consoles), and Remnant II as "successful."

The company reported a 10 percent organic decline within its Mobile Games segment but said that market trends and monetization were "largely stable."

"The negative organic growth is partly driven by Crazy Labs shifting its genre focus towards hybrid casual games with an increased focus on profitability and cash flows," it added. "User acquisition investment grew compared to Q1, but were contained compared to our expectations, supporting a strong Adjusted EBIT margin of around 25 percent in the quarter, with a solid cash flow contribution."

Embracer to accelerate asset divestment plans

Discussing the company's restructuring program in greater detail, Embracer indicated that making layoffs, axing projects, and shuttering or divesting studios remains "key" to improving efficiency.

"Over the past two years, our internally developed games have had an ROI over twice as high compared to externally developed games. We are striving for a structure which enables us to look at the future and invest in the right games with the right teams. Post the restructuring program, we have increased confidence in our ability to deliver a general improved quality and ROI in the coming years ahead," adds the report.

Embracer is on track to reach its net debt targets of SEK 8 billion by the end of the current fiscal year, and reiterated that opex savings are "ahead of plan." Notably, the company indicated it will accelerate attmempts to divest assets to increase the amount of external funding it can funnel towards development projects.

That tidbit is particularly interesting after recent reports suggested Embracer could look to sell Gearbox just two years after acquiring the Borderlands maker for $1.38 billion. On that topic, the Swedish company said there has been "notable inbound interest" in its assets.

"As a result, we are now running a few structured divestment processes that give us flexibility and optionality to reach our targets," continues the report. "We are focused on maximizing shareholder value and on delivering the targeted run-rate capex levels in the most effective way. Notable capex savings and net debt reduction are expected to materialize post-completion of these processes."

Embracer said the huge layoffs its sanctioning will enable it keep growing while delivering high-quality products, although Wingefors described the process as "painful."

"We understand and respect that this is a challenging time for everyone impacted. Where we can, we will try to provide opportunities for our colleagues to transition onto other projects," he said. "Throughout the program, we are working to ensure that everyone affected receives information first."