Maximum Entertainment have reported for the first quarter of 2024. We will get a presentation by CEO Christina Seelye and CFO Deborah Bellangé. This will be followed by a Q&A, so please join me in welcoming Maximum Entertainment CEO Christina Seelye. Hello, and welcome, Christina.
Hi, thanks for having me.
You really kickstarted 2024. What gives you the most satisfaction to present for the quarter?
Yeah, it was a great start to the year, and I'm really excited about everything that the team has accomplished this year. I am looking forward to showing everybody our financials in our new reporting format and, really just showing everybody that we've done exactly what we set out to do.
Thank you. Now, please go ahead with your presentation, and I will be back for the Q&A.
Thank you. Hi. Again, I'm Christina Seelye. I am the CEO of Maximum Entertainment. We are a full-service video game publisher, developer. We handle the entire value chain of video games from concept and development through sales and publishing, through lifecycle management and distribution. So everything around video games is what Maximum Entertainment brings to market and the value that we bring to this industry. So I'm excited to share with you today our Q1 results. On February 15th, we announced that we would start reporting in euros and in the International Financial Reporting Standard, IFRS, and today, we're excited to share with you Maximum Entertainment's first report in this format. For the first quarter of 2024, we reached net sales of EUR 19.9 million, almost EUR 20 million, but not quite, compared to EUR 16.3 million in the first quarter of 2023.
This represents an increase of 22% year-over-year. The adjusted EBITDA for Q1 2024 is EUR 1.8 million, up from EUR 319,000 for the same period in 2023. This represents an almost 5x increase of EBITDA year-on-year. As a percentage of revenue, EBITDA is 9%, compared to 2% last year in the same quarter. This is a result of the efficiencies we gained and an increase in our gross margin to 32% from 30% last year. As our portfolio continues to shift to more of our revenue coming from licensed publishing and our own internal development, we will see this trend broadly continue, although it'll fluctuate on a quarterly basis, depending upon releases.
The share of revenue derived from owned IPs in Q1 was 13%, compared to 7% same period last year. The number of employees at the end of this year was 193, which is a decrease of almost 20% over the last 12 months. In a quarter that is typically quiet for our industry, we saw a strong performance across our entire portfolio, thanks to our ever-growing catalog of quality owned IP, publishing, and sub-publishing titles, including Bramble: The Mountain King, Paleo Pines, and the very successful Five Nights at Freddy's series. Successful lifecycle management on these titles, along with the official launch of our own IP, Smalland: Survive the Wilds, on February 15th, contributed to a strong improvement in net sales against last year.
The first quarter of 2024 also demonstrated Maximum Entertainment's unparalleled ability to expand IPs to new revenue streams with the announcement of our first in-house VR title, a brand-new standalone open world game based on Smalland: Survive the Wilds. We also announced a partnership with Paramount Game Studios to develop a fighting game with Avatar: The Last Airbender Universe. We also further expanded our portfolio of publishing titles over the period, announcing Selfloss, an epic adventure game based on Slavic and Icelandic lore, and a cozy adventure game, Leo the Firefighter Cat. We also announced a free DLC to our very successful title, Double Dragon Gaiden: Rise of the Dragons, that subsequently propelled that title back onto Steam's bestsellers list.
On the Corporate side, we initiated coverage with two new analysts based in France. We changed our liquidity provider, and we presented our forward-looking roadmap for the rest of the year. That is all available on our website for reference. After the quarter, we launched the highly anticipated slasher, Morbid: The Lords of Ire, on all major platforms, and that just launched last Friday. We also launched the cozy fishing game, Whisker Waters, on PC, PlayStation 5, and Nintendo Switch.
Q1 of 2024 allowed us to reap the benefits of the integration process we announced over a year ago. Our catalog of high-quality games has hit a critical mass that contributes to our cash flow, while our streamlined global structure allows us to add more projects to our pipeline and deliver them in a timely, efficient manner. This unique mix allows us to continue mitigating risk with no title contributing to more than 7% of our net sales.
Now I'm gonna turn it over to Deborah Bellangé, our CFO, who's gonna talk a little bit more about the numbers.
Thanks, Christina. Before I launch into the financials, I do wanna take a minute and just talk a little bit about the new presentation that we have with this quarter. Q1 2024 was a busy one for my teams as we moved and shifted our reporting to IFRS. In addition to that, we made some changes to the financial statements, specifically to the income statement. We changed the reporting format from a nature or by- nature format to a by- function format, which we hope will be clearer and more readable for everyone. And then, of course, there's the IFRS transition, as well as a new presentation currency. Going forward, you'll be seeing all of our consolidated financials in euros. Our parent company financials will continue to be reported to you in SEK.
That said, let's look a little bit now at the income statement. You'll see, first of all, that net sales, and again, in IFRS, the sales numbers don't change that much, so you'll see that in our bridges. The Q1 2024 report will include a lot of information about how we get from one to the other, both from a functional and IFRS standpoint, so you'll see all of that. We had, in Q1, a 22% increase in revenue, as Christina mentioned earlier, and we had an increase as well in margin. We went from 30% for Q1 for 2023 to a 32% margin in 2024.
That gives us about EUR 1.4 million of additional margin in this first quarter of the new year, and you'll see that that flows right down to our EBITDA and our EBIT numbers. So you'll see that in Q1 of 2024, we have relatively stable costs, both in the G&A and in our sales and marketing areas, an increase in costs in research and development. Now, in this new functional presentation, you can see how much, is going into games, and that number you see there is, directly related to the amortization of the games that we launched in 2023. A lot of our own IP launched with Smalland: Survive the Wilds and Bramble launching in 2023 and being amortized throughout 2024. Our new IFRS presentation includes other comprehensive income, something that we didn't see in the prior presentation.
Other comprehensive income for us is really related to exchange rate differences on the roll-ups of subsidiaries into the consolidation. Statement of financial position is showing us that we have EUR 31 million, a little over EUR 31 million of investments in games at the end of the quarter. You'll also see something new in this new IFRS presentation. We record leases differently, so you'll see EUR 4 million, a little over EUR 4 million, in lease assets, which are the right of use assets that we record under IFRS. Goodwill is EUR69 million, close to EUR 70 million at the end of the period. This was an election that we had when we moved into IFRS.
We decided to keep the impairments that we posted at the end of 2023, so you'll see that that goodwill value at Q1 2024 hasn't changed very much from what we presented to you last year. We continue to see disciplined management of our inventories and our receivables at the first quarter of the year, so you'll see that those haven't changed very much, and we'll continue to work on managing our payables and our receivables and keeping a disciplined management overall on our working capital KPIs. On the liability side, really, there's a story of three pillars on our liabilities. First of all, the debt. We talked a lot last year about a $30 million debt facility that was negotiated in the U.S. At the end of 2023, we had drawn down $29 million of that $30 million.
That is still the case now at the end of Q1 2024. We still have that $29 million drawn down and another $1 million left to go on that facility. Something new this quarter that you didn't see last year, again, an IFRS-related liability, again, linked to those leases. It's just the norm that requires us to write this way, so we have the right of use assets that are recorded in current and non-current, liabilities. Contingent considerations. With this new accounting norm, we've spent a lot of time looking at the notes to the financial statements, and you'll see in the notes a lot of details around the contingent considerations that perhaps you didn't see last year. Contingent considerations or earn-outs at the end of Q1 2024 represent a little over EUR 18 million.
Just keep in mind, in IFRS, those are discounted. And I'm gonna pass it back to Christina, who will talk to you about some upcoming events now that the quarter is over.
Thank you, Deborah, and thank you to the entire finance team for all of the work, doing the heavy lifting during the transition from Swedish GAAP to IFRS, as we relooked at all of 2023, and then provided you all of the information in a really clear, well-laid-out manner that we hope that you appreciate and lets you understand our business a little bit more. So to sum up what we're talking about and what happened in quarter one of 2024 is really the catalog has delivered, and the portfolio continues to deliver. As we make the shift to more of our published games, more of our own IP, and the continued strength of our sub-publishing catalog, we're continuing to see margin increase and seeing that flow down to EBITDA.
We're also expanding our IPs into new revenue channels, such as the Smalland: Survive the Wilds VR launch that just happened in May of this year. Also just continuing our efforts toward increasing the portfolio of our own IP to 30% by the end of 2025, but giving you all of the visibility that you need with the IFRS transition to be able to track how we're doing. We're excited that everything that we have said from 2022 and 2023 is now coming to fruition in 2024, and so thank you to everybody for your continued support of Maximum Entertainment. Now we'll take some questions.
Thank you, Christina and Deborah, and it's Q&A time. Let's start with the numbers. Your net sales increased by 22% to almost EUR 20 million. What is the driver here?
Yes, 22% growth in Q1 versus Q1 of prior year. We're very pleased with these results. A lot of that is due to our great owned IP titles that continued to sell well throughout the quarter. Smalland launched on February 15th, and we're really pleased with the results that we had, as Christina mentioned before. We've also had great success with our Licensed Publishing and our catalog, sub-publishing titles that have done well throughout the quarter.
Thank you. Your Adjusted EBITDA improved by 460% to EUR 1.8 million from EUR 319,000. How do you describe this achievement?
Well, that's the top line growth of 22%, and also improvement in our gross margin. Our gross margin was 32% for the quarter, up from 30% at the same period for last year. So that EUR 1.4 million of additional margin is flowing right down through to EBITDA.
Okay, and are you satisfied with the results overall? And what could have been better?
Yeah, that's a good question. I don't think that our team could have done any better, really. I think that the team has done an amazing job executing every strategy that we have laid out since we started in 2022. And they've really delivered year- on- year, which is what we're seeing in this quarter and what we will continue to see moving forward.
Okay. And moving on, your own IP revenue share is at 13% in Q1, moving towards your goal of 30%. How will you make this happen since all your other businesses are moving forward as well?
Yeah, yeah. When we originally said 30%, we were expecting that sub-publishing area of our business would decline, and that we would see a more significant decline in physical, but we haven't seen that. So we're still driving to the 30% goal of own IP by the end of 2025. Everybody is still working internally to that, despite the fact that sub-publishing continues to perform really well. And so as a percentage, it's, it's gonna be difficult to get there. But really what we're seeing is the shift in portfolio to more licensed publishing and more own IP is what's really delivering the margin and will continue to do so quarter -over -quarter.
Okay. If we take a look at the market, how were you affected by today's high interests, and how do you see the traction of expected decreases of interest, if they are realized?
You know, one of the advantages to moving to IFRS is that we were able to take another look at our cash flow statements and really think about how we could provide that kind of visibility to investors. I think you'll see in the financial statements that the cash flow statement tells that story very, very clearly. Interest rates and how interest rates and interest payments are affecting cash flow is right there and available for everyone to see.
Okay, and let's move over to your games. On the last reporting date, I think it was the 15th of February, you made the Smalland: Survive the Wilds release. How have the response been?
It's been great. We're really excited about the continued great performance of Smalland: Survive the Wilds. We not only had our 1.0 release in February, but just recently on May 2nd, we expanded that IP to VR with Meta, and that game launched just May 2nd. And so we're really excited to continue to invest in this IP and to continue to expand the revenue channels that it, we can exploit with it. From a very specific standpoint, we saw overperformance on the Console side of greater than what we expected with Smalland. PC is a little softer than we expected, but over time, we believe that we are gonna continue to see greater than expected results from Smalland.
Sounds fantastic. And, as you presented, you have had more launches after the reported period. Can you put some color to the results so far?
Yes, we've had a lot of exciting releases this after Q1, heading into Q2. Most specifically, we have the launch of our own IP, Morbid: Lords of Ire. That launched on the seventeenth, and so we're really excited that that game is hitting our Q2 results. And we've had a really great catalog quarter in Q2 as well, and so we will continue to see the benefit of our back catalog this quarter.
You also made a lot of announcements in the Q1. Is this a pace of announcements that we should get used to?
Well, every year, around February 15th, or when our, you know, end of year results, our Q4 results are announced, our intention is to do the same kind of announcement that we did this past February 15th, which is a little bit more in-depth and a little bit more broad, and where you can see the, the forward-looking portfolio out a few years, and we're saving some good information for you guys to see every February. Every mid-February, there'll be a Maxent Direct, which is more of a comprehensive look at our forward-looking portfolio. So, on a quarterly basis, we'll continue to have new game announcements, game releases, release date announcements, et cetera. But, every February, you should see something more hefty from us that we're calling Maxent Direct.
Great. What can you say on the timeline for The Last Airbender and Wilds VR, for instance?
Yeah, we are so excited about our partnership with Paramount and the Avatar: The Last Airbender fighting game. I can't tell you very much about it, right at this point. I know that it is looking beautiful. We are so excited about the high, high, high quality animations that are gonna be part of this game. But the timeline for the game has not yet been announced, but I would be looking for it in, you know, not 2024, obviously. But, it'll be in the next coming years, and we'll have more information for you in the quarters to come.
Okay. What are your comments on the development on your sub-publishing activities?
Sub-publishing continues to astound. We are the premier choice for sub-publishing. If you want your game to be launched physically, globally, we're your choice. That is gonna continue to create real positive accretive revenue for our publishing partners all around the world, via the expanding of that channel, with physical merchandise, collector's editions, and it's just a different way to sell a video game, and we're continuing to see really great results from this area of our business.
Thanks. And the board announced that you're gonna have two directed share issues. What can you tell us about this?
Yeah, these are the same as we did last year around the same time, which is a result of the earnouts from the acquisitions that were done in 2021. And so you'll see those. This is the next year of those earnouts.
That was all my questions for you today. Thank you so much for answering them, Christina and Deborah, and I'm looking forward to seeing you for the next report.
Thank you.
Thank you.