Maximum Entertainment have reported for the fourth quarter of 2023, and I'm happy to present CEO Christina Seelye to the studio. Welcome, Christina.
Thank you for having me.
You will now do the presentation, and I will be back shortly for some questions.
Sounds good. For those of you who have not heard about Maximum Entertainment, we are a global entertainment video game developer and publisher. We handle the entire value chain of video game creation, from concept to development to publishing to sales and distribution and the lifecycle management of all things video games. So, we're excited to share with you today our results for the fourth quarter of 2023. In the fourth quarter of 2023, we reached a revenue milestone of SEK 393.9 million. In addition, and more exciting, we had an EBITDA number of SEK 61.2 million, which is up 94% from the fourth quarter of 2022. Our EBITDA margin is 15.5%, up from only 11.5% in the same quarter of 2022.
Also, we've talked a lot about Maximum Entertainment's goal of reaching a 30% revenue target of our own IP, and in the fourth quarter of 2023, we had 5.4% of the quarter. But for the year, you can see here that we have reached our goal of over 10% of our revenue coming from own IP this year. So, we're well on our way of reaching the goal of 30% by the end of 2025. Net revenue amounts to almost SEK 1.2 billion for the year. That is stable against our 2022 revenues. But EBITDA amounts to SEK 132 million, which is a 41% increase over the full year of 2022. Compared to 2022, this was a phenomenal year of margin expansion and EBITDA growth.
Gross margin, as a percentage of revenue, comes in at 31.5% compared to 27.9% in 2022, which is significant margin expansion, which is one of the main contributors to the growth in EBITDA. As I already mentioned, our revenue from our own IP lands at over 10%, and we're well on our way to our goal of 30% by the end of 2025. Lots of things happened over this past quarter of Q4 2023. It is primarily a promotional quarter in 2023. It's a holiday season, and so our revenue strategy is very much promotional and focused on catalog. That said, we did have some significant launches that we'll talk about over the course of this presentation, and those include major content updates for Smalland: Survive the Wilds, which was in early access still in Q4.
We also had a game launch of Spells & Secrets, as well as Super Animal Royale's Season 10 launch. We also took the opportunity in Q4 of 2023 to announce quite a few games that are going to be coming in 2024. This includes Spirit of the North 2, Wild Bastards, Squirrel with a Gun, and the co-op version of Double Dragon Gaiden: Rise of the Dragons, which the online co-op update is coming in this quarter of 2024. After the quarter, we initiated coverage with two new analysts based in France, so please check out the analyst reports from Portzamparc and TP ICAP, which are now covering Maximum Entertainment. In addition, today we have another announcement release that you can check out.
It is going to be linked to this presentation and is also available on our website and on YouTube, and it is our MaxEnt Direct announcement where we are talking about a future-looking roadmap. Today, as this release goes out, we have released our 1.0 version of Smalland: Survive the Wilds, which is now available on PC, PlayStation, and Xbox Series X. Please check that out. Maximum Entertainment has a very broad portfolio. Our portfolio strategy covers our own IP, games that we license and publish, and then also subpublishing. We had great performance across all three of those categories in Q4 2023. With our own IP, we had another content update on Smalland, which, as I mentioned, launched today into its 1.0 release on PC and PlayStation and Xbox.
We also had really great results for our publishing lineup that had released earlier in the year. Hammerwatch II, Paleo Pines, and Double Dragon Gaiden all had great sales results in Q4. Also, our subpublishing business, which is where we come in very late stage on a game and we may only launch that game in certain territories or in certain channels such as physical retail, we had great performance with two really strong IPs: Five Nights at Freddy's and RoboCop: Rogue City from Nacon. Five Nights at Freddy's continues to astound with its result of the strength of that IP, with physical games where we have four different games that we are launching across the Five Nights at Freddy's franchise that had a great result last quarter.
Then also RoboCop had great commercial and critical success and was carried in retailers from specialists all the way to mass merchants. I'm going to bring up Deborah Bellangé right now, our CFO, who is going to talk to you a little bit more about digging into the numbers.
Thanks, Christina. Hello, everybody. As sales for the quarter were down slightly on Q4 of 2022, but as Christina mentioned, but for the full 12 months we saw stable net sales in 2023 versus prior year, up like a little under 1%. But the real story is in our margins. Our EBITDA rose 94% in the quarter and 41% year-on-year. That's due to the success of all of our catalog. As Christina mentioned, everything clicked this quarter, whether it was in our own IP, our license publishing business, our subpublishing business, everything worked. And we're really able to see in this Q4 of 2023 how our strategy is paying off and will continue to pay off.
Own IP over the course of the year rose to 10% of our total catalog for the year, and digital sales rose to 20% of our revenues, and that helps explain the uplift in margin that we experienced over the last quarter. If you were watching us last quarter, you saw that we made some adjustments to some balance sheet items, and that has an impact on the P&L. So last quarter we made an adjustment to earnout provisions, reducing them by SEK 104 million, so that brought uplift to our P&L at the end of Q3. We've gone back and revisited those, and now at the end of the full year, the reduction, the full-year reduction in earnouts impacts the P&L by close to SEK 83 million. Moving to the balance sheet, you can see that our capitalized development rose by close to SEK 145 million against prior year.
This is all investments in our own IP and in our license publishing business. So at the end of the year, we finished with SEK 320 million on our balance sheet, of which over 61% relates to games that have yet to launch. That's our pipeline for 2024, 2025, and the years beyond. Goodwill is down to SEK 766 million at the end of the year, and this is due to Swedish GAAP. We amortize our Goodwill, but also due to an impairment adjustment to Goodwill that was posted at the end of Q3 for SEK 123 million. We see that inventories are down against prior year by over 35%, and this is reflecting our internal initiatives. We really pushed at the end of the year. We're improving working capital.
That's part of our initiatives, and we were very successful and very proud of those results at the end of the year. So we finished with a position of SEK 72 million in our cash position at the end of 2023. On the other side of the balance sheet, we can see reductions in other provisions. This is what I mentioned earlier. We've reduced the earnout provisions, and of course, over the course of the year we did make payments on those, as well as an SEK 83 million reduction in the accruals for future earnouts that are paid in cash and in shares. In February of 2023, we were able to secure a line of financing that was announced in February of this year.
Over the past quarter, we continued to draw down on that loan, and at the end of the year we've drawn down $29 million of the $30 million facility that was negotiated. That's it for me. I'm going to turn it back over to Christina.
So, as you can see from the numbers, we had a very strong result over the course of 2023 and now are looking forward to 2024. Today, as I mentioned, we have our MaxEnt Direct event that is a video that you can check out. It'll be linked here to this presentation. It's also available on our website and on YouTube, where we will be talking about the forward-looking announcements that are going to be coming from games that will release in 2024, 2025, and beyond. Some of those announcements are today's release of Smalland: Survive the Wilds. We also have new game announcements of Selfloss coming later this year. We have Whisker Waters, which is catfishing, super fun, and many, many more, so please check that out.
In addition, we have a very important announcement today, which is that we have partnered with Paramount Consumer Products to build a multiplayer competitive fighting game in the universe of Avatar: The Last Airbender. So that is a game that's going to be coming in the future, and we're super excited about sharing that with you in the coming months. So key takeaways for this report and for 2023: 41% increase in EBITDA from 2022, which proves our portfolio strategy and proves out that we can see margin expansion and that margin expansion results in increased EBITDA through shifting of our portfolio to more published and licensed products, as well as our own IP. And we're seeing more revenue channel expansion with digital and transmedia and other ways that we can create revenue with all of our own IP and the games in our portfolio.
Also, after a very difficult year for the gaming industry, 2024 brings more own IP than we've ever launched before and a very strong publishing lineup for 2024 and beyond. In addition, starting in Q1 of 2024, we'll start reporting under IFRS accounting standards and in Euro, which will put us in a position to share with investors and shareholders a lot more transparency, a lot more content, a lot more financial notes in each of our earnings reports so that you can see us execute against this strategy of increasing our own IP to 30% of our total revenue by the end of 2025 and increase margin expansion, resulting in increased profitability in EBITDA as the years go by. Thank you very much.
Thank you so much, Christina. So how would you summarize your fourth quarter in brief?
I think that the fourth quarter, traditionally for us, is more focused on promotional activity and sales and taking advantage of the holiday season and less about launches. That said, we had a great launch with RoboCop. But really, the story of Q4 is even without really strong individual launches or own IP launches, we can still deliver a great quarter due to the strength of the portfolio. And for the whole year, it's really about seeing the portfolio strategy in play and seeing that EBITDA expansion.
Yeah. So let's move into the numbers for the quarter. Your revenue was SEK 394 million. Adjusted EBITDA came in on SEK 61.2 million, and your gross margin increased to 34.4%. Was this in line with your expectations?
A little higher than expectations, our own internal expectations, specifically around the gross margin. We were able to sell a lot more units kind of at full price over the quarter than we normally do during a highly promotional season, and so we saw the benefits of that in the gross margin, which then directly translates to the EBITDA.
You state that your own IP portfolio delivers. Could you elaborate a bit on that?
It really did. So all of 2023, we released a few own IP games, most importantly the early access release of Smalland, as well as the full release of Bramble: The Mountain King. And what we saw was strong sales for those games over the course of the whole year. And so what we see is strong delivery and recoupment against those investments immediately within the same calendar year. And then as we head into 2024, we still have a lot more revenue to come from not only those own IP, but this year we have Diesel Legacy entering early access, we have Maximum Football entering early access, we have much more own IP to come in 2024 and 2025. So yes, it's delivering.
Today you have another launch connected to Smalland. What can you tell us about this?
Yeah. So when Smalland enters its 1.0 release, it also is expanding to console. So the past year we've seen a lot of margin contribution coming just from the PC version. So now that we have the Xbox version and the PlayStation version, we will see even more revenue coming from that. And overall, when we look at the lifecycle of the game, depending on genre, we can have over half of the revenue come from the additional console launches, not just PC.
What else can we expect from your studios during 2024?
During 2024, there's two games that are coming directly from our studios. Diesel Legacy is a competitive fighting game that is our own engine that we built, and it's an incredible game. It just had a playtest that went through December and early January and had great results. We're really happy with the results. And so Diesel Legacy will enter early access this year. And then Maximum Football, which is our sports simulation title, is also going to enter early access this year. So two more significant games in 2024. And then as we look at 2025 and beyond, we have more to come, including what we announced today, which is our partnership with Paramount on the Avatar: The Last Airbender competitive fighting game.
As a full-service provider, you also act as a publisher. How was the performance in this business area during the quarter?
Yeah, during the quarter was also really great. Lots of strong, ongoing, long-tail sales from titles that had released earlier in the year. Paleo Pines, in particular, had a really great showing. Paleo Pines is our cozy farm sim games where you can play with dinosaurs as your pet and farm, and it's been especially successful on Nintendo, reaching a top 20 spot on Nintendo eShop. And so, we continue to see those games contribute really strong revenue and margin as they move out of their kind of physical and digital cycle into primarily their digital cycle.
Okay. And what is the update on sub publishing?
Sub publishing continues to deliver, and we love our subpublishing partners. We have very longstanding relationships in this area of our business, and we look for really strong games coming from our partners such as NACON and Focus Entertainment, Kepler Interactive, and hopefully we'll see more content from Five Nights at Freddy's.
In your CEO note of the report, you state that 2023 has been a year of consolidation. Could you put some color to that?
Yeah. So if you have been following Maximum Entertainment at all, you know that the company exists through a combination of 7 different acquisitions. And so, over the past 18 months to 2 years, we have been doing the very hard and gritty but necessary work into turning the company into what is today Maximum Entertainment. And this is really a top-to-bottom integration. So, this is everything from moving everybody into one tech stack to putting everybody into one accounting system, and then ultimately, as of today, everything is branded Maximum Entertainment. So, we no longer have individual brands, we no longer have studio brands of Modus or Just For Games or anything. We are Maximum Entertainment top-to-bottom, from email addresses to T-shirts and everything else.
So, we're excited about the integration that has happened, and we're also excited to be done with it so that we can move forward into the new era of Maximum Entertainment and really be focusing on the games.
Okay. So, if we were to fast forward one year and look back on 2024, what would you like to be able to report?
I would like 2024 to show the strong execution skills that we have, just like we did in 2023. We have really high goals, set high goals for ourselves in 2024 with increased margin expansion, increased EBITDA, increased percentage of our own IP, increased percentage of our digital sales as a percentage of physical. All of these things, we have set internal goals that are pretty lofty. That said, we were able to execute against our lofty goals in 2023, so hopefully next year I'm standing here with basically the same message but with even higher results.
Okay. Thank you, Christina. That was all my questions, and thank you so much for your presentation.
Thank you for having me.