Beyond Frames Half Year report Q2 2023

Second quarter, April 1 - June 30, 2023

Sales amounted to 43,291 (4,571) kSEK, an increase of 847% compared to Q2 2022.
Operating profit before depreciation and amortization and shares in associated companies' earnings (EBITDA) amounted to 4,360 (-6,351) kSEK
Profit after financial items amounted to 1,265 (-7,933) kSEK
EBITDA per share amounted to 0.25 (-0.37) SEK
Profit per share after financial items amounted to SEK 0.07 (-0.46) SEK
Cash and cash equivalents at the end of the quarter amounted to 24,205 [1] (69,482) kSEK. This compares to 17,893 kSEK at the end of the previous quarter.
Equity attributable to the parent company's shareholders in the Group amounted to 87,107 kSEK at the end of the quarter, corresponding to 5.08 SEK per share, compared with 103,535 kSEK, corresponding to 6.03 SEK per share at the end of the corresponding quarter last year.

First half year, Jan 1 - June 30, 2023

Sales amounted to 60,566 (12,788) kSEK, an increase of 374% compared to the first half of 2022.
Operating profit before depreciation and amortization and shares in associated companies' earnings (EBITDA) amounted to 4,111 (-5,388) kSEK
Profit after financial items amounted to -2,158 (-8,842) kSEK
EBITDA per share amounted to 0.24 (-0.31) SEK
Profit per share after financial items amounted to SEK -0.13 (-0.52) SEK
Comparative figures refer to the corresponding period of the previous year unless otherwise stated.

[1] 15 MSEK is a temporary cash placement which has been paid back in July with interest.

CEO comments

Profitable, Record-Breaking Revenues and an Exciting Future

Our Q2 performance continues to validate our strategy. Despite ongoing challenges impacting the entire games market, we are delivering strong results. With a firm foundation, now is the time for us to embark on an exciting journey that includes expanding into PC and console games.

Q2 was another excellent quarter, with an 847% increase in revenues compared to Q2 last year, achieving profitability with a 10% EBITDA margin, as well as a positive cash flow of 6.3 MSEK. This positive performance includes re-investment of our profits toward the production of new games to continue powering our future growth.

The primary revenue contributors have been the continued success of our third-party publishing title, Ghosts of Tabor by Combat Waffle Studios, and the external project funding for upcoming games in production at our owned and operated studios.

As a reminder, our accounting principles capture all revenues before platform fees and revenue share with our publishing partners. These fees and revenue splits are captured as costs in our financials.

PUBLISHING

Our Publishing business continues to deliver positive results. We recently announced that Ghosts of Tabor has earned USD 3 Million in revenue on Meta Quest's App Labs platform. For clarity, these revenues do not account for revenues earned on Steam. The game is still in early access, which means limited visibility and discovery on digital storefronts. Ghosts of Tabor's main store releases are targeted for early 2024.

In other news, we revealed Outta Hand by Capricia Productions, a publishing deal we announced earlier this quarter. This title will launch for the Meta Quest Store in Fall 2023. This VR platforming game features a fun, lovable character trying to escape the evil clutches of a mad scientist. Outta Hand has a similar target market, genre, and controls to the titles Gorilla Tag and No More Rainbows, which have both done well on Meta Quest's top sales and popularity charts.

For other titles in our Publishing production pipeline, we'll have more to share about Sylphe Labs' action title in the near future. As for new acquisition efforts, we're continuing to source and review new titles and feel confident we'll have more to announce soon.

STUDIOS

In H1, we announced signing two funding deals for our owned and operated studio business. The first was a project funding deal for approximately 4.6 MSEK for Cortopia to produce a yet-to-be-announced title. The second was a 28 MSEK publishing deal for Cortopia to develop the sequel to a well-known VR title. We have recognized revenues from project funding for both productions this quarter. Additionally, Moon Mode is providing cash-positive development services for an external partner.

We will continue recognizing revenue from these project funding, publishing, and work-for-hire deals through 2024. This will be a consistent message as the teams are heads-down developing some exciting games.

MARKET

Apple announced its Vision Pro XR headset this quarter, its first entry into the XR-focused hardware market. We're excited about Vision Pro as it brings powerful new technology to the XR market as well as validation and competition that generally leads to innovation. Meta officially announced their Meta Quest 3 VR headset, boasting a smaller form figure and more power. We believe the announcement of the Meta Quest 3 negatively impacted sales of the Meta Quest 2 due to consumers waiting to purchase the new headset instead of the one currently in the market. We anticipate a return to healthier hardware sales once the new headset launches this Fall. Fortunately for us, having a diversified portfolio keeps our sales fairly elastic, which reflects in our positive numbers.

Regarding the greater video game market, research firm Newzoo released a new analysis showing a 2.6% increase in revenue, returning to growth in 2023 versus the 5% decline in 2022. We shared a similar view of the temporary decline last year, which we felt was strongly influenced by COVID-related delays of tentpole titles and supply-chain challenges leading to less available gaming hardware to sell. According to the research firm, this growth is heavily fueled by a 7.4% increase in gaming console sales, validating our assumptions.

THE FUTURE

We have a solid recurring revenue foundation from a strong portfolio of publishing titles and contracts for long-running project funding. We're in a great position with a lot of momentum and want to use this position to expand our opportunities.

The next phase of our business is expanding into developing and publishing PC and console games. The true value of any video game company is in its intellectual properties' brand and audience value. Beyond Frames is a video game company, not just a VR company. The technology that content IP lives on is ubiquitous, and our brands have greater potential than any single platform or medium.

To put things more bluntly, the XR market is fantastic, and we are a strong player in a small market where we intend to stay and grow. Our goal is to expand our ability to delight the over three billion active gamers around the world and grow our business to a size I know we can achieve in the near to mid-term.

Non-XR gaming is familiar territory for Beyond Frames. Our ongoing investment in Odd Raven has been a part of our investment in diversification. Additionally, most of our senior staff have a long-running history in non-XR games and know the challenges accompanying this expansion. Returning to first principles, we want to take what we're good at and strengthen our business.

Operationally, we will keep current publishing and studio teams on course with our current XR strategy while parent company executives lay the groundwork for our expansion. We anticipate eventually taking a similar approach to our XR-focused efforts with publishing, owned studios, partnerships, and acquisitions. It will take some time to navigate the path to success, but we intend to do so efficiently. We're incredibly excited about this new direction and look forward to sharing more as the strategy progresses.

Thanks to our players, staff, partners, and investors for your continued support.

Ace St. Germain, CEO Beyond Frames Entertainment AB (publ)