Q1 Report – 31 March 2023

Flexion reports continued strong growth. Quarterly revenue grows by 54% and adjusted EBITDA up by 125%.

January-March 2023 performance

  • Total revenue increased by 54% to GBP 16.3m (10.6)*
  • Gross profit increased by 72% to GBP 2.5m (1.5)
  • Adjusted EBITDA increased by 125% to GBP 0.7m (0.3)
  • Adjusted loss before tax# amounted to GBP -0.1m (0.1)
  • EPS amounted to GBP -0.97 pence (0.51 pence)
  • Adjusted EPS amounted to GBP -0.28 pence (0.19 pence)
  • Operating cash flow amounted to GBP -1.1m (1.9)
  • Cash and cash equivalents amounted to GBP 12.0m (10.4)

Important events during the quarter

  • Signing and launch of Vikingard from NetEase Games
  • Signing of Hill Climb Racing and Hill Climb Racing 2 (soft launched) from Fingersoft
  • Strategic partnership with Digital Turbine
  • Signing of new extended and improved framework deal for 8 big titles
  • Launch of 3rd title from ONEMT

Important events after the quarter

  • The 2022 audit is still ongoing and presented 2022 numbers are therefore unaudited. The Company is not aware of any material changes to what was presented in the Q4-2022 quarterly report.

* Comparison figures for the year-earlier period in brackets
‡ The Group defines adjusted EBITDA as earnings before interest, tax, depreciation, amortisation, finance costs, impairment losses, foreign exchange gains/losses and corporate acquisitions costs. The definition was updated in June 2022 with the exclusion of foreign exchange gains/losses and, therefore, historical adjusted EBITDA figures have been updated accordingly.
# The Group defines adjusted profit before tax as profit before tax excluding foreign exchange gains/losses, amortisation of intangible assets from corporate acquisitions & corporate acquisition related costs.

Q&A with the CEO

Q: How would you describe the quarter?

A: We had another exceptionally busy quarter in which we focused on some of the new, major distribution opportunities that are emerging in the market. Adding distribution power to our platform and ramping up sales activities across the organization to capture the increased interest in alternative distribution is a priority for us in order to continue capturing market share. We have also signed several major titles that we will launch in the next few quarters and have been busy preparing these campaigns. I am very pleased with our overall growth of 54% compared with last year, considering that Q1 is our weakest quarter of the year, due to the seasonal effects of app store promotions. We also continued our strong organic revenue growth related to Distribution, reporting an increase of 37%. This is in line with our market guidance which is 20-40% for 2023. Gross profit grew by 72% and adjusted EBITDA by 125%.

Q: What were the highlights of the quarter?

A: The highlight of the quarter was the world’s largest games conference, Game Developer Conference (GDC) in San Francisco which was dominated by discussions on alternative marketing, distribution, and payments. In this respect, we see three strong underlying market drivers, the first being the changes to IDFA, and user tracking introduced by Apple last year. This means that advertisers are now struggling with their traditional performance marketing and are looking for new marketing methods and distribution. The second major driver is the Digital Markets Act, which is now in force in the EU. This new regulatory framework serves to improve competition and limit the power of “gateways” such as Google Play and Apple App Store. Google and Apple are forced to effectively open for new distribution and payments and must comply by March 2024. Penalties can be as high as 10% of global revenue. The third driver is the current sluggish macro environment, which has slowed down global industry revenue growth. Combined, these factors have triggered a lot of new activity in our market. Big players such as Meta, Unity, and Digital Turbine are making investments and taking strategic positions. As part of the continued consolidation of game studios, it is also worth noting that Savvy Games (Saudi state-funded gaming investor) acquired Scopely (large US game developer) for USD 4.9B in April.

During GDC, we took the opportunity to announce our highly strategic partnership with Digital Turbine. This partnership focuses on joint sourcing of top-tier titles and providing our existing portfolio with new distribution in the crucial US market. This will give us access to +100m new users from Digital Turbine’s platform including the main US telecom Operators. We are already seeing some positive effects on lead generation, and we expect distribution to ramp up during the second half of the year.

We also agreed a new and expanded framework deal with our biggest game publisher by adding two new blockbusters to the extended and improved deal. This deal, which now includes eight titles, will help us drive growth with improved margins and create new distribution opportunities for years to come. During the quarter, we also launched a third title from ONEMT and noted strong performance from several newly launched titles.

Q: You mention focus on increased distribution, why is this so important and when can we see revenue effects of this?

A: Scaling distribution is the next natural step for our business. Firstly, we developed the platform and took a leading market position with a strong game offering. In the next growth phase, we will continue to add games but will direct our focus more to new channels to continue to capture market share. This is why we are so excited about the general market shift in favour of alternative distribution. We are currently generating on average around 10% on top of what games are making in Google Play. With all the activity and investment in our market, this number will surely grow and will effectively increase our target market over time.

More specifically, we are developing closer ties with our existing stores where various types of new user acquisition initiatives have become increasingly important to grow market share. In addition, we are actively working on increasing the number of traditional app store partnerships and new disruptive distribution models such as the Digital Turbine partnership. These are long-term initiatives that will fuel our future growth when fully up and running. We have previously mentioned our partnership with Amazon for Windows 11 which – together with the other new projects – we expect to start seeing a positive impact from the end of this year.

Q: Please tell us more about the new titles?

A: We have several titles that are either in ramp-up or pending launch. Early figures (March and onwards) have been very promising thanks to effective and well-planned launch campaigns fuelled by user acquisition. These games are important for our existing stores but also well suited for new distribution where user acquisition will be more prominent. For the existing game Kingdom Guard, we have also extended distribution rights to include the key store ONEstore. These are all solid titles which will help us drive revenues going forward. Their combined monthly Google Play gross revenue is USD 9m.

The two blockbusters signed in March are currently also generating USD 9m combined in Google Play. The newest title was released globally in Google Play in April by the publisher and is currently the fastest growing title in its portfolio. We are obviously extremely excited about this and have started the on-boarding of these games for all our channels, including Digital Turbine. The titles will be announced closer to launch.

Q You mention cyclical effects on your revenue growth, but we did not see any of these effects last year?

A: Q1 is generally the weakest quarter of the year for games. In 2022, we managed to avoid a quarter-on-quarter revenue dip in Q1 thanks to successful launches of three large titles. The cyclicality was therefore not obvious, but we did see a drop in the rest of the portfolio. As with most advertising services, influencer marketing is also generally affected by slower performance in Q1/Q2. The second half of the year is normally the strongest period for marketing services when budgets are spent on bigger campaigns. Combined, these effects were much clearer this year.  Revenue dropped by 25%, following our record-breaking Q4 2022, which was boosted by strong game performance and a weak GBP to USD rate.

In terms of the remainder of 2023, we expect the second half of the year to be stronger, thanks to some major game launches, ramping up of new distribution and positive cyclical momentum in our market.

Q: Where are you on M&A and investment strategies?

A: We are actively looking at strategic acquisitions and investments that allow us to both attract new game developers and expand the relationships with existing developers through technology and improved service coverage. Our focus is primarily on Influencer marketing, but we are also evaluating the potential for a third service vertical outside traditional store distribution. The focus is very much on strategic fit with acquisition targets primarily being smaller profitable companies where valuations are slowly and steadily coming down.

Q: Finally, what are you most excited about during the rest of the year?

A: We are now in an exceptionally exciting period for alternative marketing and distribution of games thanks to the aforementioned underlying market and regulatory drivers.  When we see the full effect of these, it could be the perfect storm and we would be right at its centre. It is both exciting and challenging, but we have been preparing for this for some time and we stand ready for the next growth journey.

Jens Lauritzson – CEO

For more information

Niklas Koresaar CFO, Email: ir@flexionmobile.com. Tel: +44 207 351 5944

This is information that Flexion Mobile Plc is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, at 08:00 CEST on 16 May 2023.

About Flexion Mobile Plc: 

Flexion Mobile Plc grows revenue and audiences for games. The company offers a unique distribution and influencer marketing service. Flexion works with a growing number of top grossing developers around the worldUsing its expertise, experience and technology Flexion builds revenue and audiences for developers by taking Android games and making them fly on the alternative app stores, including the Amazon, Samsung, Huawei, Xiaomi and ONE Stores. In 2022, the company acquired the leading influencer marketing agency Audiencly GmbH. Flexion Mobile Plc is listed on Nasdaq First North Growth Market, Shortname: FLEXM. Certified Adviser is FNCA Sweden AB, +46(0)8-528 00 399, info@fnca.se