Q1 Report – 31 March 2022

Flexion produces another quarter with record results: revenue growth rises by 61% and adjusted EBITDA by 419%.

January-March 2022 performance

• Total revenue increased by 61% to GBP 10.6m (6.6)*
• Gross profit increased by 78% to GBP 1.5m (0.8)
• Adjusted EBITDA^‡ increased by 419% to GBP 0.49m (-0.15)
• Operating result increased to GBP 0.25m (-0.14)
• Earnings per share amounted to GBP 0.51 (-0.48)
• Cash and cash equivalents amounted to GBP 10.4m (14.7)

Important events during the quarter

• Strategic Investment into LiteUp Media
• Announcement of the acquisition of influencer marketing agency Audiencly
• Signing of Kingdom Guard from tap4fun
• Signing of King’s Choice from ONEMT

Important events after the quarter

• Completion of Audiencly acquisition

*  Comparison figures for the year-earlier period in brackets
‡  The Company defines adjusted EBITDA as earnings before interest, tax, depreciation, amortisation, finance costs, impairment losses and other income. Adjusted EBITDA (adjusted operating profit for several non-cash items) is used by the Company for internal performance analysis to assess the implementation of our strategies. Management believe that this adjusted measure is a more appropriate metric for understanding the underlying performance of the company.

Q&A with the CEO

Q: Flexion has posted another really strong quarter. What is the main highlight?

A: The biggest highlight for me was how well we managed to launch our recently signed top games, which drove the robust growth in revenue. Our rate of revenue increase rose from 46% in 2021 to 61% in the first quarter of 2022 - a pace that was above our revenue guidance on existing business excluding Audiencly for 2022. I am really proud of the fact that we managed to achieve this impressive growth in a quarter that had been negatively impacted by the war in Ukraine. This illustrates the strong momentum we currently have in Flexion.

Q: The value of the game portfolio has increased significantly. Could you explain what drove this?

A: We have more than doubled the value of our game portfolio over the last six months. Our stronger, more experienced sales team performs better every quarter and our services are gaining traction in the market. We now have eight people who speak either Chinese or Korean or Japanese, which puts us in a much better position for the significant opportunities arising in Asia in both game sourcing and distribution. Over the past 18 months, our sales pitch to developers has also become much stronger. On average, our top-tier titles now generate USD 8m in incremental annual revenue which makes it easier to sell our services to the top developers. We also hit USD 50m in revenue for the whole portfolio in the last twelve months – a new record which we are really proud of! These are big numbers and it was clear from our visit to the Game Developer Conference in San Francisco that they are garnering attention in the market, which further helps the sales team in attracting new games to our portfolio.

Q: You increased your growth rate compared to the preceding quarter. Do you see this pace slowing down?

A: We are pacing above our market guidance of 40-60% revenue growth so the year has gotten off to a strong start. Next quarter, we will add the numbers from Audiencly, our newly acquired company, to our P&L, which will drive our growth even further. If Audiencly had been part of the Group in the first quarter of 2022, we would have presented 91% revenue growth for this quarter based on their EUR 2.3m quarterly revenue.

Q: So, you believe the current growth pace will continue?

A: Yes, the future looks bright for us. To date, we have built our strong market position on organic traffic and this will continue with new games and new distribution. Now, we are also expanding with new services and expertise in marketing services that will put us in an even stronger position to continue to drive revenue for our top titles.

Q: A look at EBITDA and cash flow shows that both have increased significantly to positive levels. Will this trend continue?

A: Since we have achieved critical mass on our platform, we now benefit from low marginal costs when adding new games to the portfolio. This means that our gross margin has grown considerably compared with operating costs, which of course drives both EBITDA and cash flow. Adding high-margin marketing services such as Audiencly to our P&L will further drive the positive contribution to the Group. Audiencly generated in this “thin margin quarter” GBP 0.2m in EBITDA compared to our reported 0.5m in EBITDA for the quarter so, yes, we can already now see that our new initiatives are improving our profitability.

Q: How will your cost structure look as you continue expanding? How will your margin develop?

A: Our cost structure is relatively static due to the low marginal cost. Our new marketing services are still in an early phase of development and the EBITDA margin structure depends on whether we add through corporate acquisitions or internal hiring. We are evaluating both expansion options.

Q: Flexion has added several real blockbusters to its portfolio. Do you see any possibilities for continuing to add these types of games to your portfolio?

A: Absolutely, adding these types of games is now part of our day-to-day sales activities.

Q: What are the biggest market trends for Flexion at the moment?

A: Looking at the bigger picture, it had become almost too easy to make money in games by using data-driven tools to acquire your own growth. This has now changed due to regulatory pressure, which is forcing the industry to re-think its approach to user acquisition. This is driving significant change and generating new ideas. We see this leading to a more complex and fragmented market, which benefits Flexion.

Q: You recently completed a relatively large corporate acquisition when you acquired Audiencly, the German Influencer agency. Could you explain, briefly, your reasoning behind this and why, strategically, this is important for Flexion?

A: Our distribution service is now managing itself from a senior management point of view, so we have shifted our senior focus to building a marketing service offering. This is strategically important from two perspectives. At a macro level, our market is slowly and steadily moving towards paid user acquisition. With our leading market position and games portfolio, we are perfectly positioned to drive this transition through new marketing services. We strive to be the go-to partner for all marketing strategies within our market. At a micro level, Flexion has so far only offered organic traffic and now has a large opportunity to monetise our leading games further with new traffic sources. We are currently only averaging 10% of what the games are generating in Google Play and a mere 3-5% of universal game revenue, so why stop there? Should we not aim for an average of 20-40% of Google Play revenue for all our games, instead of for only a few success cases where we have already reached these levels? Influencer marketing is the new kid on the block in game marketing, with really strong performance numbers and – more importantly – with little dependency on data-driven strategies. This is also a marketing strategy that, as we have seen, works very well for our channels. We therefore followed several influencer companies over the last 12 months, and we found Audiencly to be the best fit by far for us. They are a market leader; as regards expansion, their target client list is identical to Flexion’s and, most importantly, they are highly ambitious. This can be seen in their Q1-22 numbers where they grew revenue by an impressive 132%.

Q: In addition, you invested in LiteUp Media, please can you explain this investment?

A: LiteUp Media is a small early-stage company with a unique service for mobile game influencer marketing. It is focussing on making influencer marketing more scalable and is a perfect complement to Audiencly when we now are looking at growing our influencer footprint in the gaming market.

Q: Was this a one-time transaction, or can the market expect to see more transactions like this?

A: With our new Audiencly and Liteup teams, we are scouting relevant markets for strategic acquisitions as an alternative to internal growth. Let’s see where this takes us over time.

Q: What do you expect from the rest of the year in terms of turnover, profit, and market trends?

A: We have a great deal of momentum, growing both organically and through acquisitions. For us it is all about investing, capturing growth opportunities, and strengthening our leading position which will continue to deliver profitable growth as the market continues to develop and grow.

Jens Lauritzson – CEO