Q2 Report – 30 June 2022

Flexion Mobile reports new growth record and hits USD 20 million revenue milestone for the quarter. Gross profit soars by 211% resulting in adjusted EBITDA^‡ of GBP 1.4 million.

April-June 2022 performance

• Total revenue increased by 127% to GBP 17.7m (7.8)*
• Gross profit increased by 211% to GBP 2.9m (0.9)
• Adjusted EBITDA^‡ increased to GBP 1.4m (0.02)
• Operating result decreased to GBP -0.4m (-0.05)
• Earnings per share amounted to GBP -1.42 pence  (-0.13 pence)
• Cash and cash equivalents amounted to GBP 8.4m (15.6)

January-June 2022 performance

• Total revenue increased by 97% to GBP 28.2m (14.4)
• Gross profit increased by 149% to GBP 4.4m (1.8)
• Adjusted EBITDA^‡ increased to GBP 1.7m (-0.1)
• Operating result increased to GBP -0.1m (-0.2)

Important events during the quarter

• New Milestone - Hitting USD 20m in quarterly revenue
• Signing of King of Avalon from FunPlus
• Launching of King’s Choice from ONEMT
• Launching of Kingdom Guard from tap4fun
• Launching of Mahjong Treasure Quest from Vizor Apps
• Consolidation of Audiencly acquisition

Important events after the quarter

• Launching of King of Avalon from FunPlus
• Signing and launching of Matchington Mansion from Magic Tavern Inc
• Signing of Call Me Emperor from Clicktouch Co. on the Japanese market
• Completion of USD 500k Liteup Media investment for 20% stake
• Liteup Media launches a cost-per-install (CPI) service to target TikTok users

* 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, 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. 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 believes that this adjusted measure is a more appropriate metric for understanding the underlying performance of the company

Q&A with the CEO

Q: How would you describe this quarter?

A: This was an exceptionally busy quarter with focus on the integration of the newly acquired Audiencly into the Flexion group, primarily to realise the significant sales and marketing synergies between Audiencly and the Flexion distribution service. Specifically, this means that we have started to cross-sell Audiencly influencer marketing to our game developers and our distribution service to Audiencly’s customer base.  In addition, our channel sales team has successfully executed on several marketing campaigns to kick-start some of our games in ramp-up. These efforts clearly generated strong growth during the quarter, with revenue from distribution (our organic growth) increasing by 97% and group revenue increasing by 127%.

Q: Is this organic rate of growth of 97% something that Flexion Mobile will be able to maintain going forward?

A: The first six months of the year saw strong performance and a quick ramp-up in sales on some of the big titles we signed and launched last year and that’s why we increased our revenue guidance on distribution (organic revenue) from 40-60% to 60-80%. Year-to-date revenue growth from distribution is 81%, which is slightly above our revenue guidance.

Q: In addition to organic growth, you have also added growth through the acquisition of Audiencly. How should we view this added growth and the effect it has on organic growth?

A: Sales and marketing synergies were the main drivers for this acquisition. If we look at distribution, it is all about attracting new paying users to our games and the more sophisticated user acquisition tools we have access to, the more we can control our own destiny within distribution. Therefore, it is very attractive to own a leading influencer marketing agency and have in-house expertise in user acquisition. By utilising Audiencly’s services in alternative distribution, we are opening the door for them to sell their services to our existing developers in the wider market, i.e.  the whole mobile eco-system and other platforms like PC and console. So, this is a tremendous opportunity and a major driver for our group revenue growth – now pacing at 127%! We are unique in being able to offer this package of services to our game developers.

Q: How did profitability perform during the quarter?

A: Our gross profit grew by an amazing 211% to GBP 2.9m this quarter year-on-year, while staff costs and ordinary other overheads within distribution remained relatively flat at GBP 1.0m. Since the Audiencly acquisition, we are now exposed to very complex IFRS acquisition accounting with large potential FX adjustments. In addition, by being a truly global business, we are exposed to FX movements in over 90 currencies around the world. Therefore, we have chosen to eliminate the foreign exchange impact on our EBITDA to illustrate more clearly the underlying profitability of our operations. The strong momentum and growth can clearly be seen in our Adjusted EBITDA, which grew by 80 times to GBP 1.4m for the quarter.  Most of the foreign exchange effects are due to quarterly timing differences and tend to balance out over the course of the year. For instance, we have already noted a positive FX effect of GBP 0.25m in July.

Q: Your operating cashflow is very strong, is this driven by your EBITDA?

A: Our operating cashflow, which year-to-date amounts to GBP 3.0m, is partly driven by the above positive EBITDA contribution and partly by our working capital model including contributions from the multi-game agreement signed in September 2021.

Q: Given that you have now completed your first corporate acquisition, what are you focusing on to increase your service offering?

A: We are looking at increasing our services beyond distribution in alternative markets. Influencer marketing is highly attractive and a great opportunity for the Flexion group and we have now taken the first steps with the acquisition of Audiencly and a 20% stake in Liteup Media. Through Liteup Media, we can now offer an attractive digitalised tool for our influencers to access a target audience through a performance marketing model, which again ultimately benefits our game developers by driving traffic to their games on Flexion’s platform. We are actively looking at new opportunities in this space. In-house, we are building up expertise in performance marketing and we are continuing to identify attractive opportunities within games marketing that fit with our market position and group vision.

Q: Have you signed any new games during the quarter and how is the pipeline for new games?

A: We signed two games during the quarter, King of Avalon from FunPlus and King’s Choice from ONEMT, both repeat deals with existing developers. Our sales team is starting to see more in-bound leads and positive effects from the synergies with Audiencly.

Q: Have you seen a change in the type of games you aim to sign?

A: Thanks to our strong performance and attractive portfolio, we are aiming higher on the top grossing charts. Our top-tier titles generate on average USD 0.8m in revenue per month or almost USD 10m per year. These are substantial amounts even for the biggest developers and one of the reasons why we are now signing more leading titles.

Q: What is the outlook for the rest of the year?

A: Given that our quarterly performance is above of our revenue guidance of 90-110% on group level and 60-80% for distribution services, we are naturally quite confident that we will meet our targets. This, combined with strong games signings and Audiencly sales synergies, also makes us increasingly excited about the outlook for 2023.

Jens Lauritzson – CEO