Q2 Report – 30 June 2024

Flexion continues to grow. Revenue is up 14% and Gross Profit jumps 51% in the second quarter.

April-June 2024 performance

• Total revenue increased by 14% to GBP 17.7m (15.5)*
• Total gross profit increased by 51% to GBP 3.6m (2.4)
• Adjusted EBITDA^‡ increased by 1236% to GBP 1.1m (0.1)
• Operating loss increased to GBP 0.8m (profit 0.03m)
• EPS amounted to GBP -2.22 pence (-1.17 pence)
• Operating cash flow amounted to GBP 0.6m (0.9)
• Cash and cash equivalents increased to GBP 13.9m (12.7)

January-June 2024 performance

• Total revenue increased by 13% to GBP 36.0m (31.8)*
• Total gross profit increased by 55% to GBP 7.5m (4.9)
• Adjusted EBITDA^‡ increased by 231% to GBP 2.7m (0.8)
• Operating loss increased to GBP 1.2m (0.2m)

Important events during the quarter

• Launch of EverMerge from Big Fish Games
• Launch of Marvel Contest of Champions from Kabam
• Signing of agreement with Jam City
• Signing of agreement with King
• Filing of 2022 annual accounts

Important events after the quarter

• Launch of two titles from Jam City
• Launch of Candy Crush Saga from King
• Signing of agreement with Fun Formula
• Appointment of Evelyn Partners as new auditors

* 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, corporate acquisitions costs, fair value gains/losses and other extraordinary costs (Insolvency related provisions/write-backs & costs).  

Comments from the CEO

I am pleased with our Q2 performance. Distribution continues to grow, and we keep generating strong gross profit and cash flows. We ended the quarter with almost GBP 14m in cash, which is up by GBP 0.1m compared with Q1-24. With our strong cash position and no interest-bearing debt, we can continue to take advantage of opportunities in our very exciting market segment.

We grew our gross profit by 51% YoY and for the second quarter in a row, we are at the top range of our quarterly revenue guidance (USD 20m-23m). We ended at USD 22.5m in revenue and would have beaten our guidance if Audiencly had continued its strong performance from Q1-24. However, some of their clients’ big budget campaigns and game launches were delayed and are now planned for Q3-24.

I am very excited about our new partnership with King that we announced in June, and we have now launched Candy Crush Saga, one of the most successful online games ever created. This is great timing for the busy year-end period. There are clear opportunities to expand this partnership to new channels and to new titles and beyond King, to other parts of Activision/Microsoft. I have previously mentioned Microsoft’s plan to launch a mobile game store. 

Our focus on the top publishers in the market is paying off, and we are strengthening our position with every new signing. The sales pipeline remains healthy, and we expect to sign more big games in Q3/Q4 this year. The games that we signed in Q1-24 are now live and have started to contribute to our revenue growth.

In terms of the general market, we continue to see a positive trend in favour of alternative distribution, particularly high margin channels and third-party payments - Direct to Consumer (“D2C”) services powered by web stores are top of mind for most developers. As I mentioned in my last update, we are planning to offer developers support in the new direct distribution market. We have now signed agreements with Coda Payments and are preparing for the distribution of our first games in channels such as Digital Turbine using third-party payments, thereby enabling higher margins for both game publishers and independent distributors (as a reminder, developers must pay 30% to Google for processing their payments when using Google Play store for distribution). Our initiative is fully independent of app stores and driven by paid user acquisition. There is strong interest among developers in exploring this together with Flexion, and some of our new game partners will be involved in our beta tests later this year. 

Our new Software Development Kit (“SDK”), which will be officially launched this autumn, will play an important part in the new service offering. Our aim is to make our SDK the de facto standard for developers who want to venture outside Google Play and the App Store.

As we have highlighted previously, the overall market is experiencing a paradigm shift as a result of the introduction of the Digital Marketing Act (“DMA”) in March of this year. It looks like the EU Commission will potentially come down hard on Apple’s first DMA proposal. They are facing massive fines.  Most other big markets are watching the EU precedent, and we expect to hear a final verdict later this year.

As a result of this regulatory pressure, we are seeing increasing interest from European Telecom operators, large US Tech companies like Meta and Microsoft as well as the big game publishers in entering this market. For example, Epic Games is taking the opportunity to launch their newly approved store for both iOS and Android later this year. We hope to hear more on this and the Microsoft store at the world’s biggest gaming event, Gamescom, this week when we will be meeting many of our existing and new strategic partners. We can only conclude that all these changes are benefitting the alternative distribution market, which is where Flexion is of course one of the leading players.

We have had a very busy summer period. The China team has just returned from the largest Chinese games conference, China Joy, and they also presented to most of the big Chinese game developers at Huawei’s Developer Conference in June.  We have just signed Zombie Waves, a top grossing game from China’s Fun Formula, which should be live in our channels towards the end of September. I am positive about these Chinese opportunities and more big titles are expected to be signed.

I am relieved that we have concluded the 2022 audit and can put this behind us. Whilst our financial results were strong and were in line with all earlier communication, we remain unhappy with the audit report and disagree with the auditor’s opinion on several points. Further details on this can be found in the 2022 Annual Report. Given the circumstances, we asked Grant Thornton to resign as auditor and have recently appointed Evelyn Partners, a Top 10 UK Accountancy firm, as our new external auditor. We have also appointed a new Chairman of our Audit Committee who will focus on concluding the 2023 audit with our new auditors as soon as possible.

Finally, I am pleased to see that we grew our distribution revenue in the first half year by 25% measured in USD as constant currency, and we are now looking forward to an even busier second half with a strong line up of games.  For the third quarter, we are expecting sales of approximately USD 22m-USD 25m.

Jens Lauritzson – CEO