Q3 Report – 30 September 2023

Flexion reports positive momentum towards the end of Q3 and includes strong earnings estimates for October.

July-September 2023 performance

• Total revenue decreased by 20% to GBP 14.8m (18.5)*
• Gross profit decreased by 16% to GBP 2.5m (3.0)
• Adjusted EBITDA^‡ decreased by 55% to GBP 0.7m (1.5)
• Operating result decreased to GBP -0.4m (-0.3m)
• EPS amounted to GBP -1.24 pence (-1.25 pence)
• Operating cash flow amounted to GBP -2.0m (2.0)
• Cash and cash equivalents decreased to GBP 7.5m (10.5)

January-September 2023 performance

• Total revenue decreased by 1% to GBP 46.5m (46.8)*
• Gross profit remained at GBP 7.4m (7.4)
• Adjusted EBITDA^‡ decreased to GBP 1.9m (3.2)
• Operating result decreased to GBP -0.5m (-0.4)

Important events during the quarter

• Launch of Stumble Guys from Scopely Inc.
• Launch of Monopoly Go from Scopely Inc.
• Payment of GBP 3.2m for game distribution rights

Important events after the quarter

• Revised Revenue Guidance to 0-10% from the lower range of 20-40% for 2023
• New estimated revenue record for October in constant currency. Up 26% year-over-year
• Total Estimated October revenue GBP 6.6m and estimated adjusted EBITDA GBP 500k
• New daily and weekly all-time highs for revenue in November
• Signing of Wolf Game: Wild Animal Wars from Special Gamez

Other items

• The 2022 audit is still ongoing and comparative numbers presented as at 31 December 2022 are therefore unaudited. Any adjustments made during the audit process will impact the comparative figures presented.
• The Company is aware of potential changes which could have an impact on the 2022 numbers presented. The uncertainty relates to the recoverability of certain receivable balances as at 31 December 2022, impairment of intangible assets as a result of the insolvency of a customer (previously a related party) of the Company’s German subsidiary, increased audit fees and reclassification of a financial asset at fair value to an investment in associate. The Company’s estimated maximum exposure to the statement profit and loss for the 2022 year, in respect of these potential adjustments, is GBP 1.4m with an estimated maximum future cash flow exposure of GBP 0.6m. These estimates exclude any potential recoveries from the insolvency and effects from the additional purchase price considerations and contingent consideration liability related to the acquisition of the Subsidiary which are yet to be determined. This is further described under note 12 comparative information as at 31 December 2022. When the audit is finalised, comparative figures presented in future reports will be updated to reflect final audited figures in respect of the 2022 financial year.

*  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 and other extraordinary costs (Insolvency related provisions/write-backs & costs).  

Comments from the CEO

“I am pleased to say that Q3 2023 ended on a positive note, and we have now returned to profitable growth. We produced a strong September and a new monthly revenue record in October, posting year-on-year growth of 26% in constant currency. The momentum has continued into November, and we have just recorded daily and weekly all-time highs. This sets us up for an exciting year-end and a positive outlook for 2024.

After a sluggish summer, which is reflected in our Q3 figures, growth was re-ignited in September with the successful launches of our new titles. Our team successfully secured very strong promotions in all channels, and I am happy to say that the new games are performing well. Some of our important titles, such as Evony and World of Tanks, are also back on track, supported by significantly stronger distribution and promotions in our main stores. 

I am also very positive about the growth potential for 2024 with our newest channels – Xiaomi GetApps, DT Hubs and Aptoide. Most of our store partners have ambitious expansion plans thanks to the forthcoming Digital Markets Act and we have secured sizeable marketing commitments from several of our partners for next year.

Our more robust sales activities are having a positive impact on our pipeline, which is looking solid with several big titles in negotiation. Since the launch of Monopoly Go and Stumble Guys in our channels in Q3, we have shifted up a gear and are seeing stronger interest from the top-grossing game developers around the world. I had hoped to see conversion of some of these deals already in Q3, but protracted negotiations and busy partner roadmaps have meant that some deals have now been pushed into Q4 2023 and Q1 2024. With this in mind, we decided to revise our 2023 revenue guidance earlier this month to 0-10% for the year. However, I am confident that we will sign new strong titles in the next few quarters, and we just announced an exciting title from Special Gamez called Wolf Game. The team is now preparing this game for launch in all our channels.

Despite a slow-down in the advertising market, our influencer marketing business has continued to perform relatively well and the important 7vs.Wild project, which we announced in Q2, is expected to boost revenue by approximately GBP 3m in Q4.

With more - and stronger - brands in our portfolio and growing distribution capacity, the risks associated with customer concentration are diminishing every quarter which is something we have benefitted from in a slower market this year. We have a strong cash balance, no debt, robust long-term and positive cash flows and growing EBITDA. While many game companies have struggled with negative growth this year, we are still growing, reporting 7% growth in constant currency during the first ten months of the year. This is testament to our strong business model and our continuously growing market. Several game developers that we are talking to have been reducing their User Acquisition budgets in Google Play and are now looking for new ways to market their games. This has benefitted us as we offer an alternative at a low opportunity cost. In parallel, developers are chasing better margins through cost reductions, which is something that favours our services.

We are participating in several exciting new strategic initiatives including the integration of third-party payment services in games, cloud gaming and direct distribution. All of these initiatives serve to generate more revenue and audiences for the games and developers with whom we cooperate.

The Digital Markets Act was introduced in March 2023 in Europe which means that Apple and Google among others are forced by law to open their platforms for third-party services. The so called “Gatekeepers” need to comply by 6 March 2024. Accordingly, new ways to reach end users will become more viable and attractive. Therefore, we have decided to expand our partnership with Digital Turbine to better serve our game partners in some of these areas. We announced our partnership with Digital Turbine earlier this year and we are now taking the next steps.

Bill Stone, CEO of Digital Turbine, highlighted the highly strategic nature of the company’s investments in alternative distribution in his recent earnings call and announced that Digital Turbine has therefore expanded its partnership with Flexion. Digital Turbine is at the forefront of app distribution and has deals with most of the big US mobile carriers and many OEMs worldwide. Its software, which enables direct distribution of games, is currently on more than 800 million devices worldwide and together, we will be able to offer new user acquisition opportunities for developers through Digital Turbine’s DT Hubs and Single Tap services.

Supported by new regulatory pressure and increasing demand around the world, we believe alternative distribution is about to experience a breakthrough in 2024. We are ready and uniquely positioned when this happens.”

Jens Lauritzson – CEO