Q3 Report - 30 September 2024

Flexion continues to grow in Q3 supported by strong performance in Audiencly. Revenue is up 20% and gross profit jumps by 54%

July-September 2024 performance

• Total revenue increased by 20% to GBP 17.8m (14.8)*
• Total gross profit increased by 54% to GBP 3.9m (2.5)
• Adjusted EBITDA‡ increased by 15% to GBP 1.4m (1.2)
• Operating loss increased to GBP 0.6m (0.3)
• EPS amounted to GBP -2.12 pence (-0.84 pence)
• Operating cash flow amounted to GBP -0.8m (-2.0)
• Cash and cash equivalents increased to GBP 12.4m (7.5)

January-September 2024 performance

• Total revenue increased by 17% to GBP 54.6m (46.5)*
• Total gross profit increased by 53% to GBP 11.3m (7.4)
• Adjusted EBITDA‡ increased by 78% to GBP 3.9m (2.2)
• Operating loss increased to GBP 2.1m (0.3)

Important events during the quarter

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

Important events after the quarter

• Filing of 2023 annual audited accounts
• Signing of War Machines from Wildlife Studios
• Signing of War Robots from MY.GAMES

* 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.

Comments from the CEO

This month, we finally published our audited accounts for 2023, which I am delighted to report brings a close to the issues we experienced in 2022. The positive audit opinion received from our newly appointed auditors, CLA Evelyn Partners Limited, a top 10 UK accountancy firm, allows us to draw a line under issues that marked the preceding year and concentrate once more on the strong business performance and opportunities ahead. I would like to be very clear in saying that this long and painful episode is now behind us and – to some extent – I believe that we have emerged an even stronger company.

The big news from the market in Q3 2024 was the verdict in the US court case between Epic and Google. This is something we have been hoping for and have predicted for years and I am extremely pleased that Epic won on every count. Even if Google manages to delay the implementation of the act through appeal, we see this as a victory for the market as a whole. It means that the markets in both the EU and US are now ripe for disruption. The path forward is clear: Google and Apple will be pushed by market forces and regulators to loosen their grip and control of the mobile games market and we are ideally placed to capitalise on this. More specifically, it will provide alternative stores with better access to the USD 100bn mobile games market. As a result, we are likely to see more new stores and distribution channels appearing next year. While Epic and Microsoft are probably the best known, we are also seeing a great deal of activity in the mobile carrier space in Europe and the US. Our partnerships with the likes of Digital Turbine and ONEstore, both of which focus on the mobile carrier and OEM segments of the market, are likely to grow in importance over time.

The specific regulatory changes have been widely reported on by the media around the world and, broadly speaking, Google will be forced over time to a) allow alternative stores in Google Play b) allow third-party payments inside games in Google Play, and c) allow linking out to competing services. In addition, new alternative stores will also gain access to Google Play apps and games should they wish to distribute these. This is something that could help new app stores to build footfall while they – over time and with Flexion’s help – integrate their own payment solutions with games instead of using Google’s solution to generate revenue.

Another clear trend is the opportunity for direct distribution, according to which the larger game developers will attempt to bypass Google and Apple to directly reach the consumer. This is another significant opportunity for Flexion, enabling the parties involved to share the 30% otherwise paid to Google and Apple. These opportunities for developers will continue to drive interest in Flexion’s services for years to come. In other words, this is a huge opportunity for us to be a critical ecosystem enabler in a wider open market.

There has been significant focus on the Google and Apple commission fee and how unfair it is for developers. Developers are currently paying 30% commission on most transactions made in Google Play and App Store. Now that the market is finally opening up to competition and developers are allowed to use third-party payments, they can generate higher margins and by-pass this fee. It is clear that Google and Apple will attempt to make the use of alternative payments unattractive in their stores and, accordingly, we are seeing increasing activity in relation to out-of-store payments. Most developers are planning to launch their own web stores with third-party payments and entice existing paying customers with more attractive offers through these stores. Due to the restrictive technical barriers imposed by Google and Apple, web stores only serve customers who have already installed the game. We believe that these barriers will gradually disappear as the market becomes more open over time, creating an opportunity for Flexion to expand its role, meaning as support for developers with third-party payments, distribution and marketing of games in these new channels.

We have previously mentioned our collaboration with Digital Turbine and Coda Payments, two leaders in game distribution and payments. These Flexion partnerships will already help developers fully bypass Google Play. Other significant players in this space are AppLovin and Unity, both of which have invested in services that remove the technical barriers to install games and acquire users outside the Play store. If we can combine these, we will be able to offer a fully scalable opportunity for developers, meaning the acquisition of new users and monetising these outside Google Play. This is something that web stores are currently unable to do as they still rely on Google Play to serve the game. By helping developers break free from Google and Apple’s control, we can generate more margin from games and help developers gain more freedom in their marketing. This will benefit the whole market and drive continued growth for Flexion.

This naturally leads me to our new service offering, which we will launch in 2025. The new offering combines our cutting-edge services for the evolving games market and will position us as the leader in the open market. It includes our new market-leading SDK for distribution in all channels outside Google/Apple boosted by influencer marketing, creators programs and higher margin payments for the evolving D2C market. Until now, Apple has not been available to us but as the regulatory pressure bites in the EU and the rest of the world, we expect to be able to expand our services to this important platform too, effectively doubling our target market over time. We will be soft launching the service in Q4 with a few selected partners. This will allow us to strategically reposition Flexion from a key alternative store distribution partner to a full-service marketing company. I will continue to report on our progress in relation to this in the coming quarters.

Q3 performance was strong and was supported by Audiencly, which rebounded after a weaker Q2. The main driver was a unique live event and campaigns for a newly launched game from Zynga. The outlook for Influencer Marketing remains good for Q4. 7vsWild Season 4 is now live and we expect to generate revenue in line with last season. Q3 revenue in distribution was up 17% YOY, albeit flat compared to Q2. Since the Google/EPIC verdict was delivered, we have seen stronger inbound interest in both alternative stores and D2C, which is both pleasing and is as we would have hoped. Flexion is in pole position and is in talks with many of the biggest game developers and new distribution channels, such as Epic and Microsoft, and we expect to see continued strong interest. Overall, we therefore expect a strong Q4 driven by new titles such as Candy Crush and other blockbusters, as well as 7vsWild on the influencer marketing side. Our sales pipeline remains strong, and we see good potential to expand our new partnerships. We expect Q4 revenue in the region of USD 26-30m and are very encouraged about our prospects for 2025.

Jens Lauritzson – CEO