Flexion Mobile: Q4 Report - 31 December 2024

October-December 2024 performance

• Total revenue decreased by 7% to GBP 21.9m (23.5m)*
• Total gross profit decreased by 14% to GBP 3.6m (4.2m)
• Adjusted EBITDA‡ decreased by 17% to GBP 1.3m (1.6m)
• Operating result amounted to GBP -0.1m (3.4m)
• The operating result is impacted negatively by accounting related adjustments of GBP 3.2m^# and increased amortisation of game distribution rights driven by strong game performance.
• Total comprehensive income amounted to GBP 0.9m (2.7m)
• EPS amounted to GBP 1.62 pence (4.72 pence)
• Operating cash flow amounted to GBP 1.8m (3.5m)
• Cash and cash equivalents increased to GBP 13.1m (11.1m)

January-December 2024 performance

• Total revenue increased by 9% to GBP 76.5m (70.0m)*
• Total gross profit increased by 27% to GBP 14.8m (11.7m)
• Adjusted EBITDA‡ increased by 33% to GBP 5.0m (3.8m)
• Operating result amounted to GBP -2.3m (3.1m)
• Total comprehensive income amounted to GBP -2.4m (1.3m)

Important events during the quarter

• Filing of 2023 annual audited accounts
• Signing of War Machines from Wildlife Studios
• Signing of War Robots from MY.GAMES
• Signing of Gossip Harbor from Microfun
• Signing of Candy Crush Solitaire^© from King.com

Important events after the quarter

• Launch of War Machines from Wildlife Studios
• Launch of War Robots from MY.GAMES
• Launch of Gossip Harbor from Microfun
• Launch of Candy Crush Solitaire^© from King.com
• Signing of agreement with Electronic Arts (NASDAQ: EA)

* Comparative 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 exceptional costs.  
# Accounting related adjustments consist of Impairment losses (GBP 2.0m), 2022 Audiencly earnout related costs (GBP 0.7m) and foreign exchange losses (GBP 0.5m).

Comments from the CEO

Q4 2024 Performance and Strategic Outlook

"2024 was another record-breaking year. Annual revenue reached GBP 76.5 million, a 9% increase from 2023, ahead of industry growth, while gross profit grew 27% to GBP 14.8 million. We met our Q4 revenue targets, showing a 23% revenue increase over the previous quarter. Strong seasonal performance on some major titles with lower margins led to a slight gross margin decrease in the quarter, and we anticipate this trend to continue in 2025 as we launch larger, higher-revenue games. Longer term, we are confident that our focus on bigger games and strategic partnerships is the best way to go. The year was full of strategic achievements, including the development of our new service offering, launching with a new brand in 2025. Encouraging feedback was received on our D2C service at the Game Developers Conference (GDC), which the team recently attended. Our new offering leverages our unique distribution and marketing services with the addition of D2C to drive profitable growth.

Key Achievements and Partnerships

Our significant partnership with King in June 2024 marked the beginning of strong momentum in game sourcing. The launch of Candy Crush Saga^© across all channels took only eight weeks from agreement signing, a process significantly expedited by Flexion. This demonstrates how our technology and services simplify, reduce costs, and increase profitability for game developers in alternative distribution within a fragmented app store market. We adapt and promote successful games, helping developers generate additional revenue outside Google Play in exchange for a revenue share. Our services mitigate the high opportunity cost that hinders developers in the alternative market. Developers are not equipped for a fragmented landscape, positioning Flexion as a critical enabler. This value is increasingly recognized by key players in the industry.

Following the successful King partnership in Q3, Q4 saw the addition of Candy Crush Solitaire^© to our framework agreement. Expanding business with major clients is key to our model. The Microsoft acquisition of Activision/King in 2023, and King's integration into the Xbox service organization, presents further growth opportunities within Microsoft's mobile game strategy.

In Q4, agreements were made with Microfun for Gossip Harbour, and the portfolio was strengthened with War Robots (My.Games) and War Machines (Wildlife Studios). All these games have now been launched. These partnerships highlight our focus on top-tier developers, expanding market reach and portfolio. Our live portfolio now includes more than 30 titles, with top-tier games generating on average USD 0.9 million monthly gross revenue each. We believe our portfolio is unparalleled, and it represents several billion USD in gaming IP, benefiting partners like Amazon, Huawei, OneStore, Samsung, and Xiaomi. Recent months saw the most extensive series of game launches in our history, which will drive growth in 2025 and beyond. Our sales pipeline remains strong, and the recent EA partnership reinforces our leadership.

Distribution and Regulatory Opportunities

Our game distribution partnerships continue to demonstrate robust performance, affirming our value to leading platform providers. Recent engagements with executive management teams from Huawei, Samsung, and Xiaomi at our London headquarters, focused on strategic joint roadmaps, underscore the strength of our collaborative relationships.

The implementation of the Digital Markets Act (DMA) in the EU presents significant strategic opportunities. There are similar initiatives in several other markets, notably the US. Regulators are putting a lot of pressure on both Google and Apple to open their platforms and stores to competition. The latest major market being Brazil, where the authorities have given Apple short notice to comply. The EU Commission recently found both Apple and Google guilty of breaching the DMA on several counts, and the market is now waiting to see what the next steps will be. We expect increased regulatory scrutiny during 2025, and we are well-positioned to capitalize on the evolving regulatory landscape. It was to be expected that we would see the emergence of new market entrants, such as Epic Games with their Epic Store on Android and iOS, and this further validates our strategic direction and opportunity to scale our business further. We are prepared to support their growth with our game portfolio, as well as Microsoft's future Xbox service, as we believe that this will strengthen our market position and reach. Our active partnership with Digital Turbine, including the rollout of ONEstore US to US carriers, as well as Samsung's Instant Play, will further expand our distribution footprint during 2025.

Influencer Marketing Growth

Audiencly, our influencer marketing agency, had a strong fourth quarter with GBP 3.8 million in revenue, securing six new clients and executing major campaigns for Zynga, among several other gaming clients. This performance resulted in Audiencly's second-best quarter on record in terms of revenue, establishing a strong foundation for 2025 and solidifying its role as an increasingly vital route to market for our game developers.

Strategic Investments in Direct-to-Consumer (D2C) and Scalability Initiatives

During 2025, our internal focus will be on operational efficiency, scalability, and margin contribution in our core distribution and marketing services. In parallel, we will continue to invest in strategic product initiatives. Our D2C investment, which is central to our new service offering, is gaining momentum, resonating well with the developer community and particularly top-grossing developers who look to increase the return on their marketing spend through higher-margin distribution services. The increasing adoption of web stores by developers signals a significant shift in future distribution models and could, over time, help reshape the industry. We aim to be at the forefront of this and have just successfully completed our payment integration project with Coda Payments, a leading web store and payment company in our industry. We are now preparing to soft launch a few selected titles using Coda Payments in some of the distribution channels. Our short-term ambition is to gather enough data to validate the case for developers to acquire users and monetize them with third-party payments outside the Google Play Store. We also have numerous additional payment and web store partnerships in development. To summarize, our D2C strategy is focused on:

• Expanding the non-Google/Apple ecosystem through the adoption of new distribution models offering enhanced payouts and greater developer autonomy.
• Enhancing developer return on investment in user acquisition through high-margin payment services.
• Empowering developers to optimize their web store performance through comprehensive solutions encompassing user acquisition, payment processing, and game distribution.

It is critical that we make these investments as they will not only provide a strong foundation for scale and profitable growth but also make us more relevant to top-grossing game companies in the evolving market.

Regarding our SDK, which is an important part of our new D2C service, we are now shipping the latest version to all developers. It is great to finally see a two-year development project delivering results, and I am confident that it will help us become more efficient and scalable in our service delivery. Our core business is profitable with strong underlying margins, but due to our major investments, margins have been impacted in the short term. Our focus in 2025 is to further improve service scalability and efficiency to generate better profit margins over time, and we need to continue our strategic investments for long-term growth and profitability. We are, for instance, introducing AI in all aspects of the business, and we have worked hard on the SDK development and rollout, and now on D2C. These investments have impacted our reported margins, but they are needed to provide both scalability, better margins, and long-term attractiveness to our clients. The D2C service powered by our SDK is a driver for gaining new clients in the future but also to improve margins and efficiency. We are confident that these initiatives will generate significant returns over time and further cement Flexion's leadership in game marketing within alternative markets.

Financial Position and Outlook

Our financial position remains strong with over GBP 13 million in cash and no debt. This has led investors to ask us why we have not performed any share buybacks for which we requested a shareholder mandate. According to UK law, we can only use distributable profits and not capital unless it is raised for this specific purpose. In order to use our capital, we would need to undertake a court-approved capital reduction, which can be done with public accounts in good order. I am therefore pleased that our 2024 audit is on track to be completed during Q2.

Since our IPO in 2018, we have built a fantastically well-positioned business and grown annual revenue 50-fold, something I am very proud of, but we have failed to attract significant interest on the Swedish stock market. Improving our performance and profile in the equity market is now one of our main priorities. We have therefore appointed an experienced Investor Relations manager in London, who is working with me to attract new investors, particularly in the US and the UK where we see good traction. Besides this, we will continue to invest in our services and take advantage of new market opportunities in the evolving market.

With most of the newly signed games in the pipeline for launch by the end of Q1, we expect sales in the region of USD 21-24 million next quarter. Looking further into 2025, we have good visibility of our sales pipeline, we have new partnerships coming, and we have a very well-established position in the market. Understandably, we are very excited.

We appreciate your continued support and look forward to an exciting 2025."

Jens Lauritzson - CEO