Flexion Mobile Plc - Q2 Report 30 September 2018

Flexion continues to show strong growth in the second quarter. The core business In App Purchase (IAP) revenue, which represents 98% of total revenue, grows by 281%.

Jul'18 - Sep'18 Q2 financial performance

• IAP (In App Purchase) revenue increased by 281% to GBP 1,126,259 (GBP 295,658*)
• Total revenue increased by 152% to GBP 1,151,360 (GBP 456,117)
• Gross profit increased by 23% to GBP 257,990 (GBP 209,355)
• EBITDA fell by 47% to GBP -439,797 (GBP -300,139)
• Loss per share increased to GBP -0.83 pence (GBP -0.38 pence)
• Operating cash flow increased by 3.4% to GBP -431,517 (GBP -446,901)
• Cash amounted to GBP 6.9m (GBP 2.4m)

Year to date financial performance

• IAP (In App Purchase) revenue increased by 318% to GBP 2,119,504 (GBP 506,584)
• Total revenue increased by 162% to GBP 2,189,768 (GBP 836,893)
• Gross profit increased by 53% to GBP 497,522 (GBP 326,061)
• EBITDA fell by 35% to GBP -880,558 (GBP -651,965)
• Loss per share increased to GBP -1.57 pence (GBP -0.90 pence)
• Operating cash flow decreased slightly by 0.4% to GBP -604,229 (GBP -601,584)
• Cash amounted to GBP 6.9m (GBP 2.4m)

Important events during the second quarter

• Extended partnership with Chinese developer YOOZOO Games
• Participation at China Joy and Gamescom to grow the developer sales pipeline
• Recruitment of new Head of China Operations
• Received notice of allowance from United States Patent and Trade Office for our enabling and enhancement technology

* Comparable number for the same quarter of the previous financial year in brackets.       

Notes from the CEO

The quarter started at a flying pace with sales trips to China Joy in Shanghai, the biggest trade fair for games in Asia, where I have had the opportunity to participate for the last three years . We then continued with Gamescom in Cologne, the biggest games fair in Europe.

China, in a very short period, has become the world’s biggest games market creating a global giant in Tencent Games, now the biggest games company in the world.  If one wants to launch a game in China, Tencent is the most common option for a Western developer. The market has grown at a staggering pace to become an estimated USD 13bn Android games market. In the Chinese market Google is not a major player. The market has therefore developed into a highly competitive market with a fragmented ecosystem all built on Android.

We take inspiration from China where Tencent, the leading platform, distributor and publisher of games has become the gateway for games. At Flexion, we aim to become the Tencent for games in our fast-growing alternative Android market.

China is currently in a holding pattern waiting for new regulatory guidelines to be introduced. As a result, the market has effectively been closed for new games since March this year. This obviously makes the lives of Chinese developers more difficult in this already super competitive market. For Flexion, it offers a clear opportunity since most of the top and mid-tier developers are now looking to expand outside of China and they need help primarily with their distribution. We already have some positive traction from developers in China. In October, we announced an expanded partnership with YOOZOO Games after twelve successful months of working with their top grossing title Legacy of Discord.  We can clearly see that our marketing efforts in China are paying off and we also recently signed an agreement with game developer ONEMT for the mid-tier game Rise of the Kings. Our pipeline of Chinese developers is looking good and is likely to grow over the coming quarters. As part of these efforts we have recruited a senior sales person with vast experience from the local Chinese gaming market. The new hire will join the sales team later this year as Head of China Operations.

The long-awaited launch of Fortnite on Android in August by Epic Games was a significant event for the whole game industry. But why is this such an important milestone for us? First, when the developer of the biggest game on the planet launches on a new platform it gets a lot of media coverage. In this case, Epic Games decided to by-pass Google Play and launched with Samsung. The news created big headlines and was a major marketing coup for Samsung, but it also showed developers that the Android market is bigger than a single store – Google Play.  For Flexion it has several important implications. As a channel, Samsung has gained significant momentum and now has much better traction with developers. This makes it easier for us to engage with them.  In general, we don’t expect developers to by-pass Google Play, but we are starting to see a trend in favour of new and alternative distribution.

In this quarterly report, we will provide a summary of our developer value proposition and mid-term vision for the company which is to manage and operate around 100 games of which one third will be top-tier games and the remaining two thirds will be mid-tier games.  These games are typically ranked in the top 400 grossing charts globally and we estimate that developers on our platform (with its current size) will generate approximately 10% in additional net Android revenue (compared to their Google Play revenue) when deployed through Flexion’s service. Looking at the top 100 US grossing charts, revenue ranges from USD 30 million per month for top games to USD 1 million per month for games at the lower end of the chart.  Signing distribution agreements for top-tier games will allow us to grow faster and cement our leading position. Offering various types of incentives to top developers may therefore become a critical part of our go-to-market strategy in the short to medium term. Over the next quarters, as our portfolio and revenue continue to grow, we intend to increase the number of reported KPIs to make it easier to follow the progress of our go-to-market roll out.

We are scaling up in all areas of the business. Currently, we can deploy and support three new games per month in existing channels. In parallel, we are evaluating new channels such as Huawei’s new Western app store App Gallery and Xiaomi’s Western game initiatives - in addition to our already live channels Amazon, Samsung, One Store and KDDI.  On the horizon, we also see fast-growing Chinese device manufacturers such as Vivo and Oppo challenging the top Android manufactures in this space with their own game services.  Google’s decision to charge device manufactures next year for access to Google Play in response to the EU’s antitrust verdict will, in our opinion, favour the Chinese device manufacturers in Europe who are less dependent on Google, but also Amazon and Microsoft who offer competing services.

We achieved a major milestone in September when our patent application received a positive notice of allowance by the United States Patent and Trade Office (USPTO). It has taken us four years to get to this position and it will clearly add a lot of value and ammunition when the market becomes more competitive in the future. The next phase will be to convert our patent pending status in Europe and Hong Kong to a full patent. We intend over time to protect our intellectual property in all core markets where feasible.

We are looking forward to an exciting and busy third quarter with already plenty of activities planned for the traditionally strong holiday season. We will be going to Samsung Developer Conference in San Francisco and to G-star, the biggest game show in Korea, in November.

Jens Lauritzson

CEO

For more information:

Niklas Koresaar, CFO, Email: ir@flexionmobile.com. Tel: +44 207 351 5944

This is information that Flexion Mobile Plc is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, at 08:00 CET on November 28, 2018.

About Flexion Mobile Plc: www.flexionmobile.com

Flexion makes it easy for developers to maximise the growth potential of their Android games. The company offers as a distribution platform for free-to-play Android games. Flexion's unique service offering has solved a distribution problem for developers and att the core of Flexion's patented technology is the enabling and enhancement software that lets developers distribute one version of their game in multiple channels. As a result, game developers can now reach new channels without having to make any changes to the game code. Flexion is integrated with global stores such as Amazon and Samsung and leading regional distribution channels in India, South Korea and Japan. Flexion Mobile Plc is listed on Nasdaq First North, ticker name: FLEXM. Certified Adviser is FNCA Sweden AB.

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