Flexion Q4 Report – 31 December 2021

Flexion produces record results: 52% growth in revenue, 63% growth in gross profit and 163% growth in EBITDA

October 2021 to December 2021 performance

• Total revenue increased by 52% to GBP 10.5m (GBP 6.9m)*
• Gross profit increased by 63% to GBP 1.5m (GBP 0.9m)
• Adjusted EBITDA^‡ increased by 163% to GBP 0.33m (GBP 0.13m)
• Operating profit increased to GBP 0.63m (GBP 0.06m)
• Earnings per share amounted to GBP 1.28 pence (GBP 0.13 pence)
• Cash amounted to GBP 14.5m (GBP 12.4m)

April 2021 to December 2021 performance

• Total revenue increased by 46% to GBP 26.1m (GBP 17.9m)*
• Gross profit increased by 43% to GBP 3.4m (GBP 2.4m)
• Adjusted EBITDA^‡ increased by 68% to GBP 0.43m (GBP 0.25m)
• Operating result increased by 734% to GBP 0.56m (GBP 0.07m)

Important events during the quarter

• Launch of Evony: The King’s Return from Top Games Inc.
• Launch of The Ants: Underground Kingdom from StarUnion
• Launch of Puzzles & Survival from 37Games
• Signing of Mahjong Treasure Quest from Vizor

Important events after the quarter

• Strategic investment in mobile game influencer, Liteup Media UG
• Alignment of the financial year with the calendar year by closing the current financial year after 9 months in December 2021

* Comparable number for the same quarter of the previous financial year in brackets
‡ The Company defines adjusted EBITDA as earnings before interest, tax, depreciation, amortisation, finance costs, impairment losses and other income. Adjusted EBITDA (adjusting operating profit for several non-cash items) is used by the Company for internal performance analysis to assess the execution of our strategies. Management believe that this adjusted measure is a more appropriate metric to understand the underlying performance of the Company

Notes from the CEO

What a great quarter we had – our best so far! We entered the 4^th quarter with three new top titles leading up to the important Christmas period and I am really pleased that we managed to launch all of them and benefit from store promotions during the festive season.

Evony: The King’s Return, The Ants: Underground Kingdom and Puzzles and Survival are some of the biggest titles in the market and generated more than USD 40m in Google Play during December. These are now part of our portfolio and contributed to our strong performance in Q4. We experienced 52% growth in quarterly revenue compared with the same period last year and an increase of 46% for the whole year, which was in line with our guidance. The strong performance can also be seen in gross profit and EBITDA, up 63% and 163% respectively.

In 2021, we reached critical mass on the platform, and that’s why we now see a positive effect on our EBITDA for each new game we launch. I am also very happy that we generated GBP 0.6m in net profit for the period partly thanks to the recovery of GBP 0.4m from the impairment write-down we made in March 2020. These titles performed better than expected and are now generating positive contribution.

We added one more leading developer during the quarter, Vizor Games, and we are preparing to launch their title Mahjong Treasure Quest. On the back of our current strong performance and growing portfolio, we are actively phasing out low performing titles. This will help us improve the overall portfolio’s performance and increase the average revenue per game. Our top-tier monthly average has improved from USD 560K in Q3 to USD 730K. This can be seen in our KPI section on page 12.

We have now started to invest in new strategic initiatives within paid user-acquisition, with focus on influencer marketing and performance marketing to support our core business and to expand our footprint into the game services market as previously announced. The plan involves acquisition of talent through investments and acquisitions, but we are also strengthening our development and product teams to support these new initiatives. Our first step into influencer marketing was the investment made in January 2022 in Liteup Media. Liteup Media is a promising German start-up that has set out to disrupt influencer marketing and make it more mainstream and accessible to mobile game advertisers. This investment is attractive to us as we get a foot in the door in influencer marketing, while we have the option to acquire the company.

Looking at the wider market, we can see some clear market trends in favour of new services such as influencer marketing. This is partly due to privacy changes such as deprecation of IDFA by Apple, which makes it more difficult to target and track users. Google have also announced that it will make similar changes adding to the problems for traditional performance marketing. In parallel, we are seeing new demand for influencer marketing from blockchain-based games and NFTs. New marketplaces outside the traditional app stores are evolving for these games, adding to more market fragmentation. This in turn will drive new trends in user acquisition which we want to capitalise on. Other interesting recent moves that will expand our market is Microsoft’s support for Android on Windows 11, through their Amazon Appstore partnership. This project is now publicly launched by Microsoft, and Flexion is already supporting it. In addition, Netflix has entered the overall games market principally to support their core business and recently announced it stepped up its push into gaming by acquiring Next Games, a NASDAQ First North listed game developer.

We are now entering a new financial year and the traditionally weaker Q1 period. Our performance has so far been in line with expectations, we are focusing on growing revenue and audiences for our new top titles. On the back of our strong momentum coming into the new year, we expect our annual revenue to grow with 40-60% and our staff cost by 8-12% during 2022. This growth is driven by our core strategy, while new initiatives are ramping up during 2022. Overall, it should set us up for another strong and exciting year.

I would also like to comment on Flexion’s exposure to the terrible events happening in Ukraine and our thoughts are with all those affected. As a company with business in global markets, we have to date not seen any political events where mobile games have been sanctioned and we do not foresee that happening here either. We are very fortunate that our staff have not been exposed to the region, none of our developer contracts are with Russian companies and our settlement structure is relatively well protected against payment freezes or delays. The risks we see lie within the highly volatile Russian Ruble and the ability of our channel partners to transfer funds out of Russia. So far, the effects on Flexion have been limited and in February less than 10% of our global revenue was generated in the Russian market. The situation is very fluid, and we are monitoring it closely.

Finally, I would like to thank all Flexion staff for a fantastic year and welcome our new colleagues at Liteup Media to the Flexion Group.

Jens Lauritzson – CEO