Flexion records strongest quarterly performance to date with total revenue up by 153%, gross margin up by 216% and adjusted EBITDA[‡] up by 103%. A new important milestone has been reached demonstrating a positive EBITDA for the first time during a quarter since the launch of its distribution services for Android games.
* 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 quarter we just had! We broke our own estimates with total revenue up by 74% compared to last quarter (March 2020) which led to a positive profit warning in July.
It was a record-breaking quarter in all aspects driven by a general upswing in mobile gaming but also strong platform growth especially from our new partner Huawei. Huawei AppGallery is now our second biggest channel after Amazon Appstore and we expect this channel to continue to grow as the store gains momentum outside China. We continue to improve our distribution power by signing up new channel partners. This will position us as an increasingly important distribution partner for game developers resulting in stronger platform effects with more games in more channels over time.
The alternative Android games ecosystem continues to grow in line with our expectations. Apple and Google are now facing mounting pressure as the US congressional antitrust hearing will soon challenge them on their app store practices. This is further exemplified by Epic Games recent lawsuit against Apple and Google for anticompetitive behaviour. In parallel, the trade war between the US and China is starting to impact the app ecosystem. It is too early to say what the effect of the US ban of TikTok and WeChat will have on game distribution, but it will most likely benefit new distribution in the long run. Besides app stores from device manufacturers, independent app stores such as Aptoide are also gaining momentum. New regulations will certainly increase competitive pressure on app distribution and this is something we welcome as it will benefit new channels, developers and consumers. Flexion's strategic position will improve in a more fragmented universe.
Our portfolio of games performed well across the board and several of our top titles hit new highs. We are now seeing repeat business from game developers and for me this is the best evidence that we continue to provide great value to the developers. I want to particularly mention the world leading developers FunPlus and YOOZOO Games from which we recently signed Z Day and Saint Seiya, after successfully launching their top performing titles Guns of Glory and Legacy of Discord.
I am of course also very proud that we reached a positive EBITDA this quarter. This was driven by a strong growth in gross profit and continuous improvement in terms of platform scalability and developer on-boarding of games.
Our gross profit grew faster than our revenue this quarter, 83% growth in gross profit from last quarter and 216% growth compared to the same period last year. I am pleased that we managed to grow our total gross margin to 14.5% compared to 11.6% in the same period last year. We have also generated positive cashflow in the last two quarters and ended this quarter with GBP 3.7 million in cash, up from GBP 2.7 million in the previous quarter.
To provide better visibility and understanding of our margin growth we have reclassified our revenue and related gross profit into; i) "IAP revenue"; and ii) "non-IAP revenue", where the latter represents fees and adjustments i.e. primarily one-off items that can have a large short-term impact on the total gross profit. With the new break down, IAP gross profit grew by 80% and IAP gross margin to 11.3% this quarter. We recognised GBP 171,739 of non-IAP revenue generated from various technical integration fees in the quarter. These are great margin contributors in the short term but as we keep growing our IAP revenue they will have less impact on our margin in the long run.
Our admin costs remained flat over the quarter and fell by 7% compared to the same quarter last year. I think this is a great achievement and I am really pleased with how the organisation has performed considering the difficult circumstances caused by the pandemic.
We continue to invest heavily in platform scalability and business optimisation. These long-term investments will benefit the business through reduced marginal cost per launched game as we keep adding new games while growing at high pace.
New updated targets
Last quarter we announced that we aim to double our live portfolio to 23 games during this financial year. We are well on track and expect to have at least 20 titles live during the quarter ending in September. We also have a great pipeline which will drive our growth in the autumn. Given our stronger momentum in the market, I would like to take the opportunity to update our launch target to 27 games at the end of this financial year.
Looking ahead to this autumn, positive portfolio effects are becoming more evident by each quarter, the more channels we bring to our growing platform the quicker our revenue will grow. This is the beauty of our model and something we have just experienced with our new Huawei partnership. We have therefore now set a new target for our go-to-market strategy which is to reach positive quarterly EBITDA on IAP gross profit alone during this financial year. When we achieve this, I think it is fair to say that Flexion will enter a new and even more exciting phase.
Jens Lauritzson - CEO
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