Revenue growth of 176% y-o-y, 11% q-o-q

Expiration of a loss making multi-game contract

Outlook for 27 live games by end of March reiterated

In-line with ABGSCe on sales, better gross margin
Flexion Mobile announced on January 14 that its total revenue for Q3 of the fiscal year will increase to GBP 6.9m, corresponding to a y-o-y growth of 176%. The growth was the result of a strong end of year performance across all main distribution channels and games. We think it is sound as we got the feeling that the Q2 growth was mainly attributable to Huawei and a more even split will be beneficial long-term. The total gross profit is GBP 0.9m, which equals a gross margin of 13% that is above our estimated 11.5% and in-line with the Q2 gross margin level. Our belief was that once the larger games start to ramp-up we would see slightly lower gross margins, as that did not happen now in Q3 it is possible that 13% can be viewed as good indication for future gross margin levels. However, we will await the report on February 11 for confirmation on that.

The expiring contract accounts for ~10% of revenues
Flexion also announced that a loss-making multi-game contract has expired as of December 31 and that it is unlikely that it is renewed if new terms is not agreed. By reading into the wording we suspect it is the Scopely contract, consisting of five games as it is the only contract worthy of the title multi-game contract. These games represent approximately 10% of the total revenue and slightly less in terms of margin contribution and if no new deal is struck it will begin a wind-down period in Q4.

Time to take the next step
Despite the expiring contract management reaffirms its target to have 27 games live at the end of March and that the expiring contract was part of a wider portfolio review to optimise and strengthen Flexion’s financial performance in the new financial year. As it is only two and a half months until end of March, we think the target will be challenging but on the other h
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