Interim Results

13 March 2023

Fonix Mobile plc

("Fonix" or the "Company")

Interim Results for the six months ended 31 December 2022

Strong earnings growth and expanded partnership with ITV Plc

Fonix, the UK focused mobile payments and messaging company, is pleased to announce its unaudited interim results for the six months to 31 December 2022 (the "Period").

Financial Highlights

Operational Highlights

·     Record levels of commercial trade were achieved in December, including 85 million SMS messages processed in a single month.

·     A second, tier 1 media went client live in the Republic of Ireland, our first international market.

·     Significant upgrade of technical infrastructure, doubling the peak capacity of key Fonix products.

·     Fonix continues to maintain high client retention, with over 99% of income of a repeating nature.

·     100% platform uptime in the period.

·     Fonix's key service lines of payments and messaging have each grown in the Period and the business retained a growing pipeline of enterprise prospects going into H2 FY23.

Post Period End

·     ITV Plc, the leading UK TV broadcaster, has agreed to gradually extend its commercial partnership with Fonix to include SMS billing payments, alongside the existing relationship for carrier billing and charity services.

Outlook

We have continued to make great progress on our growth strategy in the period, with performance comfortably in line with expectations and the business has a strong pipeline of opportunities going into the second half of the year. As was the case in previous years, we are expecting gross profit to be slightly weighted towards the first half of the financial year, due to some seasonality in the trade of our significant media customers.

In line with our growth plans, we will continue to invest more in future growth, with further investment into product as well as making new investments in organic international growth, as we look to deliver sustainable, highly profitable growth for our shareholders.

The Company has a strong new business pipeline, including several significant enterprise deals in the UK and Ireland, which provide the Board with confidence in the ongoing success of the business. We look forward to updating shareholders at the appropriate time as we progress through the current financial year.

Notes

¹ Adjusted EBITDA excludes share-based payment charges along with depreciation, amortisation, interest and tax from the measure of profit.

² Adjusted PBT is profit before tax excluding share-based payment charges.

³ Adjusted EPS is earnings per share excluding share-based payment charges.

⁴ Underlying cash is actual cash excluding cash held on behalf of customers.

⁵ Active customers are those generating more than £500 in gross profit in the previous 12 months.

Rob Weisz, CEO, commented:

"Our long term investment in pursuing some large enterprise deals has begun to pay off and we have an exciting pipeline of new opportunities commencing in the coming period, including a significant expansion of our partnership with ITV post period end.

As planned, we have invested more in sales and product in the period, and we will be scaling our investment in international growth in the second half of the year as we look to continue to deliver sustainable, highly profitable growth for our shareholders, expand into new markets, and further advance our competitive advantage."

Enquiries

Fonix Mobile plc                                                                                                          Tel: +44 20 8114 7000

Robert Weisz, CEO

Michael Foulkes, CFO

finnCap Ltd (Nomad and Broker)                                                                           Tel: +44 20 7220 0500

Jonny Franklin-Adams / Seamus Fricker (Corporate Finance)

Alice Lane / Sunila de Silva (ECM)

About Fonix

Founded in 2006, Fonix provides mobile payments and messaging services for clients across media, telecoms, entertainment, enterprise and commerce.

When consumers make payments, they are charged to their mobile phone bill. This service can be used for ticketing, content, cash deposits and donations. Fonix's service works by charging digital payments to the mobile phone bill, either via carrier billing or SMS billing. Fonix also offers messaging solutions.

Based in London, Fonix is a fast growth business used by blue chip clients such as ITV, Bauer Media, BT, Global Media, Comic Relief and Children in Need to name a few.

CEO's review

Fonix has continued to make strong progress on its strategic and financial goals in the first six months of the financial year, once again achieving double-digit period-on-period growth in gross margins and profitability, whilst winning new clients across our core sectors, and establishing an impressive pipeline of prospects.

In expanding our commercial partnership with ITV shortly after the period ended, Fonix has become the de facto SMS interactive services partner for broadcasters in the UK, and in launching services with a second leading media organisation in Ireland, we are on a similar path to success in that market also.

Fonix's two core business lines of mobile payments and mobile messaging have each grown strongly in the period, increasing by 13% and 18% year-on-year respectively. Mobile payments remains the business's primary commercial focus and represented 84% (H1 FY22: 83%) of gross profits. Mobile messaging continued to grow strongly due to increased demand from existing customers, as well as strong adoption by new clients onboarded in the period.

The Total Payment Value (TPV) growth from Fonix's commercial clients remained strong in the period and at a consistent rate with previous periods. However, Charity TPV fell 36% year-on-year, due to a change in the timing of certain annual telethon events and some decline in consumer giving across the period. As a result, overall TPV growth remained relatively flat year-on-year.

Market opportunity

The market for frictionless mobile payments in Fonix's core sectors continues to be significant and growing. Fonix is now considered to be the leading provider of mobile payments in Ireland, and by their own admission, since connecting Fonix, Irish mobile network operators are experiencing levels of growth never seen in the market before. Once again this is an endorsement of our strategy to focus on sectors where we see sustainable growth opportunities and illustrates our ability to scale clients' accounts in ways unmatched by our competitors. We continue to see many opportunities to mirror this success in other markets around the world, but will still approach this from a customer led manner.

For the majority of our customers, deploying Fonix's payment solutions continues to reduce checkout abandonment and provide incremental revenues rather than cannibalising their existing transactions. For this reason we do not consider ourselves to be in direct competition with traditional payment methods, such as credit card or Apple Pay, but offering an alternative to consumers who may otherwise forgo purchasing.

Growth strategy

Fonix continues to take a balanced approach to sustainable growth, looking to achieve a material percentage growth in gross profits, whilst at least maintaining shareholder income growth in parallel. Guided by this strategy, the business increased its investment in sales and product in the period in line with the percentage increase in gross profits.

The business has made good progress with each of its growth strategy pillars, which continue to guide our decision making and how we invest:

1.         Grow & deepen existing relationships

Fonix's revenue from key commercial customers has continued to grow solidly in the period, demonstrating the resilience of Fonix's business model in a challenging economic environment. The business continues to forge deeper relationships with its biggest clients, and find new commercial opportunities for growth from these accounts.

Our unique and influential customer and operator relationships have proven vital in achieving early commercial successes in the Republic of Ireland and we continue to work closely together to identify new opportunities for growth in the region. These alliances remain one of Fonix's most understated competitive advantages.

2.         Take a disciplined sector focus

We continue to take a sector focused approach to growth, leveraging our significant reference clients and key partnerships across our core markets.

The media sector continues to be the business' dominant vertical focus in both the UK and now in overseas markets also. As well as recently expanding our commercial partnership with ITV in the UK and winning a second broadcaster contract in Ireland, we are in advanced discussions with other media organisations in both regions looking to harness Fonix's mobile payments and interactive technologies.

In the mobility and ticketing sector, whilst commercial progress is still in the early stages, we are progressing several greenfield opportunities to offer consumers frictionless payments for on-the-move services, as an alternative to traditional cash transactions with a high processing cost and are evaluating a trial with a transport opportunity. The potential scale and 'stickiness' of a payment solution in this space continues to justify the modest investment in commercial efforts in this area.

We continue to target a number of new opportunities in online services by demonstrating the reduction in basket abandonment achieved by incorporating carrier billing as an alternative payment option in a consumer's checkout flow.

Following several periods of consecutive growth, revenues from the charity segment declined in the period, with cost of living pressures leading to a drop off in consumer giving. Income from charity clients was also impacted by timing changes to some annual events. Whilst declining in the short term, the market for charity donations continues to be significant and with carrier billing payments providing a 'near free' commission model along with Fonix's exceptional reference clients, there remains many more opportunities for expansion in this market.

3.         Create sustainable, long-term profitability for shareholders

Fonix continues to achieve material growth in gross profits and adjusted EBITDA, with both growing 11.4% and 12.7% respectively year-on-year in the period. With our core commercial focus remaining on large, multinational clients with relatively long sales cycles, and our priority on nurturing new clients to ensure that they are transacting to their full potential, we continue to take a considered approach to growth by balancing new business wins with driving transactions with existing clients. We believe this remains the best approach for providing a long-term return to shareholders.

4.         Be client led with international expansion

In expanding to the Republic of Ireland, the business has delivered on its commitment of organic international growth through its network of tier 1 multinational clients. Since initially launching services with Bauer Ireland, we have added another tier 1 media client and have a clear strategy to become the leading payments partner for all broadcasters in the region within the next 18 months.

Beyond Ireland, we continue to make good progress in broadening our addressable market, establishing new connectivity and mobile network operator relationships in well regulated and mature neighbouring markets. We believe this is the best strategy for achieving sustainable, highly valued, organic growth, where our domain expertise can be expanded into new markets and this strategy will continue to be customer led.

International growth continues to be a core, medium term investment strategy for the business, but forms a relatively small part of our short term forecasts. As such, we plan to only mention new territories once they are generating meaningful revenues.

5.         Widen our technological and operational advantage

Targeting a relatively small number of large and specialised sectors, particularly in the media and charity space, Fonix has been able to establish a cutting edge and highly differentiated product offering. With over 10 years of investment in our Campaign Manager product, Fonix has built a platform which creates real tangible added value for our clients and provides the business with a significant competitive advantage, which over time we believe can be applied in many markets across the globe. In onboarding new enterprise media clients in the period, including some in an overseas market, Campaign Manager is now able to support multiple currencies, as well as several additional third party integrations. 

The business has continued to build on its exemplary reputation for compliance, and has already begun to establish excellent consultative relationships with mobile operators and regulators in new markets, such as in Ireland. We strongly believe this trusted relationship with our partners continues to provide an immeasurable benefit when winning new business, as well as attacking and retaining the best talent, which in turn reinforces the barriers to entry for other providers that might look to enter the market.

People

Fonix prides itself on being a great place to work and having a culture where our team can thrive. Attracting and retaining the best industry leading talent continues to be a top priority for the business. Our average headcount grew 8% year-on-year to an average of 41 in the period (H1 FY22: 38), including our first commercial hire in the Republic of Ireland. As all businesses are finding right now, it was necessary to give staff above (historic) average pay rises in the latest pay review to help them cope with increases in the cost of living. However, I am pleased to say we were able to manage any increases within our existing growth projections and offset any additional cost with savings elsewhere. We continue to be mindful of inflation moving forward, and continue to be confident of managing additional costs within our existing plans.

Product

During the period, we upgraded our technical infrastructure to double the peak load capacity of our core products, allowing us to support significantly more and larger client campaigns in parallel. We are confident these technological advantages will not only ensure retention of our existing customers, but also help us win significant new business from our competitors and greenfield opportunities in new emerging sectors.

Financial Review