XLMEDIA PLC

Earnings Release • Sep 11, 2017

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RNS Number : 2987Q

XLMedia PLC

11 September 2017

For immediate release	11 September 2017

XLMedia PLC

("XLMedia" or "the Group" or "the Company")

Interim results for the six months ended 30 June 2017

Further strategic progress underpins record performance

XLMedia (AIM: XLM), a leading provider of digital performance marketing services, is pleased to announce its interim results for the six months ended 30 June 2017.

Financial highlights

·     Record revenue performance of $67.9 million, up 33% (H1 2016: $51.2 million)

o  Strong organic revenue growth of 32% in publishing division and 12% in the media division;

·     Gross profit increased 30% to $35.2 million (H1 2016: $27.0 million); 

·     Adjusted EBITDA increased 30% to $22.9 million (H1 2016: $17.7million);

·     Profit before tax up 23% to $19.5 million (H1 2016: $15.8 million);

·     Interim dividend of $8.0 million or 4.0226 cent per share, an increase of 5% (H1 2016: 3.8205 cent per share); and

·     Strong balance sheet with $43.1 million cash and short term investments underpins key growth initiatives.

Operating highlights

·     Strong organic growth in the publishing & media divisions while maintaining high margins;

·     Acquired www.Greedyrates.ca ("Greedyrates"), a Canadian credit card comparison website, and US financial services information website, www.Moneyunder30.com ("Moneyunder30"), accelerating the Group's entry into the financial services sector;

·     Completed the acquisition of www.securethoughts.com ("Securethoughts"), a US cyber security comparison website, the Company's first move into the high growth Cyber security sector;

·     Acquired ClicksMob, a mobile performance-based user acquisition platform, providing expertise in user acquisition for mobile apps and games;

·     Commenced operations in Romania with the acquisition of a leading publishing asset and obtained a license to operate as an online gambling affiliate in the Romanian market; and

·     Continued development of our technology and in-house systems; Dau-Up awarded 'Instagram Marketing Partner' for Ad Technology.

Ory Weihs, Chief Executive Officer of XLMedia, commented:

"We are delighted to report another record period of strong profit growth for the Group.  The combination of both organic and acquisitive growth has accelerated our progress extending our business into new verticals and new geographic regions.

"Current trading remains strong and we are confident that the ongoing implementation of our strategic focus will continue to yield excellent results, underpinning the board's ongoing confidence in the Company's near and medium term prospects."

A webcast of our results presentation will be available on our website later today:  http://www.xlmedia.com/media/

For further information, please contact:

# XLMedia plc # Ory Weihs # www.xlmedia.com	Tel: 020 8817 5283
# Vigo Communications # Jeremy Garcia / Fiona Henson / Natalie Jones # www.vigocomms.com	Tel: 020 7830 9703
# Cenkos Securities plc (Nomad and Joint Broker) # Ivonne Cantu / Camilla Hume # www.cenkos.com	Tel: 020 7397 8900
# Berenberg (Joint Broker) # Chris Bowman / Mark Whitmore  # www.berenberg.com	Tel: 020 3207 7800

Business review

We have made an extremely positive start to 2017 and have seen significant demand across both our publishing assets as well as media traffic from our customers. The solid organic growth from both our publishing and media divisions has been further augmented by a number of acquisitions which we completed during the period.

We continued to execute on our stated strategy and, during the period, completed a series of earnings enhancing acquisitions. We have evaluated dozens of potential assets and targets, carefully considering each of them as part of our robust due diligence process. As a result we have selected to complete only the ones that represent the very best fit for our business.

To date in 2017, we have completed $24.3 million worth of acquisitions, including North American financial services comparison websites, Greedyrates and Moneyunder30; US cyber security comparison website, Securethoughts; mobile performance marketing platform, ClicksMob; as well as a Romanian website network following the obtaining of a Romanian license. All of these transactions demonstrate further diversification of our revenue base, adding new verticals and geographies, whilst providing further opportunities for future growth.

We continue to identify and evaluate additional targets and expect to continue this process as part of our stated strategy, looking to add incremental value to the business while benefitting from greater economies of scale. 

As mentioned above, a combination of strong organic and acquisitive growth has seen the Group continue to diversify its revenues both geographically and by sector. In H1 2017 26% of revenues derived from Scandinavia (H1 2016: 33%), North America generated 28% (H1 2016: 21%) and other European countries generated 29% of revenues (H1 2016: 25%).

Following the acquisition of ClicksMob we have now seen the first significant revenues from Asia, which contributed approximately 5% of Group's revenues in H1 2017. We continue to invest efforts in developing our activities in new geographies and expect recent acquisitions to further increase revenues from North America and Asia.

Sector diversification continues as new acquisitions contribute further with gambling accounting for 63% of H1 2017 revenues (H1 2016: 71%) and we expect the proportion of gambling to further decrease following recent acquisitions of finance and cyber security websites.

We believe that the results delivered in H1 2017 reflect the continued success of our strategy and expect growth to continue.  

Business Segments review

($'000)	Publishing	Media	Partner Network	Total
H1 2017
Revenues	29,809	33,895	4,225	67,929
% of revenues	43.9%	49.9%	6.2%	100%
Direct profit	24,863	9,964	346	35,173
Profit margin	83.4%	29.4%	8.2%	51.8%
H1 2016
Revenues	21,332	24,223	5,625	51,180
% of revenues	41.7%	47.3%	11.0%	100%
Direct profit	17,809	8,415	757	26,981
Profit margin	83.5%	34.7%	13.4%	52.7%

H1 2017 showed significant progress for both the publishing and media divisions, driven by strong organic growth complemented with recent acquisitions.

Publishing

Publishing revenues grew 40% to $29.8 million (H1 2016: $21.3 million) with an organic growth of 32%. During 2017 we acquired new websites and domains for $19.2 million and we plan to continue buying and developing more assets to further underpin growth. Although the Group has acquired new publishing assets in the period, the majority of the growth reported in the period has been organic.

Direct profit margins remained high with $24.9 million or 83% of publishing revenues (H1 2016: $17.8, 84%). We expect publishing direct profit to marginally reduce as a percentage, as we continue to invest and develop our existing assets and optimize the recently acquired assets for improved performance going forward.

Media

Media revenues grew 40% to $33.9 million (H1 2016: $24.2 million). The growth was primarily driven by the acquisition of ClicksMob in February this year, but did also include organic growth of 12% compared to H1 2016.

During the first half of the year, we merged ClicksMob and DAU-UP to create a unified mobile unit, focusing on user acquisition for mobile apps and games. The integration process is now complete and we have now combined business development and customer relationships, with day to day operations all aligned under one banner. The scale and operational efficiencies generated by this unification are starting to be evidenced through an improved profit performance in this division.

ClicksMob delivers performance-based user acquisition to leading apps across a number of verticals, including e-commerce, travel, entertainment and finance. The acquisition further strengthened DAU-UP's increasing dominance in verticals outside of gaming and added significant presence in Asia, with over 30% of ClicksMob's 2016 traffic generated from the region.  ClicksMob also has a strong footprint in Europe, MENA and the Americas.  Coupled with DAU-UP's significant presence in North America, as well as its expertise in social media and media buying capabilities, the unified DAU-UP and ClicksMob is fully equipped to deliver unparalleled mobile user acquisition solutions across multiple territories and channels.

Direct profit for the media segment increased 18% to $10.0 million or 29% of revenues (2016: $8.4 million, 35%). The decrease in profit margin was in accordance with expectations. As we grow the media business with lower margin products we expect profit margins in this segment to decrease as a percentage but absolute profit to continue to grow.

Partner Network

Partner network revenues decreased 25% to $4.2 million (H1 2016: $5.6 million). In 2016 we undertook a full review of our partners in this network, with a view to implementing more stringent sign up and operations criteria and, where necessary, ceasing activity with certain partners to improve overall quality. Although this review has led to lower revenues in the short term, the impact on profit is limited.

Our partner network serves as a complementary channel, giving us the opportunity to provide marketing services which are not currently offered through our publishing and media networks.

Current Trading and Outlook

The business has established strong foundations for growth, adding both scale and product diversity. We believe we have demonstrated an ability to be highly selective with regards to acquisitions and only complete those that are aligned with the Company's stated strategy and will ultimately increase shareholder value.

The acquisitions completed in the first half of 2017 provide a vision of management ambitions to expand the Group's market reach and further leverage XLMedia's performance marketing expertise. Our expansion into Financial Services, and more recently the high growth Cyber Security markets, offers significant growth opportunities and a chance to capitalise on the Group's market leading pedigree in the gambling sector.

The Board is therefore confident of comfortably meeting profit expectations for the full year and as such is declaring a dividend of $8 million or 4.0226 cents per share payable on 13 October 2017 to shareholders on the register at 22 September 2017. The ex-dividend date is 21 September 2017.

Financial review

	H1 2017	H1 2016	Change
Revenues	67,929	51,180	+33%
Gross Profit	35,173	26,981	+30%
Operating expenses	16,028	11,203	+43%
Operating income	19,145	15,778	+21%
Adjusted EBITDA	22,893	17,672	+30%
Profit Before Tax	19,490	15,829	+23%

The first half of 2017 has delivered another set of record revenues for the business with revenues of $67.9 million, reflecting 33% growth compared to the same period last year. 

Gross profit reached $35.2 million or 52% of revenues, representing 30% growth compared to last year (H1 2016: $27.0 million, 53%).

Operating expenses during the first six months of the year were $16.0 million, an increase of 43% compared to the same period last year (H1 2016: $11.2 million). The increase in costs is primarily attributable to staff and relevant overhead, mainly in research and development as well as an increased amortization expense in general and administration.

Operating expenses included $2.5 million of research and development expenses, reflecting an increase of 127% compared to the same period last year (H1 2016: $1.1 million). These expenses are in addition to investments in technology and internal systems developed during the period of $1.8 million (H1 2016: $2.2 million). The Group expects to further enhance investment in technology as we see technology as a key driver to growth and profit for the coming years.

Adjusted EBITDA1 reached $22.9 million or 34% of revenues, reflecting an increase of 30% to the same period last year (H1 2016: $17.7 million, 35%).

As a result of the high revenues and gross profit, profit before tax increased by 23% to $19.5 million (H1 2016: $15.8 million). Net income for the period was $15.5 million, reflecting an increase of 14% (H1 2016: $13.6 million). Net income included non-controlling interests of $0.9 million. Following our acquisition of the minority rights in Marmar Media, reported last month, the minority rights going forward will decrease.

As of 30 June 2017 we had $43.1 million cash and short term investments compared to $35.2 million on 31 December 2016.  The change in cash reflects an increase of $23.6 million provided by operating activity, offset by spending $9.4 million on investments mainly for technology and acquisitions and $7.5 million of dividends paid out during the first half of 2017.   

Current assets as of 30 June 2017 were $65.7 million (31 Dec 2016: $56.7 million), and non-current assets reached $77.5 million (31 Dec 2016: $70.4 million). The increase in non-current assets is attributed mainly to investments in domains and websites as well as the ClicksMob acquisition.

Total equity on 30 June 2017 reached $111.4 million, or 78% of total assets (2016: 81%), and with cash and short term investments of $43.1 million the Group is well positioned to continue executing its strategic plan.

[1] Earnings Before interest, Taxes, Depreciation and Amortization and adjusted to exclude share based payments

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

		30 June		31 December
		2017		2016
		Unaudited		Audited
		USD in thousands
Assets
Current assets:
Cash and cash equivalents		39,881		32,095
Short-term investments		3,181		3,091
Trade receivables		18,837		17,075
Other receivables		3,021		3,463
Financial derivatives		777		1,002
		65,697		56,726
Non-current assets:
Long-term investments		673		609
Other receivables		72		171
Property and equipment		1,180		1,229
Goodwill		30,086		26,302
Deposit for acquisition of websites		-		9,300
Domains and websites		37,090		26,739
Other intangible assets		7,854		5,948
Deferred taxes		584		85
		77,539		70,383
		143,236		127,109

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

		30 June		31 December
		2017		2016
		Unaudited		Audited
		USD in thousands
Liabilities and equity
Current liabilities:
Trade payables		12,346		9,274
Financial derivatives		1,520		-
Contingent consideration payable		503		-
Other liabilities and accounts payable		17,166		14,196
		31,535		23,470
Non-current liabilities:
Deferred taxes		126		126
Other liabilities		223		228
		349		354
Equity:
Share capital		*)		*)
Share premium		67,652		66,812
Capital reserve from share-based transactions		1,311		1,208
Capital reserve from transactions with non-controlling interests		(506)		(506)
Retained earnings		41,432		34,349
Equity attributable to equity holders of the Company		109,889		101,863
Non-controlling interests		1,463		1,422
Total equity		111,352		103,285
		143,236		127,109

*) Lower than USD 1 thousand.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

		Six months ended 30 June				Year ended 31 December
		2017		2016		2016
		Unaudited				Audited
		USD in thousands (except per share data)
Revenues		67,929		51,180		103,605
Cost of revenues		32,756		24,199		50,282
Gross profit		35,173		26,981		53,323
Research and development expenses		2,518		1,062		2,228
Selling and marketing expenses		2,742		2,138		4,142
General and administrative expenses		10,768		8,003		16,856
		16,028		11,203		23,226
Operating income		19,145		15,778		30,097
Finance expenses		(148)		(284)		(403)
Finance income		493		335		1,306
				15,829		31,000
Profit before taxes on income		19,490
Taxes on income		3,981		2,268		5,416
Net income and other comprehensive income		15,509		13,561		25,584
Attributable to:
Equity holders of the Company		14,587		12,610		23,937
Non-controlling interests		922		951		1,647
		15,509		13,561		25,584
Earnings per share attributable to equity holders of the Company:
Basic and diluted earnings per share (in USD)		0.07		0.06		0.12
Weighted average number of shares used in computing basic earnings per share (in thousands)		198,357		193,627		195,127
Weighted average number of shares used in computing diluted earnings per share (in thousands)		201,004		197,175		198,838

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Six months ended 30 June				Year ended 31 December
		2017		2016		2016
		Unaudited				Audited
		USD in thousands
Cash flows from operating activities:
Net income		15,509		13,561		25,584
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to the profit or loss items:
Depreciation, amortisation and impairment		3,353		1,511		3,878
Finance (income) expense, net		(395)		43		(69)
Finance expense (income) from financial derivatives		1,745		(245)		(837)
Cost of share-based payment		338		472		646
Taxes on income		3,981		2,268		5,416
Exchange differences on balances of cash and cash equivalents		(1,313)		201		589
		7,709		4,250		9,623
Changes in asset and liability items:
Decrease (increase) in trade receivables		(1,762)		373		(987)
Decrease (increase) in other receivables		1,047		(178)		(930)
Increase (decrease) in trade payables		3,072		(2,186)		(1,872)
Increase (decrease) in other accounts payable		(72)		(598)		1,032
Increase (decrease) in other long-term liabilities		(5)		97		73
		2,280		(2,492)		(2,684)
Cash paid and received during the period for:
Interest received		15		68		139
Taxes paid		(2,214)		(4,027)		(5,710)
Taxes received		305		-		-
		(1,894)		(3,959)		(5,571)
Net cash provided by operating activities		23,604		11,360		26,952

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)

		Six months ended 30 June				Year ended 31 December
		2017		2016		2016
		Unaudited				Audited
		USD in thousands
Cash flows from investing activities:
Purchase of property and equipment		(120)		(301)		(479)
Payment of contingent consideration in respect of acquired company		-		(2,000)		(5,500)
Payment for acquired business		(4,597)		-		-
Acquisition of and additions to domains, websites, technologies and other intangible assets		(4,825)		(3,765)		(6,742)
Deposit on account of acquisition of domains and websites		-		-		(9,300)
Proceeds and collection of receivable from sale of assets		150		150		300
Short- term and long-term investments, net		41		(13,361)		4,333
Net cash used in investing activities		(9,351)		(19,277)		(17,388)
Cash flows from financing activities:
Dividend paid to equity holders of the Company		(7,504)		(4,828)		(12,362)
Dividend paid to non-controlling interests		(881)		(384)		(1,805)
Proceeds from exercise of options		605		259		1,546
Net cash used in financing activities		(7,780)		(4,953)		(12,621)
Exchange differences on balances of cash and cash equivalents		1,313		(201)		(589)
Increase (decrease) in cash and cash equivalents		7,786		(13,071)		(3,646)
Cash and cash equivalents at the beginning of the period		32,095		35,741		35,741
Cash and cash equivalents at the end of the period		39,881		22,670		32,095

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:        GENERAL

XLMEDIA PLC and its subsidiaries (The Group) are an online performance marketing company. The Group attracts paying users from multiple online and mobile channels and directs them to online businesses.

The Group attracts users through online marketing techniques (such as publications and advertisements) which are then directed, by the Group, to its customers in return for a share of the revenue generated by such user, a fee generated per user acquired, fixed fees or a hybrid of any of these three models.

For further information regarding online marketing and the Group's business segments, see Note 3.

NOTE 2:                SUPPLEMENTARY INFORMATION

(a)  Significant acquisition of websites and domains during the period:

(1)  In January 2017, the Company completed the acquisition of credit card comparison websites in Canada, for a total cash consideration of USD 9.3 million.

(2)  In June 2017, the Company acquired a leading US cyber security comparison website, for a total cash consideration of USD 2.0 million.

(b)  In February 2017, the Company, through Dau-Up Clicksmob Ltd ("Dau-up Clicksmob"), a wholly owned subsidiary, acquired the business and assets of ClicksMob Inc for a total consideration of $5.1 million comprising of an immediate cash payment and additional contingent consideration payable in cash within six months subsequent to the acquisition date based on a working capital target for the purchased business.  ClicksMob delivers performance-based user acquisition to leading apps across a number of verticals, including gaming, e-commerce, travel, entertainment and finance.

Total acquisition cost:

		USD in thousands
Cash paid		4,080
Contingent consideration liability		1,020
Total acquisition cost		5,100

Acquisition cost allocation:
Fair value of identifiable net assets (primarily software)		1,316
Goodwill arising on acquisition		3,784
		5,100

The allocation is provisional and is subject to changes upon obtaining additional information regarding certain matters.

The goodwill arising on acquisition is attributed to the expected benefits from the synergies of the combination of the activities of the Group's media segment and the acquiree.

From the acquisition date, the acquired activity has contributed USD 6.8 million to the consolidated revenues. If the business combination had taken place at the beginning of 2017, the effects on consolidated revenues and results of operation would not have been material.

(c)   On 2 March 2017, the Company paid a dividend to its shareholders of USD 7.5 million (USD 3.784 cent per share).

(d)  In March 2017, the Company granted to non- executive directors of the Company 280,000 options to purchase 280,000 Ordinary shares. The options will vest over three years from the grant date and are exercisable up to period of eight years from the date of grant.

The following table specifies the inputs used for the fair value measurement of the grant:

Option pricing model			Black-Scholes-Merton formula
Exercise price GBP (USD)			1.06 (1.3)
Dividend amount (GBP)			0.22
Expected volatility of the share prices (%)			47.9%
Risk- free interest rate (GBP curve)			0.59%
Expected life of share options (years)			5.2
Share price GBP (USD)			1.06 (1.3)

The total fair value of the options granted was calculated at USD 103 thousands at the grant date (USD 0.37 per option)

(e) The Group is currently in discussions with the Income Tax Authorities in Israel ("ITA") regarding tax positions taken in income tax returns for the years 2012 - 2015. Management believes that the consolidated financial statements include a provision sufficient to cover any possible exposure. However, there is no certainty as to the final outcome of these discussions.

NOTE 3:         OPERATING SEGMENTS

(a) General:

The operating segments are identified on the basis of information that is reviewed by the chief operating decision maker ("CODM") to make decisions about resources to be allocated and assess its performance. Accordingly, for management purposes, the Group is organised into operating segments based on the products and services of the business units and has operating segments as follows:

Publishing	-	The Group owns over 2,300 informational websites in 17 languages. These websites refer potential customers to online businesses. The sites' content, written by professional writers, is designed to attract online traffic which the Group then directs to its customers online businesses.

Media	-	The Group's Media division acquires online advertising targeted at potential online traffic with the objective of directing it to the Group's users. The Group buys advertising space on search engines, websites, mobile and social networks and places adverts referring potential users to the Group's customers' websites or to its own websites.
Partners Network	-	The Group manages marketing partners, whose role is to direct online traffic to the Group's customers for which the Group receives revenues. The Group is responsible for paying its partners. The Group's partner programme enables affiliates to have a single point of contact to direct traffic to, and receive monies from, rather than engaging in multilateral negotiation, administration and collection of revenues.

Segment performance (segment profit) is evaluated based on revenues less direct operating costs.

Items that were not allocated are managed on a group basis.

NOTE 3:         OPERATING SEGMENTS (Cont.)

(b)                Reporting on operating segments:

		Publishing		Media		Partners Network		Total
		USD in thousands
Six months ended 30 June 2017 (unaudited):
Revenues		29,809		33,895		4,225		67,929
Segment profit		24,863		9,964		346		35,173
Unallocated corporate expenses								(16,028)
Finance income, net								345
Profit before taxes on income								19,490

		Publishing		Media		Partners Network		Total
		USD in thousands
Six months ended 30 June 2016 (unaudited):
Revenues		21,332		24,223		5,625		51,180
Segment profit		17,809		8,415		757		26,981
Unallocated corporate expenses								(11,203)
Finance income, net								51
Profit before taxes on income								15,829

		Publishing		Media		Partners Network		Total
		USD in thousands
Year ended 31 December 2016 (audited):
Revenues		46,057		47,645		9,903		103,605
Segment profit		38,384		13,779		1,160		53,323
Unallocated corporate expenses								(23,226)
Finance income, net								903
Profit before taxes on income								31,000

(c) Geographic information:

Revenues classified by geographical areas based on internet user location:

		Six months ended 30 June				Year ended 31 December
		2017		2016		2016
		Unaudited				Audited
		USD in thousands
Scandinavia		17,910		16,957		33,054
Other European countries		19,407		12,641		28,295
North America		18,887		10,954		21,724
Oceania		2,145		1,720		4,951
Asia		3,395		149		178
Other countries		922		847		2,037
Total revenues from identified locations		62,666		43,268		90,239
Revenues from unidentified locations		5,263		7,912		13,366
Total revenues		67,929		51,180		103,605

NOTE 5:         SUBSEQUENT EVENTS

(a)  In August 2017, the Company has entered into an agreement to acquire the remaining minority shareholding (46%) in Marmar (the "Acquisition") for a total consideration of approximately USD 2.4 million.

(b)  In August 2017, the Company acquired a US focused price comparison website for financial services, for a total cash consideration of USD7 million.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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