4Q 2018 OTELLO CORPORATION ASA
Agenda
- Executive Summary (CEO, Lars Boilesen)
- Operational Review (CEO, Lars Boilesen)
- Financial Review (CFO, Petter Lade)
- Q&A (CEO, Lars Boilesen & CFO, Petter Lade)
Executive Summary
Quarterly highlights
Financial metric
(USD million) |
4Q18 |
4Q17 |
3Q18 |
| Total revenue |
66.9 |
99.2 |
64.9 |
| Adj. EBITDA* |
5.5 |
2.9 |
1.4 |
- Revenue up both in AdColony and Bemobi versus 3Q18
- Adj. EBITDA up 2X from 4Q17 and up 4x from 3Q18 due to focus on cost and strong margins in AdColony and strong performance from Bemobi
Operational Review
AdColony – Turnaround continues
• Revenue
- Performance business still experiencing volatile revenue, but gross margins stabilized at higher level
- Brand business with growth in 4Q18 vs 3Q18 and particular strength in EMEA
• Cost
- OPEX reduced by over 50% last 2 years, target of \$70m annual run-rate achieved
- Selective investments will mostly offset further cost savings in the short-term
- Will continue to tune cost base to ensure long-term cash flow profitability
AdColony – Status
- Gross margin trends positive for both Brand and Performance
- Tech and product organization merged, positive impact on delivery speed
- Support functions strategy in Istanbul paying off with lower cost and more productivity
- Current cost base enables an Adj. EBITDA break-even @ \$50m in quarterly revenue @ 35% gross margin
AdColony
Global Brand Business
Results: Brand Advertising
| Revenue Source |
Q4 2018 |
Q4 2018 Mix % |
| Brand (incl. IO and PMP) |
\$20M
(up
from
\$15
Q3)
7
in |
56% |
Brand
Performance |
\$7.1M
(down
from \$7.8 in Q3) |
20% |
Programmatic
Open
Marketplace |
\$8.2M
(up
from
\$7
8
in
Q3) |
24% |
| TOTAL |
\$35.4M
(up
from \$31.3 in Q3) |
|
- Total Brand revenue increased 13% quarter-over-quarter
- Shift to programmatic revenue continues as more and more new advertising partners choose this as their preferred way to transact, especially in the US and APAC
- Significant revenue increases in EMEA fueled overall Brand growth in Q4
Continued Focus On Quality Is Fueling Programmatic
- Programmatic revenue will continue to be the Brand organization's primary focus and catalyst for growth
- Programmatic Open Exchange Marketplace grew another 5+% globally quarter-over-quarter due to continued Tech and Engineering work, and a continued "programmatic first" mindset
- 100+% revenue growth from some key partners including:
- The Trade Desk
- Aarki
- Adelphic
- Open Exchange Growth in 2018:
What We're Working On
- Continued improvements and maturation of our programmatic tools and offerings
- 1st Price auction (standardized auction dynamics)
- Multi Creative Object Support (more formats = more revenue)
- Supply Demand Alignment Optimizations (better matching)
- International Endpoints (global hardware to accelerate execution)
- Renewed commitment to first-party, high-quality display inventory
- Google & Amazon Advanced Mediation Integrations
- Continued commitment to a fraud-free exchange environment
- Completed renewal of TAG certification against fraud
- Ingesting data from various supply side fraud partners and implementing processes to proactively combat IVT (Invalid Traffic)
AdColony
Global Performance
Results: Performance Advertising
Summary: Q4 2018 Performance Revenues = USD 17.7 million (-16% vs. Q3'18)
Performance Revenues & Gross margin (USD million)
- First quarter post restructuring, stability in gross margin revenue and securing profitable revenue
- Revenue growth is challenging with no new blockbuster gaming titles & increased competition in space
- Ongoing work to improve the base business focus on largest customers, optimal publishing deals, access to supply and creative innovation
Gross Margins on Performance Business in Q4
Focus on profitability
- Gross margins have rebounded to healthy levels, significantly higher than Q2/Q3
- November was hit with exceptional, one off impact from legacy deals – underlying gross margin higher
- Performance margins expected to be stable in the 26-30% range going forward
Gross Margin (%)
Key Highlights
New Ad Units for Performance, Combating Fraud & Operational Efficiency
-
- Launch of new creative ad unit with better user experience and direct integration of App store kits
- Rovio, Playrix, Supercell, Kabam growth in spends on biggest gaming accounts
- Improved yields for our publishers, new ad units are delivering better results for publishers
-
- Combating fraud significant actions to improve the quality of supply and improve ROAS for our advertisers
-
- Central performance hub in Turkey now live and operational significant cost savings for Performance business
-
- Tighter coordination between different regions and demand & supply teams
Action Plan for 2019
Execution Plan for revenue stability and growth in 2019
-
- Creativity and Innovation in Performance
-
- Invest in Sales and Business Development to drive new business
-
- Tool set to drive Supply side optimization to grow impression volume
-
- Better utilization of data to improve ROAS for our advertisers
-
- Header bidding / Advanced mediation to access new supply
Opera TV (Vewd)
- As previously communicated, there is an ongoing legal dispute with majority shareholder (MFC)
- Favorable verdict granted on liability, not appealed by MFC
- MFC ordered by the Court to pay a substantial portion of Otello's legal costs to date, all cash received
- Otello has now restored the proceedings in order to pursue alternative remedies, including (1) have the Court require MFC to buy Otello's shares (and loan note) at the higher of the current valuation of those shares and the price that the buyer was prepared to pay, and (2) if MFC is unable to purchase the shares at such price, require that all shares in the company be sold and Otello be paid the sum found to be due to it out of the proceeds of such sale.
Bemobi
Bemobi Solid Revenue and Adj. EBITDA growth ex FX
|
|
|
∆ (%) |
| Bemobi |
4Q18 |
4Q17 |
Y-o-Y |
| Revenue (USD M) |
13,6 |
14,1 |
-3% |
| EBITDA (USD M) |
5,9 |
5,3 |
10% |
|
|
|
∆ (%) |
| Bemobi - Ex-FX Rate |
4Q18 |
4Q17 |
Y-o-Y |
| Revenue (USD M) |
15,7 |
14,1 |
11% |
| EBITDA (USD M) |
6,9 |
5,3 |
29% |
FX Rate impact YoY (4Q18 vs. 4Q17)
- INTL basket: - 7.9%
- LATAM BRL: - 17.2%
Bemobi – Subscriber growth driving revenue and scale
- 31% YoY subscriber growth
- Overall service penetration on served addressable market grew from 0.9% to 1.2%.
- 61 operators live
- 21 operators in Latam
- 9* operators in South Asia
- 16 operators in South-East Asia
- 9 operators in CIS
- 6 operators in Africa
- Plan is to launch 5 more in Q1 2019
Bemobi - Overal channel mix improving
Co-owned Channels
NDNC
- 10 portals live in Bemobi outside of Latam:
- Idea India (POC)
- Vodafone India
- Telenor Pakistan
- Tele2 Russia
- Vodacom Tanzania
- 8 more planned for the next 2 quarters
New NC IVR
- Win in Claro Brazil rollout phase completed with results reflected in subscriber growth in Brazil
- Long sales cycle, but very large potential for next couple of years i.e. 2-3x times the distribution capacity as NCND portals
International markets continue subscriber growth
| CHANNEL |
FROM |
TO |
Comments |
| Opera Mini |
26% |
20% |
less dependency on one player |
| NCND Portals |
10% |
26% |
Strategic: predictable and no
incremental cost |
Digital
acquisition (CPA) |
58% |
46% |
Controlling quality of acquisitions
to decrease churn |
Bemobi
- Bemobi continues to have strong underlying growth in revenue and profit
- Bemobi met a limited number of international investors during 4Q18 for the purpose of considering whether an IPO or demerger of Bemobi could represent realistic and value enhancing opportunities
- Feedback from investor meetings has been positive and supportive of a potential IPO/demerger
- Based on the positive feedback we have initiated a process with the intention to pursue a listing in the UK during 2H 2019
- However, the timing and completion of any listing is subject to market conditions and further investor feedback, and no assurances can be given that a listing will be achieved
Financial Review
Disclaimer
This presentation contains, and is i.a. based on, forward-looking statements regarding Otello Corporation ASA and its subsidiaries. These statements are based on various assumptions made by Otello Corporation ASA, which are beyond its control and which involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.
Forward-looking statements may in some cases be identified by terminology such as "may", "will", "could", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. These forward looking statements are only predictions. Actual events or results may differ materially, and a number of factors may cause our actual results to differ materially from any such statement. Such factors include i.a. general market conditions, demand for our services, the continued attractiveness of our technology, unpredictable changes in regulations affecting our markets, market acceptance of new products and services and such other factors that may be relevant from time to time. Although we believe that the expectations and assumptions reflected in the statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievement.
Otello Corporation ASA makes no representation or warranty (express or implied) as to the correctness or completeness of the presentation, and neither Otello Corporation ASA nor any of its subsidiaries, directors or employees assumes any liability connected to the presentation and the statements made herein. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this presentation to conform these statements to actual results or to changes in our expectations. You are advised, however, to consult any further public disclosures made by us, such as filings made with the Oslo Stock Exchange or press releases.
This presentation is not an offer or invitation to sell or issue securities for sale in the United States, and does not constitute any solicitation for any offer to purchase or subscribe any securities. Securities may not be sold in the United States unless they are registered or are exempt from registration. Otello Corporation ASA does not intend to register any securities in the United States or to conduct a public offering in the United States. Any public offering of securities to be made in the United States would be made by means of a prospectus that will contain detailed information about Otello Corporation ASA and its management, as well as financial statements. Copies of this presentation should not be distributed in or sent into any jurisdiction where such distribution may be unlawful. The information in this presentation does not constitute an offer of securities for sale in Canada, Japan or Australia.
Otello Corporation 4Q18
| (USD million) |
4Q 2018 |
4Q 2017 |
3Q 2018 |
|
|
|
|
| Revenue |
66.9 |
99.2 |
64.9 |
|
|
|
|
| Publisher and revenue share cost |
(39.1 |
(59.3) |
(38.4) |
Payroll
and related
expenses |
(12.7) |
(19.3) |
(14.0) |
Stock-based
compensation
expenses |
(1.1) |
(1.5) |
(0.2) |
| Depreciation and amortization expenses |
(7.8) |
(9.3) |
(7.6) |
| Other operating expenses |
(9.6) |
(17.7) |
(11.1) |
|
|
|
|
| Total operating expenses |
(70.3) |
(107.1) |
(71.3) |
|
|
|
|
Adjusted
EBITDA* |
5.5 |
2.9 |
1.4 |
|
|
|
|
| Operating profit (loss), (EBIT), excluding restructuring and impairment expenses |
(3.4) |
(7.9) |
(6.4) |
|
|
|
|
| Restructuring and impairment expenses |
(94.0) |
(4.9) |
(1.8) |
|
|
|
|
Operating profit
(loss), (EBIT) |
(97.4) |
(12.8) |
(8.2) |
|
|
|
|
| Net financial items |
8.2 |
(0.4) |
(2.5) |
|
|
|
|
| Provision for taxes |
6.2 |
(17.3) |
(0.6) |
|
|
|
|
| Profit (loss) |
(83.1 |
(30.5) |
(11.2) |
Revenue down due to AdColony vs. 4Q17, revenue growth in both Bemobi and AdColony vs. 3Q18
Adjusted EBITDA up both vs. 4Q17 and vs. 3Q18
93 million impairment expense, vast majority related to AdColony
Positive Net financial items due to stronger USD vs NOK
Impairment testing
| Impairment loss |
AdColony |
Bemobi |
Apps &
Games
(legacy) |
| Goodwill |
76,4 |
- |
3,6 |
| Other intangible assets |
11,6 |
- |
- |
| Capitalized R&D |
1,7 |
- |
- |
| Total |
89,7 |
- |
3,6 |
- Impairment in AdColony due to:
- Overall business size reduced
- Discontinued customer relationships and products
- Carrying value of AdColony: USD 198 million
- Goodwill: USD 182 million
- Other Intangibles + Capitalized R&D: USD 16 million
- Impairment in Apps & Games related to non Bemobi assets
Otello Corporation 4Q18
Revenue (USD million)
OPEX (USD million)
- Revenue in 4Q18 vs 3Q18 up in both AdColony and Bemobi
- OPEX significantly down both vs 3Q18 and 4Q17 due to cost cuts in AdColony
- Adj. EBITDA up both vs. 3Q18 and 4Q17.
AdColony
Revenue USD million)
85
4Q17 1Q18 2Q18 3Q18 4Q18
Brand -
Brand -
IO
Programmatic
Performance
Performance
Brand - Managed
OPEX USD million)
Adj. EBITDA (USD million)
- Brand business stable and profitable
- Performance revenue still volatile, but strong margin recovery
- OPEX base of \$70m annualized achieved in 4Q18
- Combination of cost discipline and strong margins yield Adj. EBITDA profit on smaller revenue base
Bemobi – Strong Adj. EBITDA growth
Revenue (USD million)
OPEX USD million)
4Q17 1Q18 2Q18 3Q18 4Q18 Adj. EBITDA (USD million)
4Q17 1Q18 2Q18 3Q18 4Q18
5,2
5,9
6,9
- 4Q18 YoY results impacted by FX (BRL vs USD)
- Solid gross margins and EBITDA growth across all key regions
Note: 3Q18 and moving forward, the Gross Margin includes CPA (cost of user acquisition), since this is now recognized as publisher and revenue share cost (COGS), instead of Opex. COGS are increased and Opex is reduced by the same amount
Cash flow
Cash flow (USD million)
- Operating CF: USD 3.1 million
- CAPEX & Capitalized R&D: USD (2.5) million
- CF from Financing: USD (1.5) million in share repurchases
- FX impact on cash position: USD (1.8) million
- Cash end of quarter: USD 27.5 million
Financial position – Net cash position with no debt and no earn-outs
Financial Position (USD million)
Outlook AdColony
1Q19*
Revenue: Down due to seasonality, but less pronounced vs. recent years
Gross Margins: Flat/Up, continue positive trend
Opex: Flat, continued cost focus
2019
Adj. EBITDA: Positive
Outlook Bemobi
1Q19
1Q19 impacted by platform migration of major customer and platform fee in Brazil
Continued underlying growth in LATAM and International business
2019
Revenue: Growth vs. 2018
Adj. EBITDA: Growth vs. 2018