Earnings Release • Oct 27, 2020
Earnings Release
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Adj. EBITDA (USD million)
*For further information regarding Adjusted EBITDA and other alternative performance measures used by Otello, see Note 9 of the interim condensed financial statements
| Key figures (USD million) | 3Q20 | 3Q19 | YTD 2020 | YTD 2019 |
|---|---|---|---|---|
| Revenue | 63.2 | 63.1 | 172.9 | 170.8 |
| AdColony (Mobile Advertising) | 51.6 | 48.1 | 137.5 | 128.7 |
| Bemobi (Apps & Games) | 11.6 | 14.8 | 35.4 | 41.4 |
| Corporate | 0.0 | 0.2 | 0.2 | 0.9 |
| Adj. EBITDA | 5.7 | 6.0 | 11.8 | 11.3 |
| AdColony (Mobile Advertising) | 1.9 | 0.8 | 1.2 | (2.7) |
| Bemobi (Apps & Games) | 4.7 | 6.2 | 13.8 | 17.3 |
| Corporate | (0.9) | (1.0) | (3.2) | (3.2) |
| EBIT | (0.5) | (2.9) | (7.6) | (14.4) |
| Net income | (6.7) | 7.0 | (5.9) | (9.8) |
| EPS (USD) | (0,05) | 0,05 | (0,04) | (0,07) |
To provide a better understanding of Otello's underlying performance, the following presentation of operating results excludes certain non-recurring and non-operational items from EBITDA, such as transaction costs, stock-based compensation, restructuring and impairment expenses, as well as other items that are of a special nature or are not expected to be incurred on an ongoing basis.
Revenue was virtually flat in 3Q20 compared to 3Q19 with USD 63.2 million in 3Q20 (USD 63.1 million), with revenue growth from AdColony offset by a decline in Bemobi. Overall revenue (in local currency) was in line with expectations for the quarter. Both AdColony and Bemobi are impacted by Covid 19 but performing in line with what we had expected. Brazil is the biggest market for Bemobi and has been hit particularly hard by Covid 19, but we have seen gradual improvement during 3Q20. AdColony is impacted by overall lower economic activity and businesses which have been interrupted and thus reduced their advertising spend. We have however seen a nice ramp in revenue and 3Q20 came in as expected.
Revenue for Bemobi was USD 11.6 million for the quarter which was down 21% from 3Q19 but would have been down 2% with like for like FX rates. Revenue was up 8% vs 2Q20 despite FX headwind. Adjusted EBITDA was USD 4.7 million down 24% vs 3Q19, which would have been down 1% with like-for-like FX rates. Adjusted EBITDA was up 18% vs 2Q20 despite FX headwind.
Revenue for AdColony was up 7% versus 3Q19 with continued softness in our Performance business more than offset by strong Brand and Programmatic. Gross margin was down due to mix to more programmatic revenue, but was offset by lower Opex which resulted in more than doubling Adj. EBITDA from USD 0.8 million in 3Q19 to USD 1.9 million in 3Q20
Total operating expenses (including depreciation and stock-based compensation expenses but excluding restructuring expenses) decreased by 3% vs 3Q19 with significant savings in payroll expenses.
Publisher and revenue share cost was USD 38.9 million in the quarter (USD 35.9 million), up 8 percent from the corresponding period last year due to revenue growth in AdColony.
Payroll and related expenses, excluding stock-based compensation expenses, were USD 10.7 million in the quarter, versus USD 12.8 million in 3Q19, down 16 percent from the corresponding period last year due to reduced headcount and cost per head in AdColony, reduced T&E and positive FX impact in Bemobi for our payroll in Brazil. AdColony has continued to streamline its operation by merging the demand side for Brand and Performance in addition to moving non-customer facing roles to lower-cost locations which we now see the benefit of.
Stock-based compensation expenses were USD 0.6 million in the quarter compared to USD 1.0 million in 3Q19.
Depreciation and amortization expenses were USD 5.2 million in the quarter (USD 7.3 million), significantly down versus the corresponding period last year with a reduction in overall depreciation and amortization from intangible assets in AdColony, only partly offset by an increase in depreciation and amortization from intangible assets in Bemobi.
Other operating expenses were USD 7.9 million in the quarter (USD 8.4 million), down 4 percent from the corresponding period last year, positively impacted by FX in Bemobi and overall cost measures taken, including more efficient delivery of backend ad serving for AdColony.
Adjusted EBITDA was USD 5.7 million in 3Q20, compared to USD 6.0 million in the corresponding period in 2019, with improvement in AdColony more than offset by lower Adj. EBITDA in Bemobi, mainly due to adverse FX impact.
EBITDA was USD 4.7 million in 3Q20, up from USD 4.5 million in the corresponding period in 2019.
Otello recognized a loss from net financial items in the quarter of USD 5.2 million, compared to a gain of USD 10.0 million in the corresponding period last year. The loss is predominantly related to FX, due to a weaker USD vs NOK.
3Q20 net income was USD (6.7) million compared to USD 7.0 million in the corresponding period last year. EPS and fully diluted EPS were USD (0.05) and USD (0.05), respectively, in the third quarter 2020, compared to USD 0.05 and USD 0.05, respectively, in the third quarter 2019.
Otello's net cash flow from operating activities was USD 4.2 million in 3Q20, compared to USD (0.9) million in 3Q19, with solid cash collection in the quarter. Cash flow from investment activities amounted to USD (3.5) million, vs USD (2.7) million from the corresponding quarter last year. USD (2.6) million relates to capitalized R&D and USD (0.8) million related to purchases of property, plant and equipment (PP&E) and intangible assets. Cash flow from financing activities amounted to USD (0.8) million, with USD (0.6) million in expenses from payments on RCF and USD (0.2) million related to payment of office leases.
Cash and cash equivalents at the end of the 3Q20 were USD 33.1 million compared to USD 31.5 million in 3Q19. At the end of the third quarter of 2020, Otello had USD 30 million in interest-bearing debt. In 2018, Otello signed a 3-year revolving credit facility of USD 100 million, of which USD 30 million was drawn at the end of the quarter. In March 2020, Otello signed an amendment to the 3 year Revolving Credit Facility (RCF) agreement of 2018 with DNB Bank ASA, reducing the facility to USD 50 million. However, as part of this amendment, Otello has, in addition, secured a payment guarantee of an amount equal to USD 18.6 million in favor of Pedro Ripper, CEO of Bemobi (on behalf of the former owners of Bemobi), in order to support Otello's earn-out obligations under the agreement signed between Bemobi Holding AS, the holding company of Otello's Bemobi business, and the formers owners of Bemobi originally dated 28 May 2018 and amended on 10 January 2020.
The company's equity was USD 299.6 million at the end of the quarter, corresponding to an equity ratio of 76.2%.
At the end of the 3Q20, Otello had 616 fulltime employees and equivalents.
| (USD million) | 3Q20 | 3Q19 | YTD 2020 | YTD 2019 |
|---|---|---|---|---|
| Revenue | 51.6 | 48.1 | 137.5 | 128.7 |
| Performance | 13.3 | 15.9 | 40.5 | 49.1 |
| Brand-Managed IO | 19.9 | 16.8 | 47.4 | 43.9 |
| Brand-Performance | 3.4 | 7.4 | 12.7 | 18.5 |
| Brand-Programmatic | 15.1 | 7.9 | 36.9 | 17.3 |
| Gross Profit | 16.3 | 16.7 | 45.1 | 44.4 |
| Adj. EBITDA | 1.9 | 0.8 | 1.2 | (2.7) |
| EBITDA | 1.7 | (0.5) | 2.1 | (3.3) |
| EBIT | (2.3) | (4.8) | (11.6) | (19.3) |
AdColony is a leading mobile advertising platform dedicated to delivering authentic advertising experiences across today's top apps. Originally founded in 2008, AdColony has been an innovation leader in mobile advertising and monetization since Apple first introduced the App Store. Founded by game developers, for game developers, AdColony is committed to delivering an experience that makes monetizing a win for advertisers, developers, and users alike.
AdColony's mission is to drive business outcomes that matter for advertisers and publishers using its best-in-class mobile technology, the highest-quality mobile ad experiences and leveraging curated reach.
AdColony continued to deliver positive results despite continued COVID-19 pandemic headwinds that have continued to push AdColony's competitors hard. Thanks to industry-leading research, consumer insights, and award-winning campaigns globally, AdColony has been at the top of the conversation about mobile games and how they factor into the global consumer mindset both in general and in this specific moment in time.
AdColony's broad reach in mobile games and other top apps has continued to push the company forward during shelter-in-place, work-from-home, and circuit breaker advisories.
Overall, AdColony's revenue for the quarter was USD 51.6 million, up by 7% compared to 3Q19.
Adjusted EBITDA amounted to USD 1.9 million in the quarter, a more than doubling versus USD 0.8 million in 3Q19. The gross margin for the quarter was 31.6% versus 34.7% in 3Q19, down mainly due to shift in revenue mix to more Programmatic.
AdColony has been giving brands like BMW, Disney, Amazon, Fitbit, and many more wellknown brands the opportunity to reach consumers in the fastest-growing consumer channel for years thanks to our SDK via both direct-sold and open exchange programmatic channels.
Overall, AdColony's brand business brought in USD 38.4 million, up 20% YoY. Ongoing work-from-home and other COVID-19 precautions around the globe, and especially in North America, have continued to give AdColony's brand clients opportunities to reach their target audiences at scale via mobile apps, and a general industry warming to the popularity of gaming and ubiquity of mobile gamers within their target audience.
On a regional basis, North American Brand delivered USD 23.8 million, up 10% vs 3Q19. The primary source of growth was Programmatic both PMP and Open Exchange as buyers leaning towards more efficient buying models.
EMEA Brand revenue was USD 11.2 million in the quarter, an increase of 47% versus 3Q19, driven primarily by a 150% YoY increase on PMP sales of our core Instant Play video product.
APAC Brand was USD 3.4 million, up 29% versus 3Q19, at a time when many countries in the region are still facing challenges due to COVID. Programmatic represented 53% of APAC's overall revenue in 3Q20 a 20% increase compared to 3Q19 and recent resource investments in Thailand, Malaysia and Japan continue to grow and build revenue.
At AdColony, the term "performance" encompasses our mobile gaming user acquisition (UA) business. For most mobile app developers, new users come from advertising in other apps, and monetizing those users comes from integrating ads.
During the third quarter of 2020, AdColony's performance business delivered revenue of USD 13.3 million globally, down versus 3Q19 as brands pushed into the gaming space bidding more competitively for impressions across AdColony's inventory.
The third quarter of 2020 marks the first time in AdColony's history that all commercial teams report directly to a single Executive Leadership Team member. These changes are still fresh, but we are optimistic about a single directive and vision moving forward.
One key highlight comes from the AppsFlyer Performance Index, a regularly published and well-regarded measure of the size and success of the app-install industry:
"AdColony came in #2 as it nearly doubled its share in the global app install pie. Their growth is seen across the globe with a spot in eight regional rankings."
This is a return to form for AdColony's performance business, and we look forward to the trend continuing into next year with strategic investments in optimization and machine learning via AdColony's Global Data Science Center in Poland, the talented engineers in Seattle, and key commercial hires to align with the global performance business growth opportunities.
Publishing is AdColony's SDK monetization business and the heart of what distinguishes it from many competitors by directly supplying impressions via its SDK. In addition to managed demand from brand and performance advertisers alike, AdColony's SDK also allows programmatic demand access to its inventory, giving publishers the world over access to the highest possible demand mix via our open exchange and direct-sold campaigns.
The penetration of our SDK version 4.1 or later achieved 94% of total impressions by the end of 3Q20 and 95% of revenue. AdColony released AdColony SDK 4.4, which fully supports iOS 14 and SKAdNetwork. 69% of apps within the AdColony network have a 4.1 or newer SDK integrated, and we anticipate this to increase, as 4.3 is a minimum requirement for iOS 14 support.
There has been continued progress supporting advanced bidding within the publishing community and 60% of our overall supply. As an early advocate of this technology, AdColony continues to support and evolve our offering and rolled out our Advanced Bidding 3.0 technology in the third quarter as well.
AdColony continues to add new supply to support our growth. Key publishers added in Q3 include the return for monetization within apps by long-time and consistent performance client GameHive. Additionally, Zynga last quarter allowed AdColony to integrate the latest advanced bidding solutions in Zynga's popular Solitaire app for iOS and Android. Commercial teams are currently negotiating the deal for this integration, which will be a positive long-term opportunity. If AdColony performs as expected, then the SDK will be integrated into the rest of its portfolio next year.
Significant work from our product and engineering teams in the third quarter was focused on providing support for Apple's significant privacy compliance AppTracking transparency measures and its new SKAdNetwork attribution solution, announced for iOS 14 its Worldwide Developer Conference (WWDC) in June. While the AdColony team was one of the first to announce support for SKAdNetwork and had all mechanisms in place to ensure business continuity with iOS 14's release, Apple delayed the enforcement of its privacy compliance rules until an indeterminate time in 2021.
This delay has given our teams (and the industry at large) chance to experiment, gather data, and refine approaches to gathering consent, campaign optimizations, and beyond. AdColony released AdColony SDK 4.4, which fully supports iOS 14 and SKAdNetwork, and AdColony's data science team is developing and fine-tuning models for bidding on inventory without an IDFA.
Our data science team began development on models that optimize advertising campaigns towards brand outcomes. We have successfully deployed our first gender model and plan to add more brand models.
AdColony also made significant progress on Advanced Bidding 3.0 and completed our first major milestone towards integrating our SSP console on AdMarvel into the AdColony platform.
Finally, BidSheet, AdColony's .csv bid manager for advertisers, entered beta in late Q3. BidSheet allows advertisers to manage large, complex campaigns using a robust, self-serve bid management tool. This will streamline operations for both AdColony internally in the near-term (as well as ensure a smooth transition to SKAdNetwork support) and as a self-serve platform for AdColony's advertising partners and make it easier than ever to reach target audiences or acquire users using AdColony.
| Bemobi | |||||
|---|---|---|---|---|---|
| (USD million) | 3Q20 | 3Q19 | YTD 2020 | YTD 2019 | |
| Revenue | 11.6 | 14.8 | 35.4 | 41.4 | |
| Gross Profit | 7.9 | 10.3 | 24.1 | 28.2 | |
| Adj. EBITDA | 4.7 | 6.2 | 13.8 | 17.3 | |
| EBITDA | 4.1 | 5.1 | 12.2 | 14.7 | |
| EBIT | 3.0 | 3.2 | 8.3 | 10.4 | |
The cornerstone of Otello's Bemobi offering is Apps Club, a leading subscription-based discovery service for mobile apps in Latin America and beyond. Apps Club offers a unique, "Netflix-style" subscription service for premium Android apps. Working with mobile operators, Bemobi's proprietary appwrapping technology allows smartphone users access to unlimited use of premium mobile apps for a small daily, weekly or monthly fee. Users pay for this service through their mobile operator billing systems, making the service highly effective in emerging markets, where credit-card and debit-card penetration is low.
Bemobi is a so-called B2B2C company. Instead of selling directly to a consumer, or traditional B2C, Bemobi typically partners with large companies, mostly mobile carriers or in some cases smartphone OEMs.
Through partnerships with these companies, Bemobi can offer its service to the consumers. Bemobi ended 3Q20 with 70 active operator agreements, of which 49 are outside LATAM, making it possible to offer subscription-based services providing access to apps and games to over 2.2 billion consumers.
In order to acquire new users to its subscription services, Bemobi developed and operates in partnership with mobile carriers' digital channel platforms that are highly scalable while at the same time very targeted. This mobile digital channel platform is called Bemobi Loop and it allows Bemobi to orchestrate which services are offered to each user at which time. Through this platform Bemobi can scale its subscriber growth at a sustainable cost of acquisition in markets where traditional online media might not provide a payback.
Revenue decreased by 21% percent YoY to USD 11.6 million. Revenue was negatively impacted by the BRL depreciating in value vs the USD and FX neutral revenue would have been USD 14.5 million, down by 2% YoY. 3Q20 saw continued negative impact from Covid-19, in Brazil in particular, where a reduction in available income and closed stores reduced the frequency and value of the consumers top-up amount and spend. Throughout 3Q20 we saw improvement in like-for-like revenue of 9% vs 2Q20. Of the revenue in 3Q20, 69% percent came from LATAM while 31% came from international markets.
The 3Q20 gross margin for Bemobi was 68.4%, 1.6 bps lower than the same period last year (70.0%), but up 0.6 bps vs 2Q20 and still negatively impacted by Covid-19 situation and revenue mix.
Subscriber growth continued YoY. LATAM subscribers were up from 18.3 million in 3Q19 to 23.9 million in 3Q20 (up 30%) with strong growth from new services such as Voice (IVR) and Financial services. International subscribers rose from 9.6 million in 3Q19 to 10.7 million in 3Q20 (up 11%) driven by growth in subscribers AppsClub, Kids Club, Health Club and other services.
Revenue from LATAM was USD 7.7 million in 3Q20, down 29% versus 3Q19. The revenue was adversely impacted by a weaker BRL vs USD and would have been USD 10.4 million, down 4% compared to 3Q19 with unchanged FX rates. International revenue was USD 3.9 million in 3Q20 compared to USD 3.9 million in 3Q19 and would have been USD 4.1 million, up 5% compared to 3Q19 with unchanged FX rates.
Adjusted EBITDA fell from USD 6.2 million in 3Q19 to USD 4.7 million in 3Q20 a decrease of 21%. Adj. EBITDA would have been USD 6.1 million 3Q20 with same FX rates as in 3Q19 (down 1%).
Bemobi continues to run third party paid advertising on our (No Data No Credit) NDNC portal in Ncell in Nepal and we have now extended paid advertising to other NDNC portals with two operators in Pakistan and one operator in Tanzania. More operators are expected to follow soon.
Bemobi is also bundling some of its key services as an integral part of core telecom data and voice packages in Brazil, sold by some of the main carriers in the country. This distribution model represents an alternative incremental revenue line that helped to drive growth and diversify the revenue mix.
On the new acquisition channels development front, Bemobi is investing in expanding its No Credit and No Data web captive portal to include an interactive voice portal platform. This new interactive voice platform is now live in four of the largest carriers in Brazil and shows a lot of promise as Bemobi prepares to scale this new channel internationally.
In international markets, we continue to launch Apps Clubs having launched MTN Nigeria in 3Q20 and also rolling out several new products. As per 3Q20, 13 Health Clubs have now been launched in total along with 18 Kids Clubs, and we will proceed with launches in other international markets. In addition, several standalone subscription services have been launched in 3Q20 such as Football Zone and Football Fantasy League in Indosat Indonesia, Deals Club in Tele2 Russia and Truecaller in Robi Bangladesh.
Bemobi have now launched 16 NDNC portals outside LATAM, with the following operators:
Outside LATAM, 34% of the subscribers come from the NDNC portals as per 3Q20. The expansion of the NDNC portals and the new Voice Portals (both part of the broader Loop platform) are key elements in order to build a sustainable and profitable growth model for our subscription services.
On October 22, 2020, Otello's Bemobi subsidiary made a preliminary filing for a listing of the Bemobi business in Brazil. The preliminary filing consists of draft documentation which will be subject to review by the Brazilian Securities Commission (the "CVM"). The filing does not mean that a listing of Bemobi will definitely take place. Any initial public offer of shares ("IPO") and listing are subject to the fulfilment of several outstanding items and matters being concluded to Otello's satisfaction, including the valuation of the Bemobi business. Consequently, no assurances can be or are given that the IPO and listing process will proceed and be completed.
Otello's strategic focus is to develop unique and relevant products, and scalable business models which combined should generate revenue growth and margin expansion. Otello remains positive about the Group's overall growth prospects, with the following perspective on the Group as a whole:
AdColony operates in a global advertising industry which continues to experience a macro shift in advertising spend from traditional channels to digital online channels. AdColony is wellpositioned to take advantage of the macro trends and become the highest quality mobile advertising platform in the world. Otello expects AdColony revenue to grow by 10% in 2020 versus 2019 driven by our Brand and Programmatic business. Longer-term growth will be driven by our move to the more automated delivery of ads and new technology and standardization which enables additional ad formats and provides the possibility to tap into new markets.
Bemobi operates in a rapidly growing market of app subscriptions. It takes advantage of the increased use of mobile phones combined with the low penetration of credit cards in emerging markets. After the close of the quarter Otello announced that Bemobi has made a preliminary filing for IPO in Brazil. As a result Otello cannot provide forward looking statements regarding Bemobi.
Otello's revenue is linked to the advertising spend of brands and game developers (AdColony) and subscriptions bought by consumers (Bemobi), and we expect Covid-19 to negatively impact revenue and profit in 2020. At this stage, it is still too early to tell how great this impact will be. Ultimately, it will be linked to the duration of the crisis and the knock-on effect of the changed behavior of our customers. The continued impact of Covid-19 therefore poses risks to the 2020 guidance provided above.
Oslo, October 26, 2020 The Board of Directors Otello Corporation ASA
Andre Christensen Chairman (sign.)
Lars Boilesen CEO (sign.)
This report and the description of Otello's business and financials should be read in conjunction with the presentation given by the Company of its quarterly numbers, an audiocast of which can be found at www.otellocorp.com
| Continuing operations | 3Q 2020 | 3Q 2019 | YTD 2020 | YTD 2019 |
|---|---|---|---|---|
| (USD million, except earnings per share) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) |
| Revenue | 63.2 | 63.1 | 172.9 | 170.8 |
| Gross profit | 24.3 | 27.2 | 69.4 | 73.5 |
| Net income 1) | (6.7) | 7.0 | (5.9) | (9.8) |
| Adjusted EBITDA 2) | 5.7 | 6.0 | 11.8 | 11.3 |
| EBITDA | 4.7 | 4.5 | 10.6 | 6.3 |
| Normalized EBIT 3) | 0.2 | (1.2) | (6.3) | (8.9) |
| EBIT | (0.5) | (2.9) | (7.6) | (14.4) |
| EPS (USD) | (0.05) | 0.05 | (0.04) | (0.07) |
| EPS, fully diluted (USD) | (0.05) | 0.05 | (0.04) | (0.07) |
| Cash flow from operating activities | 4.2 | (0.9) | 13.8 | (5.4) |
| Cash flow from investment activities | (3.5) | (2.7) | (9.5) | (11.6) |
| Cash flow from financing activities | (0.8) | 18.8 | 6.7 | 16.1 |
| Segment information | 3Q 2020 | 3Q 2019 | YTD 2020 | YTD 2019 |
|---|---|---|---|---|
| Revenue (USD million) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) |
| AdColony (Mobile Advertising) | 51.6 | 48.1 | 137.5 | 128.7 |
| Bemobi (Apps & Games) | 11.6 | 14.8 | 35.4 | 41.4 |
| Corporate | 0.1 | 0.2 | 0.2 | 0.9 |
| Eliminations | (0.1) | 0.0 | (0.2) | (0.2) |
| Total Continued Operations 4) | 63.2 | 63.1 | 172.9 | 170.8 |
| Segment information | 3Q 2020 | 3Q 2019 | YTD 2020 | YTD 2019 |
|---|---|---|---|---|
| Adjusted EBITDA 2) (USD million) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) |
| AdColony (Mobile Advertising) | 1.9 | 0.8 | 1.2 | (2.7) |
| Bemobi (Apps & Games) | 4.7 | 6.2 | 13.8 | 17.3 |
| Corporate | (0.9) | (1.0) | (3.2) | (3.2) |
| Eliminations | (0.0) | 0.0 | (0.0) | 0.0 |
| Total Continued Operations (with ICP) 4) | 5.7 | 6.0 | 11.8 | 11.3 |
| Eliminations | (0.0) | (0.0) | (0.0) | 0.0 |
| Total Continued Operations (net of ICP) | 5.7 | 6.0 | 11.8 | 11.3 |
1) Net Income corresponds to Profit (loss) in the Consolidated statement of comprehensive income
2) excluding impairment and restructuring, and stock-based compensation expenses
3) excluding impairment and restructuring expenses, and amortization of acquired intangible assets
4) including intercompany postings (ICP) against discontinued operations.
See Note 9 for further explanation of alternative performance measures (APM)
| Note | 3Q 2020 | 3Q 2019 | % YTD 2020 |
YTD 2019 | % |
|---|---|---|---|---|---|
| (USD million, except earnings per share) | (Unaudited) | (Unaudited) change | (Unaudited) | (Unaudited) change | |
| Continuing operations | |||||
| Revenue 3, 5, 11 |
63.2 | 63.1 | 0 % 172.9 |
170.8 | 1 % |
| Total operating revenue | 63.2 | 63.1 | 0 % 172.9 |
170.8 | 1 % |
| Publisher and revenue share cost 3, 5, 11 |
(38.9) | (35.9) | 8 % (103.5) |
(97.3) | 6 % |
| Payroll and related expenses 3, 5, 11 |
(10.7) | (12.8) -16 % |
(33.2) | (37.4) | -11 % |
| Stock-based compensation expenses 3, 5, 11 |
(0.6) | (1.0) -37 % |
(1.9) | (3.1) | -40 % |
| Depreciation and amortization expenses 3, 5, 11 Other operating expenses 3, 5, 11 |
(5.2) (7.9) |
(7.3) -29 % (8.4) |
(18.1) -6 % (24.4) |
(20.7) (24.8) |
-12 % -2 % |
| Total operating expenses | (63.3) | (65.4) | -3 % (181.1) |
(183.3) | -1 % |
| Operating profit (loss), (EBIT), excluding impairment and restructuring expenses | (0.1) | (2.3) | (8.2) | (12.5) | |
| Impairment and restructuring expenses 13 |
(0.4) | (0.6) | 0.6 | (1.9) | |
| Operating profit (loss), (EBIT) | (0.5) | (2.9) | (7.6) | (14.4) | |
| Net financial items 6 |
(5.2) | 10.0 | 3.7 | 5.6 | |
| Profit (loss) before income tax | (5.7) | 7.1 | (3.9) | (8.8) | |
| Provision for taxes 1) | (1.0) | (0.1) | (2.0) | (1.0) | |
| Profit (loss) | (6.7) | 7.0 | (5.9) | (9.8) | |
| Discontinuing operations | |||||
| Profit (loss) from discontinuing operations, net of tax | - | - | - | - | |
| Profit (loss) from discontinuing operations | - | - | - | - | |
| Items that may or will be transferred to profit (loss) | |||||
| Foreign currency translation differences | 1.8 | (14.2) | (35.1) | (11.0) | |
| Discontinuing operations - reclassified to profit (loss) | - | - | - | - | |
| Total comprehensive income (loss) | (4.9) | (7.2) | (41.0) | (20.8) | |
| Earnings (loss) per share: | |||||
| Basic earnings (loss) per share (USD) | (0.05) | 0.05 | (0.04) | (0.07) | |
| Diluted earnings (loss) per share (USD) | (0.05) | 0.05 | (0.04) | (0.07) | |
| Shares used in earnings per share calculation | 137,621,167 | 137,513,271 | 137,662,319 | 138,288,540 | |
| Shares used in earnings per share calculation, fully diluted | 137,621,167 | 137,522,987 | 137,662,319 | 138,288,540 | |
| Earnings per share (continuing operations): | |||||
| Basic earnings (loss) per share (USD) | (0.05) | 0.05 | (0.04) | (0.07) | |
| Diluted earnings (loss) per share (USD) | (0.05) | 0.05 | (0.04) | (0.07) | |
| Shares used in earnings per share calculation | 137,621,167 | 137,513,271 | 137,662,319 | 138,288,540 | |
| Shares used in earnings per share calculation, fully diluted | 137,621,167 | 137,522,987 | 137,662,319 | 138,288,540 |
1) The quarterly and YTD provision for taxes is based on an estimated tax rate for the Group.
| (USD million) | Note | 9/30/2020 (Unaudited) |
9/30/2019 (Unaudited) |
12/31/2019 (Audited) |
|---|---|---|---|---|
| Assets Deferred tax assets |
26.8 | 38.8 | 32.2 | |
| Goodwill | 216.8 | 229.1 | 230.7 | |
| Intangible assets | 13.2 | 23.5 | 22.4 | |
| Property, plant and equipment | 5.9 | 8.1 | 8.0 | |
| Right of use assets | 10 | 3.3 | 4.2 | 4.6 |
| Contract assets - sublease | 10 | 0.1 | 2.6 | 1.9 |
| Other investments | 12 | 17.0 | 14.6 | 16.8 |
| Other non-current assets | 0.4 | 0.5 | 0.5 | |
| Total non-current assets | 283.4 | 321.3 | 317.2 | |
| Accounts receivable | 8 | 65.8 | 71.5 | 80.9 |
| Contract assets - sublease | 10 | 1.2 | 0.2 | 0.5 |
| Other receivables | 8 | 9.9 | 9.1 | 8.6 |
| Cash and cash equivalents | 7 | 33.1 | 31.5 | 28.3 |
| Total current assets | 110.0 | 112.2 | 118.2 | |
| Total assets | 393.4 | 433.6 | 435.4 |
| (USD million) | Note | 9/30/2020 (Unaudited) |
9/30/2019 (Unaudited) |
12/31/2019 (Audited) |
|---|---|---|---|---|
| Shareholders' equity and liabilities | ||||
| Equity attributable to owners of the company | 300.3 | 342.9 | 337.2 | |
| Non-controlling interests | 4 | (0.7) | 1.2 | 1.9 |
| Total equity | 299.6 | 344.1 | 339.1 | |
| Liabilities | ||||
| Deferred tax liability | 0.0 | 0.0 | 0.0 | |
| Lease liabilities | 10 | 1.4 | 3.1 | 3.0 |
| Loans and borrowings | 7 | 0.0 | 20.0 | 20.0 |
| Other non-current liabilities | 1.5 | 0.7 | 1.1 | |
| Contingent consideration, non-current | 4 | - | - | - |
| Total non-current liabilities | 2.9 | 23.8 | 24.1 | |
| Loans and borrowings | 7 | 30.0 | - | - |
| Lease liabilities | 10 | 3.0 | 3.9 | 4.0 |
| Accounts payable | 19.2 | 21.2 | 22.8 | |
| Taxes payable | 0.8 | (1.1) | 0.5 | |
| Public duties payable | (0.9) | 1.2 | 1.4 | |
| Deferred revenue | 0.5 | 1.3 | 1.3 | |
| Stock-based compensation liabilities | 0.0 | 0.0 | 0.0 | |
| Other current liabilities | 37.9 | 38.5 | 41.6 | |
| Contingent consideration, current | 4 | 0.2 | 0.5 | 0.5 |
| Total current liabilities | 90.8 | 65.7 | 72.1 | |
| Total liabilities | 93.7 | 89.5 | 96.3 | |
| Total equity and liabilities | 393.4 | 433.6 | 435.4 |
| Note | 3Q 2020 | 3Q 2019 | YTD 2020 | YTD 2019 | |
|---|---|---|---|---|---|
| (USD million) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |
| Cash flow from operating activities | |||||
| Profit (loss) before taxes | (5.7) | 7.1 | (3.9) | (8.8) | |
| Income taxes paid | (0.2) | 0.0 | 0.2 | (0.5) | |
| Depreciation and amortization expense | 5.2 | 7.3 | 18.1 | 20.7 | |
| Net (gain) loss from disposals of PP&E, and intangible assets Changes in inventories, trade receivables, trade and other payables |
0.0 (0.0) |
(0.0) (5.8) |
0.0 9.8 |
0.1 (6.4) |
|
| Other net finance items | 0.3 | 0.1 | 1.3 | 0.3 | |
| Changes in other operating working capital | (0.4) | (3.1) | (8.4) | (10.0) | |
| Share-based remuneration | 0.7 | (0.4) | 1.9 | 2.2 | |
| Net (gain) loss from disposals of subsidiaries and other share investments | 0.0 | 0.0 | 0.0 | 0.0 | |
| FX differences related to changes in balance sheet items | 4.3 | (6.2) | (5.2) | (3.0) | |
| Net cash flow from operating activities | 4.2 | (0.9) | 13.8 | (5.4) | |
| - of which included in continuing operations | 4.2 | (0.9) | 13.8 | (5.4) | |
| - of which included in discontinuing operations | - | - | - | - | |
| Cash flow from investment activities | |||||
| Proceeds from sale of property, plant, and equipment (PP&E) and intangible assets | 0.0 | 0.0 | 0.0 | 0.0 | |
| Purchases of property, plant and equipment (PP&E) and intangible assets | (0.8) | (0.1) | (1.6) | (0.9) | |
| Capitalized R&D costs Proceeds from disposal of subsidiaries and associated companies, net of cash disposed |
(2.6) - |
(2.6) - |
(7.7) - |
(7.6) 5.6 |
|
| Purchases of subsidiaries and associated companies, net of cash acquired | 4 | (0.0) | 0.0 | (0.3) | (3.1) |
| Net cash flow from investment activities | (3.5) | (2.7) | (9.5) | (6.0) | |
| - of which included in continuing operations | (3.5) | (2.7) | (9.5) | (11.6) | |
| - of which included in discontinuing operations | - | - | - | 5.6 | |
| Cash flow from financing activities | |||||
| Proceeds from exercise of treasury shares (incentive program) | 0.0 | 0.1 | 0.1 | 0.1 | |
| Purchase of treasury shares | 0.0 | (0.2) | (0.4) | (1.3) | |
| Proceeds from issuance of shares, net (equity increase) | 0.0 | (0.0) | (0.0) | (0.0) | |
| Proceeds from loans and borrowings | 7 | 0.0 | 20.0 | 10.0 | 20.0 |
| Repayments of loans and borrowings | 7 | (0.2) | - | (0.9) | - |
| Payment of finance lease liabilities | 10 | (0.6) | (1.1) | (2.0) | (2.8) |
| Net cash flow from financing activities | (0.8) | 18.8 | 6.7 | 16.1 | |
| - of which included in continuing operations | (0.8) | 18.8 | 6.7 | 16.1 | |
| - of which included in discontinuing operations | - | - | - | - | |
| Net change in cash and cash equivalents | (0.1) | 15.3 | 11.0 | 4.7 | |
| Cash and cash equivalents (beginning of period) | 33.5 | 16.7 | 28.3 | 27.5 | |
| Effects of exchange rate changes on cash and cash equivalents | (0.3) | (0.6) | (6.2) | (0.7) | |
| Cash and cash equivalents 1) | 33.1 | 31.5 | 33.1 | 31.5 | |
| - of which included in cash and cash equivalents in the balance sheet | 33.1 | 31.5 | 33.1 | 31.5 | |
| - of which included in the assets of the disposal group (assets held for sale) | - | - | - | - | |
1) Of which \$0.9 (9/30/2019: \$0.9) million is restricted cash and cash equivalents as of September 30, 2020.
| (USD million) (Unaudited) |
Number of shares |
Paid-in capital |
Other reserves |
Reserve for own shares |
Trans- lation reserve |
equity | Non- Other controlling interests |
Total equity |
|---|---|---|---|---|---|---|---|---|
| Equity as of 12/31/2019 | 137.9 | 348.1 | 53.6 | (67.6) | (14.1) | 17.2 | 1.9 | 339.1 |
| Comprehensive income (loss) Profit (loss) |
- - | - | - | (6.4) | 0.5 | (5.9) | ||
| Other comprehensive income (loss) | ||||||||
| Foreign currency translation differences | - | - | - | (32.0) | - | (3.1) | (35.1) | |
| Total comprehensive income (loss) | - - | - | (32.0) | (6.4) | (2.6) | (41.0) | ||
| Contributions by and distributions to owners | ||||||||
| Dividends | - - | 0.0 | - | - | - | 0.0 | ||
| Issuance of ordinary shares related to business combinations | - | - | - | - | - | - | - | |
| Issuance of ordinary shares related to incentive program | - | - | - | - | - | - | - | |
| Issuance of ordinary shares related to equity increase | (0.0) | - | - | - | - | - | (0.0) | |
| Capital decrease | - - | - | - | - | - | 0.0 | ||
| Treasury shares purchased | (0.4) | - | (0.4) | 0.0 | - | - | - | (0.4) |
| Treasury shares sold | 0.0 | 0.1 - | - | - | - | - | 0.1 | |
| Tax deduction on equity issuance costs | - | - | - | - | - | - | 0.0 | |
| Share-based payment transactions | - | 1.9 | - | - | - | - | 1.9 | |
| Total contributions by and distributions to owners | (0.3) | (0.0) | 1.5 | 0.0 | - - | - | 1.5 | |
| Other equity changes | ||||||||
| Divestment of a subsidiary | - | - | - | - | - | - | 0.0 | |
| Other changes | - | (0.0) | - | - | 0.0 | - | 0.0 | |
| Total other equity changes | - | (0.0) | - - | 0.0 | 0.0 | 0.0 | ||
| Equity as of 9/30/2020 | 137.6 | 348.1 | 55.1 | (67.6) | (46.1) | 10.8 | (0.7) | 299.6 |
On May 29, 2018, Otello Corporation ASA divested 11.2% of the shares in Bemobi Holding AS. Please see Note 4 for further information.
Reference is made to the resolution by the annual general meeting on June 4, 2019 where a resolution was passed to reduce the share capital of the parent company, Otello Corporation ASA, by cancellation of 2,000,000 treasury shares. The share capital reduction has been registered with the Norwegian Register of Business Enterprises in February 2020, and the new registered share capital of the parent company is NOK 2,769,548.58, and the total share count is 138,477,429.
During 3Q 2020, Otello purchased 0 (YTD: 388,372) treasury shares for \$0.0 million (YTD: \$0.4 million), and sold 0 (YTD: 38,555) treasury shares for \$0.0 million (YTD: 0.1 million).
During 3Q 2020, Otello issued 0 (YTD: 0) ordinary shares related to the incentive program, 0 (YTD: 0) ordinary shares related to business combinations, and 0 (YTD: 0) ordinary shares related to an equity increase. As of September 30, 2020, Otello owned 894,817 treasury shares.
| Equity as of 12/31/2018 | 138.7 | 348.2 | 51.6 | (67.6) | (10.3) | 40.8 | 1.2 | 363.9 |
|---|---|---|---|---|---|---|---|---|
| Comprehensive income (loss) Profit (loss) |
- | - | - | - | (10.4) | 0.7 | (9.8) | |
| Other comprehensive income (loss) | ||||||||
| Foreign currency translation differences | - | - | - | (10.3) | - | (0.7) | (11.0) | |
| Total comprehensive income (loss) | - | - | - | (10.3) | (10.4) | (0.0) | (20.8) | |
| Contributions by and distributions to owners | ||||||||
| Dividends | - - | - | - | - | - | - | ||
| Issuance of ordinary shares related to business combinations | - | - | - | - | - | - | - | |
| Issuance of ordinary shares related to incentive program | - | - | - | - | - | - | - | |
| Issuance of ordinary shares related to equity increase | (0.0) | - | - | - | - | - | (0.0) | |
| Capital decrease | - - | - | - | - | - | - | ||
| Treasury shares purchased | (0.8) | - | (1.3) | - | - | - | - | (1.3) |
| Treasury shares sold | 0.1 | 0.1 - | - | - | - | - | 0.1 | |
| Tax deduction on equity issuance costs | - | - | - | - | - | - | - | |
| Share-based payment transactions | - | 2.2 | - | - | - | - | 2.2 | |
| Total contributions by and distributions to owners | (0.7) | (0.0) | 1.0 | 0.0 | - | 0.0 | 0.0 | 1.0 |
| Other equity changes | ||||||||
| Divestment of a subsidiary | - | - | - | - | - | - | 0.0 | |
| Other changes | - | (0.0) | - | - | (0.0) | - | (0.0) | |
| Total other equity changes | 0.0 | (0.0) | - | - | (0.0) | - | (0.0) | |
| Equity as of 9/30/2019 | 138.0 | 348.1 | 52.6 | (67.6) | (20.6) | 30.4 | 1.2 | 344.1 |
Otello ("the Group") consists of Otello Corporation ASA ("the company") and its subsidiaries. Otello Corporation ASA (formerly Opera Software ASA) is a public limited liability company domiciled in Norway. The condensed consolidated interim financial statements ("interim financial statements") comprise Otello Corporation ASA and its subsidiaries (together referred to as the "Group"), and the Group's investments in associates. Otello Corporation ASA is traded under the ticker "Otello" on the Oslo Stock Exchange.
The Otello Group's main business activities comprise mobile advertising via its AdColony business, and mobile app subscription services via its Bemobi business. The principal activities for Otello's various business areas are described in more details in Note 11 - Segments.
These interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. The interim financial statements do not include all of the information and disclosures required for a complete set of financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended December 31, 2019. The interim financial statements have not been subject to audit or review.
The interim financial statements are presented in US dollars (USD), unless otherwise stated. As a result of rounding differences, amounts and percentages may not add up to the total.
The accounting policies adopted in the preparation of the interim financial statements are consistent with those followed in the preparation of the Group's consolidated financial statements for the year ended December 31, 2019.
The preparation of interim financial statements requires Management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
In preparing these condensed interim financial statements, the significant judgments made by Management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended December 31, 2019.
The Group acquired the Brazilian subsidiary Bemobi Midia e Entretenimento Ltda in 2015. As part of the acquisition agreement, an earn-out agreement was entered into with the former owners. In 2018, this earn-out agreement was renegotiated with a partial cash settlement of USD 20 million and 11.2 % shares in the intermediate holding company Bemobi Holding AS. The shares are held in escrow until a major transaction in relation to Bemobi takes place (a qualified sale or an IPO). If such a major transaction does not take place within certain deadlines, the non-controlling shareholders may require Otello to acquire the shares at a fixed amount. The deadline and amount was renegotiated ultimo 2019 and signed on January 10, 2020 and is now set at December 31, 2020 and the fixed amount is USD 18.6 million. Until the renegotiation, the dates were March 31 and/or October 1, and the fixed amount was USD 21.3 million.
As the Group's judgment is that it controls the process of selling Bemobi within the timeframe, the amount is not recognised as a liability in the statement of financial position, and that it is probable that a major transaction will take place within the deadline. If, during 2020, the circumstances change so that it is no longer probable that a major transaction will take place within the deadline, the liability will be recognized with a corresponding reduction in equity (no effect on the income statement). Upon a potential payment of the contingent liability, this will be recognized directly in equity as a redemption of non-controlling interests.
During 2019, Bemobi acquired certain assets from a Brazilian company, Novitech. The transaction included the following assets: physical assets such as hardware and software, intellectual property, a few commercial agreements related to the development, deployment, maintenance and technical support with major Brazilian and Central American telecommunication carriers as well as a few selected employees.
Bemobi regards this is an important strategic acquisition in many aspects. It enhances our channel offer and our current distribution platform, bringing a more diverse set of channels to our portfolio beyond the NDNC portals by adding a Voice based No Credit Portal. Further, it considerably raises our service distribution scale for our own services.
The Group acquired the assets with an earn-out mechanism that is recognized as a liability at fair value in the statement of financial position of USD 0.2 million.
The majority of the financial risk that the Group is exposed to relates to currency risk. Both revenue and operating expenses are exposed to foreign exchange rate fluctuations. These effects are specified in the table below.
| Revenue by currency (USD million) |
3Q 2020 | % | YTD 2020 | % | |
|---|---|---|---|---|---|
| USD | 45.0 | 71.2% | USD | 119.6 | 69.2% |
| BRL | 6.6 | 10.5% | BRL | 21.6 | 12.5% |
| DKK | 6.0 | 9.4% | DKK | 14.6 | 8.4% |
| TRY | 2.8 | 4.4% | TRY | 8.8 | 5.1% |
| Other | 2.9 | 4.5% | Other | 8.3 | 4.8% |
| Total | 63.2 | 100.0% | Total | 172.9 | 100.0% |
| Operating expenses by currency 1) | 3Q 2020 | % | YTD 2020 | % | |
|---|---|---|---|---|---|
| (USD million) | |||||
| USD | (32.1) | 50.6% | USD | (116.6) | 64.4% |
| DKK | (4.5) | 7.1% | BRL | (14.0) | 7.8% |
| BRL | (4.2) | 6.7% | DKK | (11.7) | 6.5% |
| TRY | (2.8) | 4.4% | TRY | (8.8) | 4.8% |
| NOK | (19.8) | 31.2% | NOK | (30.0) | 16.5% |
| Total | (63.3) | 100.0% | Total | (181.1) | 100.0% |
1) Operating expenses by currency excludes impairment and restructuring expenses
The impact on revenue and expenses for this quarter using comparative quarter constant foreign exchange rates is shown below. These effects are included in the specification below.
| (USD million) | Recalculated with 2Q 2020 rates |
FX effect using 2Q 2020 rates |
Recalculated with 3Q 2019 rates |
FX effect using 3Q 2019 rates |
|---|---|---|---|---|
| Revenue | 62.8 | (0.4) | 66.1 | 2.9 |
| Expenses | (61.7) | 1.6 | (64.5) | (1.2) |
| Financial items | 3Q 2020 | 3Q 2019 | YTD 2020 | YTD 2019 |
|---|---|---|---|---|
| (USD million) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) |
| Other interest income (expense), net | (0.1) | (0.1) | (0.5) | (0.2) |
| Interest expense related to contingent consideration | - | - | - | - |
| FX gains (losses) related to contingent consideration, net | - | - | - | - |
| Negative goodwill | - | 3.0 | - | 3.0 |
| Other FX gains (losses), net | (4.8) | 7.5 | 5.9 | 3.3 |
| Profit (loss) sale of shares | (0.3) | (0.3) | (1.7) | (0.5) |
| Revaluation of contingent consideration | - | - | - | - |
| Share of profit (loss) from associated companies | 0.0 | - | 0.0 | - |
| Net financial items (loss) | (5.2) | 10.0 | 3.7 | 5.6 |
In March 2020, Otello signed an amendment to the 3 year Revolving Credit Facility (RCF) agreement of 2018 with DNB Bank ASA, reducing the facility to \$50 million. However, as part of this amendment, Otello has secured a payment guarantee of an amount equal to USD 18,561,118 in favour of Pedro Ripper, CEO of Bemobi, (on behalf of the former owners of Bemobi) related to the agreement signed between Bemobi Holding AS, the holding company of Otello's Bemobi business, and the former owners of Bemobi originally dated 28 May 2018 and amended on 10 January 2020. See Note 4 for further information.
The facility is primarily secured through a pledge in shares in Bemobi Holding AS, AdColony Holding AS, and Performance and Privacy Ireland Ltd, as well as charges over accounts receivables in the parent company.
The loan and credit facility have the following covenants: i) the Leverage Ratio to be below 2.00:1. ii) the Equity Ratio to hold the minimum level of 35%. The Group is compliant as of September 30, 2020.
The RCF bears an interest rate of LIBOR, 3 months + a Margin of 2.50 % p.a. There is no utilization fee. On the undrawn portion of the facility, a commitment fee of 35% of the Margin will be paid.
As at September 30, 2020, \$30 million of the revolving credit facility had been drawn up in addition to the secured payment guarantee of \$18.6 million.
| Accounts receivable and other receivables | 9/30/2020 | 9/30/2019 |
|---|---|---|
| (USD million) | (Unaudited) | (Unaudited) |
| Accounts receivable | 43.0 | 44.2 |
| Unbilled revenue | 22.8 | 27.3 |
| Other receivables | 9.9 | 9.1 |
| Total | 75.7 | 80.5 |
Accounts receivable represent the part of receivables that have been invoiced to customers but are not yet paid. Unbilled revenue is revenue recognized in the quarter which was not invoiced to the customers at quarter end and which will be invoiced to customers in the subsequent period.
Other receivables consists of escrow payments related to sales and acquisitions, non-trade receivables, and prepayments.
Otello discloses alternative performance measures as part of its financial reporting as a supplement to the financial statements prepared in accordance with IFRS. Otello believes that the alternative performance measures provide useful supplemental information to management, investors, financial analysts and other stakeholders, and are meant to provide an enhanced insight into the financial development of Otello's business operations and to improve comparability between periods.
EBITDA and EBIT terms are presented as they are commonly used by investors and financial analysts. Certain items are excluded in the alternative performance measures Adjusted EBITDA and Normalized EBIT to provide enhanced insight into the underlying financial performance of the business operations and to improve comparability between different periods.
This comprises revenues minus publisher and revenue share cost.
This is short for Earnings before financial items, taxes, depreciation and amortization. EBITDA corresponds to Operating profit (loss), (EBIT) in the Consolidated statement of comprehensive income excluding depreciation and amortization expenses.
This represents EBITDA excluding stock-based compensation, impairment and restructuring expenses. Adjusted EBITDA corresponds, therefore, to Operating profit (loss), (EBIT) in the Consolidated statement of comprehensive income excluding depreciation and amortization, stock-based compensation, and impairment and restructuring expenses.
This is short for Earnings before financial items. This is presented both including and excluding impairment and restructuring expenses in the Consolidated statement of comprehensive income. In the KPIs section of this report and the reconciliation below, EBIT represents earnings before financial items including impairment and restructuring expenses, and corresponds to Operating profit (loss), (EBIT) in the Consolidated statement of comprehensive income.
This represents EBIT excluding impairment and restructuring expenses, and amortization of acquired intangible assets.
See below for reconciliations from Operating profit to EBITDA, Adjusted EBITDA and Normalized EBIT for all periods presented.
Revenues and expenses for the current quarter are re-calculated, on a constant currency basis, using last year's and prior quarter's average FX rates.
See note 5 for further information regarding revenue on a constant currency basis, showing the impact of the currency effect.
| Reconciliation of gross profit (USD million) |
3Q 2020 (Unaudited) |
3Q 2019 (Unaudited) |
YTD 2020 (Unaudited) |
YTD 2019 (Unaudited) |
|---|---|---|---|---|
| Total operating revenue | 63.2 | 63.1 | 172.9 | 170.8 |
| Publisher and revenue share cost | (38.9) | (35.9) | (103.5) | (97.3) |
| Gross profit | 24.3 | 27.2 | 69.4 | 73.5 |
| Reconciliation of operating profit (loss) to EBITDA and adjusted EBITDA | 3Q 2020 | 3Q 2019 | YTD 2020 | YTD 2019 |
| (USD million) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) |
| Operating profit (loss), (EBIT) | (0.5) | (2.9) | (7.6) | (14.4) |
| Depreciation and amortization expenses | 5.2 | 7.3 | 18.1 | 20.7 |
| Impairment expenses | - | - | - | - |
| EBITDA | 4.7 | 4.5 | 10.6 | 6.3 |
| Restructuring expenses | 0.4 | 0.6 | (0.6) | 1.9 |
| Stock-based compensation expenses | 0.6 | 1.0 | 1.9 | 3.1 |
| Adjusted EBITDA | 5.7 | 6.0 | 11.8 | 11.3 |
| Reconciliation of operating profit (loss) to normalized EBIT | 3Q 2020 | 3Q 2019 | YTD 2020 | YTD 2019 |
| (USD million) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) |
| Operating profit (loss), (EBIT) | (0.5) | (2.9) | (7.6) | (14.4) |
| (USD million) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) |
|---|---|---|---|---|
| Operating profit (loss), (EBIT) | (0.5) | (2.9) | (7.6) | (14.4) |
| Impairment and restructuring expenses | 0.4 | 0.6 | (0.6) | 1.9 |
| Amortization of acquired intangible assets | 0.3 | 1.1 | 1.8 | 3.6 |
| Normalized EBIT | 0.2 | (1.2) | (6.3) | (8.9) |
IFRS 16 was implemented for the Group with effect as of January 1, 2019. On transition to IFRS 16, the Group recognized \$10.0 million in right of use (ROU) assets and \$10.0 million in lease liabilities. The ROU assets and lease liabilities comprise office lease contracts. For financial subleasing contracts, the Group has recognized a contract asset in the statement of financial position, with a corresponding reduction in the ROU asset.
Accounting principles applied are described in the Group's consolidated financial statements for the year ended December 31, 2019.
The movements of the Group's right of use assets, contract assets and lease liabilities are presented below:
| Lease liabilities | 9/30/2020 | 9/30/2019 |
|---|---|---|
| (USD million) | (Unaudited) | (Unaudited) |
| Balance as of 1/1 | 7.1 | - |
| Additions | 0.6 | 10.9 |
| Translation differences | (0.3) | (0.1) |
| Lease payments for the principal portion of the lease liability | (3.1) | (4.1) |
| Interest expense on lease liabilities | 0.2 | 0.2 |
| Lease liabilities as of 9/30 | 4.4 | 7.0 |
| Of which: | ||
| Current lease liabilities (less than 1 year) | 3.0 | 3.9 |
| Non-current lease liabilities (more than 1 year) | 1.4 | 3.1 |
| Balance as of 9/30 | 4.4 | 7.0 |
| Right of use assets | 9/30/2020 | 9/30/2019 |
| (USD million) | (Unaudited) | (Unaudited) |
| Balance as of 1/1 | 4.6 | - |
| Additions | 0.7 | 10.9 |
| Adjustment to Contract asset - sublease | - | (4.1) |
| Depreciation | (3.0) | (4.0) |
| Adjustment for depreciation related to Contract asset - sublease | 1.1 | 1.3 |
| Translation differences | - | - |
| Right of use assets as of 9/30 | 3.3 | 4.2 |
Lower of remaining lease term or economic life 0 - 3 years 0 - 3 years Depreciation plan Linear Linear
| Contract assets - sublease | 9/30/2020 | 9/30/2019 |
|---|---|---|
| (USD million) | (Unaudited) | (Unaudited) |
| Balance as of 1/1 | 2.4 | - |
| Additions | - | 4.1 |
| Sublease payments | (1.1) | (1.4) |
| Adjustment of interest expense | 0.0 | 0.1 |
| Translation differences | - | - |
| Contract assets - sublease as of 9/30 | 1.3 | 2.8 |
| Of which: | ||
| Current contract assets (less than 1 year) | 1.2 | 0.2 |
| Non-current contract assets (more than 1 year) | 0.1 | 2.6 |
| Balance as of 9/30 | 1.3 | 2.8 |
Translation differences arise due to translation of lease contracts in local currencies to USD.
| IFRS 16 effects on the consolidated statement of comprehensive income | 3Q 2020 | 3Q 2019 | YTD 2020 | YTD 2019 |
|---|---|---|---|---|
| (USD million) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) |
| Operating lease expenses recognized under operating expenses decreased | (0.6) | (1.1) | (2.0) | (2.8) |
| Depreciation expense increased as a result of depreciation of ROU assets | 0.6 | 1.1 | 1.9 | 2.7 |
| Net interest expense increased as a result of recognition of the lease liability | 0.0 | 0.0 | 0.1 | 0.1 |
| Translation differences | (0.0) | (0.0) | (0.3) | (0.0) |
| Net effect | 0.0 | 0.0 | (0.2) | 0.1 |
Profit for the period is not affected significantly.
Further information about the impact of IFRS 16, 'Leases', is provided in Note 2 in the Annual report for 2019.
| Revenue | 3Q 2020 | 3Q 2019 | % | YTD 2020 | YTD 2019 | % |
|---|---|---|---|---|---|---|
| (USD million) | (Unaudited) | (Unaudited) change | (Unaudited) | (Unaudited) | change | |
| AdColony (Mobile Advertising) Bemobi (Apps & Games) Corporate Eliminations |
51.6 11.6 0.1 (0.1) |
48.1 14.8 0.2 0.0 |
7 % -21 % -70 % -354 % |
137.5 35.4 0.2 (0.2) |
128.7 41.4 0.9 (0.2) |
7 % -15 % -79 % -13 % |
| Total continued operations 1) | 63.2 | 63.1 | 0 % | 172.9 | 170.8 | 1 % |
1) including intercompany postings (ICP) against discontinued operations.
| Gross profit | 3Q 2020 | 3Q 2019 | % | YTD 2020 | YTD 2019 | % |
|---|---|---|---|---|---|---|
| (USD million) | (Unaudited) | (Unaudited) change | (Unaudited) | (Unaudited) | change | |
| AdColony (Mobile Advertising) Bemobi (Apps & Games) Corporate Eliminations |
16.3 7.9 0.1 0.0 |
16.7 10.3 0.2 0.0 |
-2 % -23 % -70 % 15 % |
45.1 24.1 0.2 0.0 |
44.4 28.2 0.9 0.0 |
2 % -14 % -79 % -41 % |
| Total continued operations 1) | 24.3 | 27.2 | -11 % | 69.4 | 73.5 | -6 % |
1) including intercompany postings (ICP) against discontinued operations.
| Adjusted EBITDA 2) | 3Q 2020 | 3Q 2019 | % | YTD 2020 | YTD 2019 | % |
|---|---|---|---|---|---|---|
| (USD million) | (Unaudited) | (Unaudited) change | (Unaudited) | (Unaudited) | change | |
| AdColony (Mobile Advertising) Bemobi (Apps & Games) Corporate Eliminations |
1.9 4.7 (0.9) (0.0) |
0.8 6.2 (1.0) 0.0 |
126 % -24 % 10 % 399 % |
1.2 13.8 (3.2) (0.0) |
(2.7) 17.3 (3.2) 0.0 |
-143 % -20 % 1 % 278 % |
| Total continued operations 1) | 5.7 | 6.0 | -5 % | 11.8 | 11.3 | 4 % |
1) including intercompany postings (ICP) against discontinued operations.
2) excluding impairment and restructuring, and stock-based compensation expenses.
| (Unaudited) change | (Unaudited) | |||
|---|---|---|---|---|
| (Unaudited) | change | |||
| 163 % | ||||
| -17 % | ||||
| 26 % | ||||
| 0.0 | -389 % | (0.0) | (0.0) | -92 % |
| 4.5 | -5 % | 10.6 | 6.3 | -67 % |
| 0.5 5.1 (1.2) |
-258 % -21 % 6 % |
2.1 12.2 (3.8) |
(3.3) 14.7 (5.1) |
1) including intercompany postings (ICP) against discontinued operations.
| Normalized EBIT 2) | 3Q 2020 | 3Q 2019 | % | YTD 2020 | YTD 2019 | % |
|---|---|---|---|---|---|---|
| (USD million) | (Unaudited) | (Unaudited) change | (Unaudited) | (Unaudited) | change | |
| AdColony (Mobile Advertising) Bemobi (Apps & Games) Corporate Eliminations |
(2.0) 3.5 (1.3) (0.0) |
(3.9) 4.3 (1.6) 0.0 |
47 % -18 % 23 % 467 % |
(12.0) 9.9 (4.2) (0.0) |
(16.9) 13.2 (5.1) 0.0 |
29 % -25 % 18 % 447 % |
| Total continued operations 1) | 0.2 | (1.2) | 118 % | (6.3) | (8.9) | 28 % |
1) including intercompany postings (ICP) against discontinued operations.
2) excluding amortization of acquired intangible assets
| EBIT | 3Q 2020 | 3Q 2019 | % | YTD 2020 | YTD 2019 | % |
|---|---|---|---|---|---|---|
| (USD million) | (Unaudited) | (Unaudited) change | (Unaudited) | (Unaudited) | change | |
| AdColony (Mobile Advertising) Bemobi (Apps & Games) Corporate Eliminations |
(2.3) 3.0 (1.3) (0.0) |
(4.8) 3.2 (1.3) 0.0 |
52 % -6 % 4 % 504 % |
(11.6) 8.3 (4.3) (0.0) |
(19.3) 10.4 (5.5) 0.0 |
40 % -20 % 23 % 436 % |
| Total continued operations 1) | (0.5) | (2.9) | 81 % | (7.6) | (14.4) | 47 % |
1) including intercompany postings (ICP) against discontinued operations.
For further information regarding the alternative performance measures above, see Note 9.
AdColony is one of the largest mobile advertising platforms in the world with a reach of more than 2.0 billion users globally. AdColony provides an end-to-end platform for brands, agencies, publishers and application developers to deliver advertising to consumers on mobile devices around the world. AdColony delivers highly interactive and engaging advertising experiences across all mobile formats with particular strength in video and full screen interactive rich media ads.
AdColony's advertising revenue is primarily based on the activity of mobile users viewing ads through 3rd party publishers, such as developer applications and mobile websites. Revenue is recognized when Otello's advertising services are delivered based on the specific terms of the advertising contract, which are commonly based on the number of ads delivered, or views, clicks or actions by users of mobile advertisements.
Bemobi's revenues are primarily generated from Apps Club, a subscription-based discovery service for mobile apps. Apps Club offers a unique, "Netflix-style" subscription service for premium Android apps. Working with mobile operators, Bemobi's proprietary app-wrapping technology allows smartphone users access to unlimited use of premium mobile apps for a daily, weekly or monthly fee. Users pay for this service through their mobile operator billing systems. Bemobi is a so-called B2B2C company. Instead of selling directly to a consumer, Bemobi typically partners with large companies, mostly mobile operators or in some cases smartphone original equipment manufacturers (OEMs). Through partnerships with these companies, Bemobi can offer its service to consumers.
Bemobi revenue is primarily comprised of: i) subscription revenue when an Android user purchases a subscription from a "co-branded" mobile store, or a white-label operator-controlled version of the mobile store, known as Apps Club, and ii) the Bemobi Mobile Store (formerly Opera Mobile Store), a feature phone platform, when a user purchases a premium app. This feature phone platform, acquired by Bemobi's parent Otello from the acquisition of Handster in 2011, is to be phased out.
Corporate costs comprise primarily i) costs related to personnel working in functions that serve the Group as a whole, including CEO/Board of Directors, corporate finance and accounting, legal, HR and IT, and ii) legal and other costs related to business combinations and restructuring processes.
| Other investments | 9/30/2020 | 9/30/2019 |
|---|---|---|
| [USD million] | (Unaudited) | (Unaudited) |
| Investments in associated companies | 10.1 | 8.0 |
| Loans to associated companies | 6.0 | 5.7 |
| Investments in other shares | 0.9 | 0.8 |
| Total | 17.0 | 14.6 |
Otello finalized an agreement on December 19, 2016 to sell its TV business ("Opera TV") for \$80 million. As part of this agreement, Otello retained an approximately 27% equity interest in Last Lion Holdings Ltd, through preferred shares, which indirectly owns Opera TV through Last Lion Holdco AS. In 2017, Opera TV AS changed its name to Vewd Software AS. See note 14 for further information regarding the investment in Last Lion Holdings Ltd.
| Information regarding Last Lion Holdings Ltd | 3Q 2020 | YTD 2020 |
|---|---|---|
| (USD million) | (Unaudited) | (Unaudited) |
| Revenue | 10.9 | 32.8 |
| EBIT | 4.4 | 13.1 |
| Net profit (loss) | 0.0 | 0.0 |
| Assets | 164.4 | |
| Non-current liabilities | 117.5 | |
| Current liabilities | 9.3 | |
| Equity | 37.5 | |
| Otello's share of equity | 10.1 | |
The investment in Last Lion Holdings Ltd is recognized using the equity method.
The Group entered into a loan agreement in 2017 of \$5 million with Vewd Software AS (formerly Opera TV AS). This loan is outstanding, with an accrued interest of \$1.0 million, as at September 30, 2020.
During 2020, Otello recognized restructuring expenses in connection with a strategic cost reduction that will better align costs with revenues, and for legal and other costs related to business combinations and restructuring processes.
| Impairment and restructuring expenses | 3Q 2020 | 3Q 2019 | YTD 2020 | YTD 2019 |
|---|---|---|---|---|
| (USD million) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) |
| Salary restructuring expenses | (0.3) | (0.3) | (0.5) | (0.6) |
| Option restructuring expenses | - | - | - | - |
| Office restructuring expenses | 0.0 | 0.0 | 1.4 | (0.1) |
| Impairment expenses | - | - | - | - |
| Legal and other costs related to business combinations and disposals | (0.2) | (0.2) | (0.3) | (1.2) |
| Other restructuring expenses | 0.0 | - | 0.0 | - |
| Total | (0.4) | (0.6) | 0.6 | (1.9) |
As reported to the market on September 14, 2018, Otello was successful in its claim in the High Court of Justice of England and Wales against Moore Frères & Co LLC ("MFC") and Last Lion Holdings Limited ("Last Lion"), arising from the refusal of the Board of Last Lion, which is controlled by appointees of MFC, to approve the sale of Otello's remaining ownership stake in Last Lion, being approximately 27% in the Vewd Software business. The judge granted Otello the injunction it sought requiring the Board to approve the buyer.
The buyer did not purchase the shares on the terms of the expired Share Purchase Agreement. Otello subsequently restored the proceedings in order to pursue alternative remedies, including (1) an order from the Court that MFC be required to buy Otello's shares (and related Loan Note) at a price to be determined by the Court, and (2) that in the event that MFC is unable to purchase the shares at such price, an order that all shares in Last Lion (or Last Lion's shares in Last Lion Holdco AS) be sold and Otello be paid the sum found to be due to it out of the proceeds of such sale. A trial to determine the relief to which Otello is entitled was listed to take place in a rolling five day window from March 23, 2020. On March 18, 2020 the Court decided to postpone the trial until the court term commencing in October 2020 because of the impact of the ongoing corona virus pandemic. That trial has now taken place in private and judgment is awaited.
The world is grappling with the direct and indirect impacts of the Covid -19 virus. In this challenging situation, the primary focus of Otello has been the health and safety of our employees. Since mid-March, the Group entities have successfully managed to shift the vast majority of the operations to remote home offices. The operational impact has been limited to a minimum and all business activities continue to operate as before the crisis. Due to the nature of our business in both AdColony and Bemobi, in terms of not having physical products and being reliant on the use of consumers mobile phones, we are in relatively fortunate position. However, as our revenue is linked to the advertising spend of companies (AdColony) and subscriptions bought by consumers (Bemobi), we expect Covid-19 to negatively impact revenue and profit in 2020 as a whole. Our assessment as at the end of Q3 is that we have seen a continued rebound for the AdColony business since April, and since June for the Bemobi business. It is still too early to tell how great the total impact will be. Ultimately, this will be dependent on the duration of the crisis, and the knock-on effect of the changed behaviour of our customers.
As reported in the media, on January 14, 2020, the Norwegian Consumer Council (NCC) filed a complaint to the Norwegian Data Protection Authority (DPA) against Grindr and five other companies, including AdColony, who is a supplier to Grindr. The NCC requests that the DPA investigate certain alleged breaches of the General Data Protection Regulation (GDPR) relating to the processing of personal data about Grindr users received from Grindr through the Grindr app. As of the date of this report, AdColony has not received any formal notification or complaint from the DPA. AdColony is currently looking into the NCC's complaint and will provide further information if and when necessary. The Company has not recognized any contingent liabilities in the interim financial statements related to this matter.
No events have occurred after the reporting date that would require the interim financial statements to be adjusted.
On October 22, 2020, Otello's Bemobi subsidiary made a preliminary filing for a listing of the Bemobi business in Brazil. The preliminary filing consists of draft documentation which will be subject to review by the Brazilian Securities Commission (the "CVM"). The filing does not mean that a listing of Bemobi will definitely take place. Any initial public offer of shares ("IPO") and listing are subject to the fulfilment of several outstanding items and matters being concluded to Otello's satisfaction, including the valuation of the Bemobi business. Consequently, no assurances can be or are given that the IPO and listing process will proceed and be completed.
For more information, refer to the announcement released on the Oslo Stock Exchange on October 22, 2020.
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