Member Info for 1GW_

I've had another look at the adjusted EBITDA bridge, working backwards to get at profit a different way. I think it's unlikely (but not impossible) R1 will squeak a bottom line profit, but they should manage a decent adjusted profit, so I wonder if we'll see "adjusted EPS" feature in the results.

Amortisation of intangibles is the killer. Last year in 1H they had $6.1m of intangible amortisation, against a starting balance of $38m book value. This year the starting balance is $86.4m, so pro-rating amortisation would give $13.9m just on intangibles. Then probably another $3m or so of other D&A (in 1HFY18 they had $7.7m total D&A vs $6.1m for the intangibles).

So maybe $17m of D&A against say $20m adj EBITDA leaves only $3m left for exceptionals, share-based comp, tax and "other" , which seems a bit tight, although not impossible if they have sandbagged the $19m-$21m a bit (on the "beat and raise" model).

But the "adjusted" profit metric should look good. R1 used to define adjusted PBT as "Profit before taxation - adjusted is defined as profit before taxation before amortisation of purchased intangibles and acquisition and exceptional costs." Not all of the intangibles are of the "purchased" variety but the majority are ($4.8m out of the $6.1m in 1HFY18).

And although R1 stopped quoting adjusted profit metrics some time ago (presumably because there wasn't any), the brokers notes do generally still use the adjusted metric I think when talking about pbt and eps.

Grahamwales - I think there probably will be a buyback (as I have said on the other board). But now we would be operating under the AGM mandate, not the GM mandate. That one has expired without being used.

Like I said, not the sharpest knife in the drawer is he?

The share price has fallen from the placing price of 55p to around 20p today. It seems to me there must be underlying reasons for that. As an investor in the company are you not interested in understanding what those reasons are? Do you think it's all down to bulletin board derampers spreading misinformation?

I would add one more likely reason for recent shareprice weakness to the 3 kindly reposted by grahamwales below, and that would be:

4. Private investor dissatisfaction with buyback

It seems likely some private investors bought shares in TLY following their announcement of a GM purely to approve a buyback resolution. I certainly did. Given they went to the time and expense of organising a GM rather than just wait a few months for the AGM, it would have been reasonable to assume that they intended to implement a buyback before the AGM. When they didn't some of those investors sold out.

You're not the sharpest knife in the drawer are you grahamwales? Can't read the financials, struggle with English and resort to abuse if you think someone's daring to question the rampfest. I think football, and maybe 1 or 2 others, are posting on the tly threads because after several years of sikhthetech posting day in day out in a way that winds them up on rthm, they've finally had enough and decided to try to pay him back in kind. I'm posting because I've invested in the company and my "negative" posts are in large part because it irritates me to see such idiotic ramping and denial of basic facts about the company I am invested in. I note that I was one of only 3 private investors, as far as I could tell, who could even be bothered to turn up to the agm.

If anyone wants to see what real negative posting looks like, do a simple search on stt1's id, either here or on the other bulletin board. Loads of posts nearly every day unremittingly negative on rthm. Here's the lse one.

http://www.lse.co.uk/member-info.asp?nick=stt1

That is NOT what I am doing.

Well the bear case was there to be blunt as a counter to all the ramping that goes on. Both this board and the other board seem to want to pretend tly is somehow a low-risk investment with no downside so I thought it was worth putting up something to get people's attention.

In terms of my own reasons for going long, I detailed all my purchases on the other board, so here are some extracts:
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First purchase on 30th November last year.

Well that trading update was finally enough to get me off the sidelines and buying some this morning, having watched the story with interest for a number of years.

In well, well below the placing price, which always provides some comfort, and hoping there's potential for a rapid bounce now.
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This was my second purchase, 22nd March this year:

I've just bought some more there at a bit under 26.2p to average down from my initial end-November purchases. Hoping that the weakness is tax loss selling-driven, or general UK smallcap sentiment-driven rather than anything more fundamental. At least when I tried a dummy sale today there was a price quoted, whereas yesterday it seemed I could buy pretty much any amount within the spread but couldn't get a quote to sell a relatively small amount.
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3rd purchase, 23rd April

Got some at just under 26p in the end. Possibly slightly reckless but I do like this morning's rns as a statement of intent to defend the share price, so I'm optimistic about the lead up to the GM, even before any actual buyback starts.
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4th purchase 26th April

I've bought some more.
…
But I like the statements in the buyback RNS and with the prospect of an actual buyback beginning on or shortly after 8th May if the price stays at this sort of level, I do think this has good risk-reward characteristics in the relatively short term at this price. But no advice intended and as others have said, longer-term it will be all about whether they can get the margins high enough to squeeze out a sustainable business - if so, huge potential given the growing scale, but if not they seem likely to be back asking for funds from shareholders at some point.
...
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And most recent purchase, was on the 10th September because I came away from the AGM feeling management were bullish.

Sure.

Totally has a lot going for it - it's made a bold acquisition with Vocare and if it can get it right then it's well-placed to grow revenues and profits for years to come. But it also has some issues which are weighing on the share price - notably the balance sheet and the institutional sellers. We're in a bit of a pause before we get numbers to show whether or not the financials are moving in the right direction. Wendy appeared very positive at the AGM about how things were going, so I expect the next results to be encouraging, with the promise of further progress in 2H. But until the balance sheet is in better shape, the company is still going to be fairly vulnerable, in my opinion, to any unexpected financial headwinds.

In summary I say, much as deltrotter was suggesting I think, that it's a high risk investment with the potential to multibag. But there are clear and significant risks which investors ought to be aware of.

graham-wales - you don't think any of those 3 issues are possible reasons for the share price weakness then? What would you put it down to?

You're confusing me with someone else deltrotter. I don't tell fibs on investor bulletin boards.

So what would cause it to go bust in your mind?

deltrotter - closing your eyes to the bear case isn't a great investment strategy. Wasn't it you who said this was a binary play - go bust or make multiples?

That first sentence on financials should of course read "negative net current assets".

TLY bear case

Well, how about this for a starter. I see at least 3 main areas of support for the bear case:

1. Financials

Negative current assets combined with negative operating cashflow is not a good position to be in. Combine that with the uncertainty of turning round a big low-margin business and you can argue for red flags.

2. Institutions selling

Institutions appear to be queueing up to sell:
3.3 million shares sold by Miton between October and May
2.9 million shares sold by Lombard Odier between October and June
0.6 million shares sold byKillik & Co between May and June
Up to 2.2m shares sold by Hargreave Hale since September 2017 (now below 3%)
Up to 2.2m shares sold by Schroders since October (now below 3%)

Who’s next? Are the MMs literally operating a queuing system on big sell orders?

3. Political uncertainty

What would a labour government mean for TLY? Even without wholesale nationalization, would the turmoil of NHS organizational change mean an existential problem for TLY given its weak balance sheet?

Disclosure: I am long TLY.
No advice intended, errors excepted, please do your own research.

Does no-one understand the bear case here?

[continued from previous post]

I think that last statement is one of the key ones. We've seen an awful lot of posts on this board about what's happening in the ad tech world. It seems to me that the bull case for R1, without numbers, is that it's beautifully positioned to ride the wave of change. It was a (forced) early adopter of verification and filtering and as a result has established itself at or near the top of the independent industry quality and trust ratings published by Pixalate. It has made some significant acquisitions last year, which appear to propel it to the type of scale where it can not only become increasingly profitable, but also can increasingly become a home to those companies that are sub-scale and looking to be consolidated. Looking further ahead it seems success in that direction may ultimately lead to it becoming a very attractive target itself to be taken out by a telco or other large company looking to buy a ready-made AdTech business.

Well of course, when I put the financial post up, you can guess who complained that it was all numbers and no non-financial stuff. So for him, and anyone else interested I put this one up as well.

Quite right, STT, it is perhaps naïve of me to assume that everyone can be bothered to read the annual report when considering investing in a company. I tend to find that business context, strategy, strengths (and occasionally weaknesses) are laid out in excruciating detail in most companies' annual reports.

My strengths tend to be in analysis of the numbers and interpretation of the financial statements, which I find is where many investors and potential investors appear to be grateful for a bit of help. So for me, I take the context, strategy and strengths as a given and focus on the numbers.

But for stt and any others without the time to look at company reports, the non-financial side of the business case as I understand it, drawing heavily on the company's annual report, is basically:

MARKET OUTLOOK
Robust sector growth;
Dominance of programmatic trading;
Growth of Mobile, video and OTT/Connected TV;

COMPANY STRATEGY
Focus on differentiation and growth in three key areas:
Enhance unified programmatic advertising platform;
Grow base of data-driven engaged audience segments;
Innovate around video and connected TV advertising.

All the above, basically headlines from the Business Overview section of the annual report, with lots more detail available under those headlines in the report. The outlook statement is also worth taking into account:

"The Company anticipates continued growth throughout FY2019, led by its programmatic capabilities and augmented by its recent acquisitions. The industry is characterized by fewer, dominant, better integrated players that are able to deliver sustainable value to both demand and supple sides of the value chain. The Company now has the unique combination of technology, talent and relationships in place to scale both organic and inorganic growth as the industry continues to evolved and consolidate.
...
RhythmOne enters FY2019 in a confident position, with a product portfolio that is well aligned with industry growth trends."

[to be continued]

[i.e. Part 2, or a continuation of the previous post]

If I then look at the specific "guidance" for FY18, a year ago, before RadiumOne and YuMe, they pointed to the "consensus" estimates of $220m revenue and $15.1m adjusted EBITDA.

Revenue guidance
Radium One did $20m in financial 2Q, so maybe $40m in 3Q+4Q, $60m for FY18.
YuMe was doing around $40m/quarter, so maybe $25m in Feb-Mar
So adding $220m+$60m+25m, you get to about $305m
Even allowing for some closing down of "non-core" in RadiumOne and YuMe it seems they've come in a bit light on revenue compared to the original consensus.

Adjusted EBITDA guidance
RadiumOne was originally expected to be adj EBITDA neutral over the first 12 months, but then they said synergy delivery was behind schedule. So we can expect an adj EBITDA loss from RadiumOne in the FY18 numbers. YuMe was adjusted EBITDA profitable, so this would help to offset the RadiumOne loss.
It seems to me they must have come close to guidance (adjusted for acquisitions) on adjusted EBITDA

Plus they've done 2 major acquisitions in the year.

So light on revenue, close on adjusted EBITDA and 2 acquisitions. But the acquisitions give them scale, so the revenue miss is outweighed (I would say) by the acquired revenue and improved profitability going forward.

So I'd say a resounding success for FY18. Sort of guided, came reasonably close to guidance and also delivered 2 big acquisitions which vastly increase scale. Then on cash, they're actually significantly operating cashflow positive it appears, which would be a huge change and testament (so far) to the logic of the scale-giving acquisitions.

But the real reason for optimism is the actual guidance for FY19. No longer just pointing to consensus but stating that they believe they "are well-positioned to deliver a further strong performance in FY2019 - fully in line with current consensus estimates in market"

And as others have posted market estimates (Whitman Howard, Numis) are mouth-watering.

And all that against the background of a huge sell off in the share price over the last year - which must have left many shareholders fearing that the TU would reveal an obvious (in hindsight) reason for the sell off.

How's that for considered optimism?

.No advice intended of course and please do your own research.

I know some posters like posts to be put on all bulletin boards rather than just one, so in that spirit, here is one I put on one of the other ones earlier this evening.

The rational bull case.

Perhaps it's time to step away from the blizzard of ad-tech posts (often repeated ones at that) and look at the big picture bull case.

Below is the post I put up, in response to a request from precinct I think, to flesh out the optimism I initially expressed when the full year trading update came out back in April.

I think it pretty much still holds water. Basically they've done what they said they would over the last couple of years, the financial trends look good and they are guiding to analyst consensus, which last time I saw looked pretty exciting.

There are a couple of wrinkles since then. Firstly, revenue expectations seem to have come down a bit, with Eric Singer expressing surprise at the AGM that anyone would have an objection to cutting out marginal revenue - so revenue expectations down, but adjusted ebitda expectations unchanged as far as I am aware. And secondly, the operating cash picture is a bit tricky to unpick because of exceptionals and working capital movements. A more detailed post can be found here for anyone interested:

[can't really post the link, so you have to look for post 5386 on one of the other RTHM boards]

And finally, in the interests of transparency, some disclosure. Firstly I am very long R1 (one of my top 2 holdings) and secondly, because I am long, I am looking for an opportunity to reduce and currently intend to sell a very small proportion of my holding if the share price gets to around 270p.

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[The earlier post, from 19th April, full year TU day]

Fleshed out optimism then.

They have basically delivered over the last 2 years in my opinion. If you look at the trends they are exciting, albeit starting from a low base. If I have the numbers right, some key metrics are:

Revenues:
FY16 $167m
FY17 $175m (including discontinued ops)
FY18 $255m

Adjusted EBITDA:
FY16 -$10m
FY17 +$1m
FY18 +$14m

Profit/Loss:
FY16 -$92m
FY17 -$19m
FY18 -$?m {-$8m in 1H)

Cash from operations:
FY16 -$6m (Net cash used in operating activities)
FY17 -$6m
FY18 +$7m (corrected)

stt1: 60% increase in a month not spectacular in your eyes. Now you're embarrassing yourself.

The SP performance around the last TU was quite spectacular. Using Yahoo! Finance data we had:

159p 4th April close
178p 18th April close
---------19th April 7am TU----------
208p 19th April close (220p intraday high)
244p 1st May (260p high)

So a rise of over 60% from the 4th April close to the 1st May peak.

What caused it? I would say anticipation of the TU probably caused a bit of a run-up into the TU but then the main boost came simply from the TU confirming that broadly the company was on track (ref my "considered optimism" post so kindly copied here by someone recently). The enthusiasm lasted for a couple of weeks before, apparently, worries set in again.

So it is perhaps worth thinking about what might happen if the next TU is an "exceeding expectations" one. Could the momentum then be sustained into the actual 1H results and beyond?

That sort of thinking is perhaps why some might be so keen to talk down the share ahead of the TU, to keep the price in the zone they consider reasonable for investing if the results do show the company is performing.

And on timing of the TU, I suppose they might get it out a bit earlier than last time, given it's half-year rather than full-year and they've had another 6 months to get integration processes working, but I would have thought the week of 15th October would be a reasonable working assumption.

Trying to claw its way back toward £3 by the look of it. 280p paid there, albeit for tiny volume.