Member Info for Brassneck

Unusual to see the share price hold up at the end of the day!

Well I've had a quick look at the model I was running vs the TU. I had Adj EBITDA at 21.7m so a little above the TU for H1 taking mid-point of 20m.

But if I replace the revenue number to 175m instead of my 205m the Adj EBITDA would drop below 10m. Given there are limited changes possible on Adj EBITDA (eg exceptionals are neutralised) then to get back to their stated range they must have made more progress on the margin number and reduced operating expenses.

As an idea of possible outcomes if you assume a gross margin of 46% instead of 44% and Op Ex of 76m instead of 83m you are back to 20m. Both could be possible. Due to the YUME acquisition I've always said the Op Ex number i had could be quite a way out. Equally margin could be up to 47% and Op Ex at 77.5m.

Either route would give an operating profit of c5m from which exceptionals would then come off. 'Normal' exceptionals I would expect c4-5m but you never know what they may throw in!

Turning to cash I amended the working capital requirement to 10m as 1GW was quite right, last October they split out the working capital element to 7m (on 114m revenue so i scaled it up for this year's revenue). Still got 5m cap ex and 3m cash exceptionals (i expect any other exceptionals they throw in to be non-cash). All of this would mean cash ending maybe 2m above the year end level at 29m.

It's then very difficult to run through to FY19 but if you simply run through the H1 assumptions in to H2 I would get the following headlines:
Revenue 385m (downtuned revenue based on H1 being short)
Operating profit 22m (deduct your own choice of exceptionals to get PBT)
Adj EBITDA 54m
Cash 74m (before acquisitions or buy back!!)

Notes out from Whitman Howard and N1 Singer. WH very positive and reaffirm prcie targets etc. N1 reviewing forecasts and TP as H1 revenue short of their 204m and Adj EBITDA short of their 23.5m. They expect FY19 concensus to drop by c10% but still be in high 40m's and so still very cheap on current valuation.

Adj EBITDA at c20m is good to see. I had them around 22m with a PBT of c1-1.5m so at 20m adj EBITDA I think they might post a small loss at PBT unless there are other write offs that will be booked that will distort the picture further.

Revenue is light though. I had expected much nearer to or above 200m. So either volumes are down or pricing has slipped in Q2. I think we need to see the greater detail on metrics that we normally get with the trading updates. We could do with evidence of organic revenue growth as I can't see it at present.

Beyond on track for H1 no real answers today.

I suspect he’s on the edge as he’s seen the TLY shareprice.

Thanks for the posts 1GW.

A reasonable take I think. As a long on R1 I'm still a bit nervous about the H1 FY19 TU/results.

At an industry level the growth is clearly there, no matter what others may say about GDPR etc, digital advertising, programmatic and mobile/video growing strongly. The problem is R1 can't evidence traction on organic revenue growth.

The big numbers aren't clean that would make forecasting your own view of likely outcome easier. With the YUME acquisition key areas of Ops expenses, restructuring costs and cost saving realisation are open to different views and working capital movement difficult to predict if you're not on the inside.

I do think they have largely hit their profit forecast (at Adj EBITDA) over the last couple of years and been very clear in both FY18 results and 1Q TU they are in line this year on profit. I don't see that anything has changed negatively to impact this.

As such I'm expecting a positive update mid October, even if cash reeduces a bit due to seasonal working capital movement. If they can evidence organic growth and cost savings in line with plan then we'll be set for a very good run through to Christmas. Who knows, Stt may even buy some with his TLY profits.

This is worth a read:

http://www.theedgemarkets.com/article/tech-programmatic-ads-are-changing-media

I like this bit from the article: ...By next year, half of all digital ad spending could be programmatic, Magna Global notes in a recent report. Brand safety concerns and anxiety over recent data scandals are not having any discernible impact on digital advertising growth, the report says. Programmatic ad spend is forecast to grow to over 57% of digital display ad transactions by 2020, from just over 40% currently.

Decent uptick yesterday, highest since June last year. I know there’s no correlation to commercials but good to see. Topped 300m for the month too for first time in over a year.

Wow 1GW, good luck with your 12.36 post. I think you forget Stt won't like a company forecast for 400% growth in FY19 and with free cash flow of 40-50m whether it has either 75m or 27min the bank. He's looking for another company with say 11m of cash, marginal profitability, at an earlier stage in its transformation than R1 and preferably in a heavily political public arena, one which would have to do a placing of shares as no bank in their right mind would lend to it. That would be far safer than R1.

I would think it’s there as a working capital buffer. I suspect like all businesses the cash position will be at its best at end of half and year end. As has already been said most proper businesses would have the same in place. I also don’t know if any bank that lends money to anyone without having first claim on assets, way ahead of other creditors or shareholders. I think it shows a lot of confidence by the bank in R1’s future.

Thanks 1GW. I've tweaked the margin and op ex to 44% and 83m respectively, also reduced the exceptionals by 1m in H1. Doesn't do much to the EBITDA number but the change in exceptionals would be enough to move in to a positive PBT! I await your feedback on cash position which is the sensitive area!

Thanks for the positive comments guys, just trying to raise the standard of discussion. Time of course will tell but I do also think hitting close to those numbers must rerate the shares.

Thanks 1GW, would appreciate your views on this. The areas where I could be way out (apart from revenues!) are the assumptions on working capital, increase in dept and amortisation following Rad1 and Yume and operating expenses. I'm not an accountant and have never worked in the city so it's really just my commercial read of the trends applied to previous results that guide my view. I also ignored any broker notes/forecasts as I don't know what assumptions they are making in their analysis. If you end up thinking it's rubbish then let me down gently!

That leaves the nasty cash bridge which R1 always leave to last, again very difficult to judge what are reasonable assumptions here.

H1 Cash bridge - Opening cash 27.3M
- Adj EBITDA 21.7M
- Share issuance 0 (was a positive in H1 FY18 but don't see that they gained cash from share issunace)
- Acquisition 0 (assumed no cash costs as no acquisitions made)
- Working capital -20M (was -11.2M in H1 FY18 so assumed with greater revenues working capital will flow out in similar proportion)
- Exceptional payments -5M (cash cost of exiting people)
- Cap Ex -5M (about double H1 FY18 in line with greater scale of business - and GDPR!)

Closing cash 19M

If this is anywhere near it would explain why a buy back in H1 was not felt sensible. Until having a go at the bridge I'd assumed we'd be increasing cash in H1 not seeing more flow out.

H2 Cash bridge
- Adj EBITDA 26.9M
- Share issuance 0 (same as H1)
- Acquisition 0 (assumed no cash costs as no acquisitions made)
- Working capital 27M (big health warning here. In last year's year end cash bridge they had working capital at +4.6M after being -11.2M at H1. They seemed to bridge from the year start of 75.2M cash not the H1 close position. So that would be a flow back of 15M so I've uplifted by the same ratio as other areas to increase 15M to 27M. If working capital only came back by 4.6M in H2 FY18 then this year it might be 10M)
- Exceptional payments -2M (cash cost of exiting people)
- Cap Ex -5M (same as H1 and shape of FY18)

Closing cash 66M (or 49M if other working capital assumption used)

Either way, a huge bounce back in cash and why they positioned any buy back in to the second half.

There are some very knowledgable posters on here so very happy for people to put up alternative assumptions or rationale. This is just my view and hopefully not too rose tinted.

If you thought the last one had some dodgy assumptions wait for this. Adj EBITDA seems a mystery to most investors so I've looked at FY18 and made a few guesses to come up with a version for H1 and H2 FY19

H1 Adj EBITDA bridge
- Finance Income / Expenses 0.1M (same as prior year)
- Taxation 0 (same as prior year)
- Depreciation & Amortisation 14M (increase from 7.7M H1 FY18 for impact of acquisitions)
- Share based payments 0.8M (similar to prior year plus a bit as they like shares for free)
- Exceptionals 7M (as per Stat profit assumed level)
Total 21.9M

H1 Adj EBITDA Profit 21.8M v 3M H1 FY18

FY19 Bridge (these are full year numbers not just H2)
- Finance Income / Expenses 0.2M (same as prior year)
- Taxation 0 (assumed the FY18 -9M tax benefit was a one off)
- Depreciation & Amortisation 28M (H1 assumption doubled)
- Share based payments 2.5M (similar to prior year plus a bit as they like shares for free)
- Exceptionals 10M (as per Stat profit assumed level)
Total 40.7M

This would give a full year Adj EBITDA profit of 48.6M

Well it's all a bit slow so I thought I'd post my very dodgy views on trading, adj ebitda and cash across 3 posts for H1 and H2. I will add any assumptions as with this year being so different to last year it is a case of shooting in the dark on some areas, not least operating expenses, depreciation & amortisation and exceptionals as well as working capital being impossible to guesstimate from last year's numbers - but key to H1 cash position. I'm sure people will have their own views so do post them but I've tried to be balanced (honest). So, Part 1 is on PBT: Everything in dollars.

H1 Revenue: 205M (Q1 87m and Q2 using CPM from Q1 and volume & fill rate from Q2 FY18 +3m. This doesn't account for YUME but it doesn't feel like they'll smash 200m in the first half)

H1 Gross Margin: 87.8M (using 42.8% margin from H2 FY18 which reflects YUME inventory. They may improve margin further but don't see a big jump)

H1 Operating Expenses: 81M (this could be some way off. I've added YUME and R1 Op Ex to get 162M and halved it. I have assumed at this level the cost savings on people will be offset by increased Depn and Amortisation following the acquisitions. I doubt they'll comment on this at the TU so will have to wait for H1 actuals in November).

H1 Operating Profit: 6.8M

H1 Exceptionals: 7M (no acquisitions but they will have exited a number of people and other changes integrating YUME so I think we're in for a fairly hefty number, plus of course closing Support Free Content!)

H1 PBT: A small loss <0.5M

For H2...

H2 Revenue: 215M same assumption as H1 using CPM from Q1 and fill/volume from FY18 +5% growth

H2 Gross Margin: 92.1M same margin as H1

H2 Op Ex: 81M same assumption as H1

H2 Operating Profit: 11.1M

H2 Exceptionals: 3M Assumes most of changes have been implemented in first half

H2 PBT: 8.1M

This would mean a real profit for the year of around 7.5M on a statutory basis.

this time next year stevie....

Rubicon very positive on video growth and PMPs. Good job R1 have heard of both and well positioned.

https://rubiconproject.com/insights/press-releases/record-video-growth-h1-2018/

Well, more doom and gloom in ad world, mobile video ad spend only growing at 70-700% year on year...

From the second quarter of 2017 to the second quarter of 2018, mobile video ad spend increased by 239% -- including 688% year-over-year growth via apps, and 73% year-over-year via mobile web.

https://www.mediapost.com/publications/article/324688/in-app-ad-spend-rises.html?utm_campaign=Weekly%20Newsletter&utm_source=hs_email&utm_medium=email&utm_content=65768967&_hsenc=p2ANqtz-_s6kAgcWqdBzsKXjgoR4NgUkF332jBnmbflqx-lfxfx-aa100IbI_O87004rUIpB2NBGbUwSUWhHbK0afQCiXc6YElGw&_hsmi=65768967

We’ll have now read their results release. Don’t they know about the industry challenges? It’s all very upbeat around video and future prospects. Couldn’t see any mention of GDPR having a devastating impact. They seem to think they’ll survive the clamour for ads.txt and fee transparency too as they don’t mention these either. Ignore those at your peril I’d be surprised if they’re still in business at Christmas with the industry challenges they’re ignoring. They’re being blinded by all those positive revenue trends on video and mobile.