KAPE.L Regulatory News (KAPE)

11 September 2017

Crossrider plc

("Crossrider" or the "Company")

Interim results for the six months ended 30 June 2017

Crossrider (AIM:CROS) today announces its unaudited half year results for the six months ended 30 June 2017.

Financial highlights

· Revenue up to $30.1 million (H1 2016: $28.7 million)

o 16% increase in App Distribution revenue to $21.1 million (H1 2016: $18.2 million) and a deferred revenue4 balance of $2.3 million (H1 2016: Nil)

o Media division stable with revenue of $7.3 million (H1 2016: $7.5 million)

· Adjusted EBITDA1 of $2.9 million (H1 2016: $3.5 million). Decrease is due to the decision to cease investment in the legacy web apps platform

o Underlying growth in Adjusted EBITDA1 excluding the Web Apps and License segment of 131% versus H1 2016

· Adjusted cash from operations of $2.6 million (H1 2016: $4.1 million) representing 95% underlying growth excluding cash generated from Web Apps and License segment operations

· Cash conversion from Adjusted EBITDA of 90% (H1 2016: 119%)

· Increase in Media and App Distribution combined segment results2 to $8.4 million (H1 2016: $7.6 million)

· Strong balance sheet with $68.7 million cash (31 December 2016: $72.1 million), after $5.6 million of investing expenditure in the period

Operational highlights

· Integration of recently acquired CyberGhost S.A ("CyberGhost"), a leading SaaS Virtual Private Network provider, now complete and fully integrated into Crossrider's user acquisition platform. CyberGhost is performing ahead of expectations

· Launched Reimage for Mac, a repair product for Mac which is based upon the Company's patented PC repair technology

· Achieved key milestones in the transition of the business towards a pure SaaS model with enhanced earnings visibility:

o 2018 will be the first year that the Company expects to have $8.0 million of revenues from existing users 3 

o Retention rate in the period at 69% of subscriptions from 2016 , providing visibility in revenues moving forward

· The Company continues to leverage its digital marketing platform to grow its customer user base, with 800,000 paying users active across 164 countries

Ido Erlichman, Chief Executive Officer of Crossrider, commented:

"We have made significant headway in developing our product suite in the period, with the acquisition of CyberGhost as well as the launch of Reimage for Mac, both of which are experiencing significant customer traction, demonstrating our capability in leveraging our digital marketing platform and expertise to drive users across our software solutions.

"The $8.0 million of revenue we expect to have visibility over for 2018 - a first for Crossrider- is also testament to the progress we have made in transitioning to a pure SaaS based model with a focus on recurring revenues and product subscription.

"Going forward, we will remain committed to investing in a number of organic growth initiatives, whilst evaluating selective acquisitions which broaden our software portfolio and accelerate our transformation into a global B2C cybersecurity SaaS platform."

1 EBITDA, Adjusted EBITDA and Adjusted cash flow from operations are non GAAP measures. Adjusted EBITDA and adjusted cash flow from operations are company specific measures which exclude certain expenses which are considered to be one off and non-recurring in nature.

2 The segment result has been calculated using revenue less costs directly attributable to that segment.

3 Based on deferred revenue balance and current retention rate for existing subscriptions.

4 Amounts collected from customers in the period and is expected to be recognised as revenue in future periods.

Enquiries

About Crossrider

Crossrider (LSE: CROS) distributes and develops digital products in the online security space. The Company utilises its proprietary digital distribution technology to optimise its reach and create a superb user experience. The Company offers products which provide online security, privacy and optimal online experience. Crossrider's vision is to provide and develop best-in-class digital products for its customers and partners globally.

www.crossrider.com

Chief Executive Officer's review

The Company is pleased to report that in the first half of 2017 it has made progress on all strategic fronts. As a growing player in in the personal cybersecurity arena, Crossrider now has four digital products in its software portfolio with 800,000 paying customers globally.

Following a transformational 2016, we have now successfully refocussed the business and transitioned to a B2C security software and online distribution platform. The success of our restated strategy is evident as the business continues to trade strongly, achieving revenues of $30.1 million and Adjusted EBITDA of $2.9 million in the period. This represents underlying growth excluding the Web Apps division of 131%, when compared to the first half of 2016.

We have four digital products: Reimage, Reimage for Mac, CyberGhost and DriverAgent, with the Company now in a position to leverage its customer base to both cross and up-sell multiple products, as we aim to maximise each user's lifetime value.

In March 2017, we acquired CyberGhost, a leading cybersecurity SaaS provider, with a focus on the provision of virtual private network solutions. We are pleased to report that the integration of CyberGhost is now complete and has been very successful, largely due to the significant operational synergies and cost savings we have seen by combining the two businesses. Now CyberGhost is fully embedded into our digital marketing platform, our team has been able to drive more cost efficient and effective digital user engagement. Most notably, we have been able to drive growth in CyberGhost's active user base by integrating Crossrider's technology and leveraging our digital marketing expertise.

In addition to an ongoing acquisitive strategy, we continue to invest in and develop products internally. In August 2017 we launched Reimage for Mac, our Mac repair product, which is based upon our patented PC repair technology. This will significantly increase our addressable market with the potential to add sales momentum in this space as we are already seeing significant demand from consumers.

Over and above this, one of our key priorities is to transition the business towards a pure SaaS model, to provide the Company with enhanced earnings visibility. 2018 will be the first year since our inception that we aim to have visibility of approximately $8.0 million of revenues from existing users in 2017, a significant achievement as we look to transition the majority of our business to a subscription-based model. Furthermore, we will look in particular to focus on increasing our deferred revenue and retention rates in 2018.

In the second half of the year, our growth strategy will continue to focus around our three key business priorities, which are:

· developing our software product suite to provide a holistic B2C privacy solution to our global customer base;

· leveraging the combination of our growing product suite and digital marketing platform and expertise to grow our user base, in particular by up selling and cross selling across our software portfolio; and

· growing our recurring revenue stream by transitioning to a SaaS model to improve both earnings visibility and the life time value of our customers.

We continue to invest in a number of organic growth initiatives, whilst reviewing selective acquisitions, which include small, bolt-on transactions and more sizeable, transformational deals that bring additional products and users and the greater opportunity to cross-sell our products.

The board remains confident in the outlook for the Company, as we further develop and build upon our software portfolio whilst capitalising on our digital marketing platform to drive customer engagement. This coupled with our transition to a recurring revenue model will result in a leading market position for Crossrider.

Ido Erlichman

Chief Executive Officer

11 September 2017

Chief Financial Officer's review

Overview

The first half of 2017 has seen Crossrider's core App distribution and Media segments deliver strong financial performance. Total reported revenue in the first half of 2017 increased to $30.1 million (H1 2016: $28.7 million) and Adjusted EBITDA decreased to $2.9 million (H1 2016: $3.5 million). The decrease is attributable to the Web Apps and License segment which will wind down by the end of September 2017. Excluding the Web Apps and License segment, revenue has increased by 11% to $28.5 million (H1 2016: $25.7 million) and segment results by 10% to $8.4 million (H1 2016: $7.6 million).

Crossrider remains highly cash generative with cash generated from operations after adjusting for one-off non-recurring items of $2.6 million for the period (H1 2016: $4.1 million), which represents cash conversion of 90% (H1 2016: 119%). The Group balance sheet remains strong with a cash balance of $68.7 million at 30 June 2017 (31 December 2016 $72.1 million) and no debt.

In March 2017, Crossrider completed the acquisition of CyberGhost S.A for a maximum consideration of $9.8 million (€9.2 million) out of which $3.4 million (€3.2 million) was in cash at closing, $3.2 million (€3.0 million) in nominal value share options which are subject to the continued employment of the founder over the vesting period and a deferred earn-out consideration capped at $3.2 million (€3.0 million) million.

In April 2017, Crossrider increased its holding in Clearvelvet Trading Ltd ("Clearvelvet")

, a programmatic video advertising company from 16.67% to 50.01% for an initial consideration of $1.7 million out of which $0.8 million was in cash and $0.9 million conversion of a loan balance. The cash balance of Clearvelvet Trading Ltd at acquisition was $1.4 million. In addition the sellers will be entitled to receive up to a total of $1,400,000 earn-out consideration, to be satisfied in cash subject to their continued employment by Clearvelvet. The earn out consideration is contingent on achieving EBITDA goals of $1,700,000 in 2017 (pro-rated from 60% of target) and $2,200,000 for 2018 (pro-rated from 67% of target).

Segment Result

The Segment Results have been calculated using revenue less costs directly attributable to that segment. Cost of sales comprises commissions paid to publishers and payment processing fees. Direct sales and marketing costs comprise traffic acquisition costs.

During the period, the App Distribution segment has seen continued growth with a significant increase in revenue of 16% to $21.1 million (H1 2016: $18.2 million) and 14% in segment result to $6.7 million (H1 2016: $5.9 million). The increase is attributable to improvement in user acquisition processes and traffic quality which resulted in better conversion rates and a decrease in average user acquisition cost as well as the addition of the DriverAgent and CyberGhost software products to the Company's portfolio.

Revenues and segment results remained stable in the period with a marginal decrease of 2%. The increase in revenue from the company's programmatic video activity has compensated for a decrease in revenue from mobile content and mobile apps marketing verticals.

In accordance with the Board's decision to cease investment in the Web Apps and License segment, which Crossrider reported in 2016, revenue in the period comprised solely from a software licence and services agreement between Crossrider and Playtech Software pursuant to the terms of which Crossrider has granted to Playtech Software a license to use certain software modules for Playtech Software's licensees' branded casino software. The agreement expires on 18 September 2017. Following the expiration of the license and services agreement, no further revenue is expected to be generated from this segment.

Adjusted EBITDA

Adjusted EBITDA for the six months to 30 June 2017 was $2.9 million (H1 2016: $3.5 million). Adjusted EBITDA is a non-GAAP company specific measure which is considered to be a key performance indicator for the Group's financial performance. It excludes other operating income, share based payment charges and expenses which are considered to be one-off and non-recurring in nature and are excluded from the following analysis:

Operating loss

A reconciliation of Adjusted EBITDA to operating loss is provided as follows:

Exceptional and non-recurring costs in H1 2017 comprised non-recurring staff costs of $0.1 million (H1 2016: $0.3 million), $0.2 million (H1 2016: Nil) professional services for acquisitions expenses and $zero of onerous contract write-off (H1 2016: $0.3 million). The increase in Employee share-based payment charge is due to charges from options granted as part of CyberGhost's acquisition. The vesting of these options is contingent on the continued service of the founder and therefore treated as remuneration.

Loss before tax

Loss before tax was $0.9 million (H1 2016: $1.1 million).

Loss after tax

Loss after tax was $1.1 million (H1 2016: $1.3 million). The tax charge derives mainly from Group subsidiaries residual profits. The Group continues to recognise a deferred tax asset of $0.3m (H1 2016: $0.5m) in respect of tax losses accumulated in previous years.

Cash flow

Cash flow from operations was strong at $2.1 million (H1 2016: $2.4 million). Adjusted cash flow from operations after adding back acquisition payments treated as remuneration and payments that are one off in nature, was $2.6 million (H1 2016: $4.1 million). This represented a cash conversion of 90% of adjusted EBITDA (H1 2016: 119%). Excluding cash flow generated from the Web Apps and License segment operations, the underlying growth of adjusted cash flow from operations is 95% from H1 2016.

Net Tax refunds in the period was $0.03 million (H1 2016: Tax payment of $0.8 million).

Cash spent in the period on capital expenditure of $1 million (H1 2016: $0.3 million) comprises capitalised development costs, fixed asset purchases and an advance to a commercial partner. The net cash payments related to the acquisition of CyberGhost S.A and share capital of Clearvelvet Trading Ltd and totalled $4.4 million. Cash payments in respect of previous years' acquisitions totalled $0.2 million (H1 2016 $1.4 million).

Cash inflows from financing activities included $0.3 million of proceeds from the exercise of employee options. 

As a result, net cash outflow from investing and financing activities was $5.3 million (H1 2016: $2.7 million).

Financial position

At 30 June 2017 the Group had cash of $68.7 million (31 December 2016: $72.1 million), net assets of $81.8 million (31 December 2016: $ 80.5 million) and is debt free. At 30 June 2017 trade receivables were $10.7 million (31 December 2016: $5.6 million) which represented 55 days outstanding (31 December 2016: 44 days).

Moran Laufer

Chief Financial Officer

11 September 2017

Consolidated statement of comprehensive income

For the six months ended 30 June 2017

*Adjusted EBITDA is a non GAAP measure. Adjusted EBITDA is a company specific measure which excludes employee share-based payment charges and other operating income and expenses which are considered to be one off and non-recurring in nature. All results are derived from continuing operations.

Consolidated statement of financial position

As at 30 June 2017

Consolidated statement of cash flows

For the six months ended 30 June 2017

Notes

1. General information

The financial information set out in this document is for Crossrider plc (the "Company") and its subsidiary undertakings (together the "Group") in respect of the six months ended 30 June 2017.

Crossrider distributes and develops digital products in the online security space. The Company utilises its proprietary digital distribution technology to optimise its reach and create a superb user experience. The Company offers products which provide online security, privacy and optimal online experience. Crossrider's vision is to provide and develop best-in-class digital products for its for its customers and partners globally.

2. Basis of preparation

These interim consolidated financial statements have been prepared using accounting policies based on International Financial Reporting Standards (IFRS and IFRIC Interpretations) issued by the International Accounting Standards Board ("IASB") as adopted for use in the EU. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 31st December 2016 Annual Report. The financial information for the half years ended 30th June 2017 and 30th June 2016 does not constitute statutory accounts and both periods are unaudited.

The annual financial statements of Crossrider plc are prepared in accordance with IFRS as adopted by the European Union. The comparative financial information for the year ended 31st December 2016 included within this report does not constitute the full statutory Annual Report for that period. The statutory Annual Report and Financial Statements for 2016 have been filed with the Registrar of Companies. The independent Auditors' Report on that Annual Report and Financial Statement for the year ended 31st December 2016 was unqualified, did not draw attention to any matters by way of emphasis.

After making enquiries, the directors have concluded that the Group has adequate resources to continue operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly consolidated unaudited financial statements.

The same accounting policies, presentation and methods of computation are followed in these interim consolidated financial statements as were applied in the Group's 2016 annual audited financial statements. In addition, the IASB have issued a number of IFRS and IFRIC amendments or interpretations since the last Annual Report was published. It is not expected that any of these will have a material impact on the Group. The Board of Directors approved this interim report on 8th September 2017.

3. Segmental information

Segment revenues and results

Based on the management reporting system, the Group operates three reportable segments:

· App Distribution - comprising the Group's distribution and monetization of its own software products and services;

· Media - comprising the Group's ad network activities and associated technology platforms; and

· Web Apps and License - comprising revenue generated from monetising web apps and licencing the associated technology

4. Operating loss

Adjusted EBITDA

Adjusted EBITDA is calculated as follows:

Operating costs

Operating costs are further analysed as follows:

Adjusted operating costs exclude share based payment charges, exceptional and non-recurring costs and amortisation of acquired intangible assets.

5. Shareholder's equity

Ordinary share capital as at 30 June 2017 amounted to $14,164 (30 June 2016: $14,104; 31 December 2016: $14,104).

The number of shares in issue as at 30 June 2017 was 148,496,073 (30 June 2016: 148,496,073; 31 December 2016: 148,496,073).

As at 30 June 2017 6,867,397 shares were held in treasury by the Company (30 June 2016: 7,451,423; 31 December 2016: 7,451,423). During the six months ended 30 June 2017 584,026 shares were transferred from treasury to employees to satisfy options exercises.

During the six months ended 30 June 2017 none of ordinary shares of $0.0001 per value were purchased by the Company (2016: $994,952)

6. Loss per share

Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Adjusted earnings per share is a non-GAAP measure and therefore the approach may differ between companies. Adjusted earnings have been calculated as follows:

The diluted denominator has not been used where this has anti-dilutive effect. Basic and diluted loss per share are therefore the same for reporting purposes.

The difference between weighted average number of Ordinary shares used for basic earnings per share and the diluted earnings per share is 670,728 (H1 2016: 269,069) being the effect of all potentially dilutive Ordinary shares derived from the number of share options granted to employees.

7. Business combinations 

(a) Acquisition of CyberGhost S.A

On 14 March 2017, the Group acquired 100% of the share capital of CyberGhost S.A ("CyberGhost"), a leading cyber security SaaS provider, with a focus on the provision of virtual private network ("VPN") solutions. Prior to the acquisition date, CyberGhost acquired Mobile Concept, a software development company based in Germany, for an amount of €1.5 million.

The acquisition is in line with the Company's stated strategy to broaden its product offering to service high growth consumer markets, of which cyber security is a key vertical.

Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill, are as follows:

Net cash outflow on acquisition of business

CyberGhost was acquired for a total consideration of up to $9.8 million (€9.2 million). The consideration comprise of $3.4 million (€3.2 million) in cash at closing, $3.2 million (€3.0 million) in nominal value share options and deferred earn out consideration capped at $3.2 million (€3.0 million), to be satisfied in cash on a euro for euro basis for the EBITDA of CyberGhost in the 12 months period post completion. $1.9 million (€1.75 million) was paid at closing as a prepayment of the deferred earn out consideration.

The share options consideration comprise of 4,057,813 options that were issued over ordinary shares in the capital of the Company ("Ordinary Shares") exercisable at the nominal value of the shares ("Consideration Options"). The Consideration Options are exercisable in two equal portions on the second and third anniversary of the acquisition completion and contingent on the continued employment of the founder. If exercised in full, the share options would represent 2.87% of the existing issued share capital of the Company.

Following the acquisition date, CyberGhost has issued additional shares to the Company for a consideration amount of €1.9 million that has been paid in cash during the period ended 30 June 2017.

(b) Acquisition of Clearvelvet Trading Limited

On 1 April 2017, the Company increased its holding in Clearvelvet Trading limited ("Clearvelvet") to 50.01% of the share capital of Clearvelvet Limited ("Clearvelvet") by acquiring an additional 33.34% of its issued share capital. In September 2015, the Group acquired 16.67% of the share capital of Clearvelvet Trading Limited for a total consideration of $850,000, of which $350,000 was paid in 2016 with the completion of certain milestones. The remaining 49.99% of the shares are held by the founders of Clearvelvet. Following completion Clearvelvet is considered to be a subsidiary undertaking and has been included in the company's consolidated statements on a basis of full consolidation.

Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill, are as follows:

The initial consideration for the acquisition of Clearvelvet was $1.7 million out of which $894,000 was conversion of the loan given by the Group on January 2016 and cash consideration of $850,000. The cash consideration was paid during July 2017.

In addition the sellers will be entitled to receive up to a total of $1,400,000 earn-out consideration, to be satisfied in cash subject to their continued employment by Clearvelvet. The earn out consideration is contingent on achieving EBITDA goals of $1,700,000 in 2017 (pro-rated from 60% of target) and $2,200,000 for 2018 (pro-rated from 67% of target).

Net cash outflow on acquisition of business

8. Related party transactions

The Group is controlled by Unikmind Holdings Limited incorporated in British Virgin Islands, which owns 73% of the Company's shares. The controlling party is the Solidinsight Trust, established under the laws of the Isle of Man. Mr. Teddy Sagi is the sole ultimate beneficiary of the Solidinsight Trust.

During the period the following transactions were carried out with related parties:

9. Cautionary statement

This document contains certain forward-looking statements relating to Crossrider plc ('the Group'). The Group considers any statements that are not historical facts as "forward-looking statements". They relate to events and trends that are subject to risk and uncertainty that may cause actual results and the financial performance of the Group to differ materially from those contained in any forward-looking statement. These statements are made by the directors in good faith based on information available to them and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.