MTMY.L Regulatory News (MTMY)

Matomy Media Group | First Quarter 2019 Financial Results

Matomy Media Group Ltd. (LSE: MTMY, TASE: MTMY.TA), today announced financial results for the first quarter ended 31 March, 2019.

OPERATING REVIEW - Segment Results for the three-month period ended 31 March 2019

The following table demonstrates Matomy's revenues for the three-month period ended 31 March 2019.

Matomy Media Group Consolidated Results for the three-month period ended 31 March 2019 (non-GAAP):

Following the sale of its Mobile activity in November 2018 Matomy operates in one segment Domain monetization (Team Internet).

* Direct Media Costs

Direct Media Costs are the direct costs associated with the purchase of traffic. These costs include: payments for digital media based on the revenues Matomy generates from its customers on a revenue‑sharing basis; registrar fees for own and operated domains and serving fees for third-party platforms.

**Adjusted Gross Profit / Margin

Adjusted gross profit is a non-GAAP financial measure that Matomy defines as revenues less Direct Media Costs.

Matomy believes that adjusted gross profit is a meaningful measure of operating performance because it is frequently used for internal management purposes, indicates the performance of Matomy's solutions in balancing the goals of delivering results to its customers whilst meeting margin objectives, and facilitates a more complete understanding of factors and trends affecting Matomy's underlying revenues performance.

***Direct Adjusted EBIDTA

Direct Adjusted EBITDA is a non-GAAP financial measure that Matomy defines as Adjusted EBITDA directly attributable to a specific business less the applicable Corporate Allocations assigned to such activity.

***\* Total Corporate Allocations

Total Corporate Allocations is a non-GAAP financial measure that Matomy defines as indirect costs which are allocated across the various business units. They consist mainly of (i) cost of corporate headquarters, including labor costs and related overheads; and (ii) costs associated with being a publicly traded company, such as directors' compensation and expenses, costs relating to investor relations, shareholder meetings and reports to shareholders, directors' and officers' insurance and other executive costs, legal and other professional fees, and listing fees. 

*****Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that Matomy defines as net income before taxes on income, financial expenses (income), net, depreciation and amortisation, share-based compensation expenses (cash and non-cash). Adjusted EBITDA is a key measure Matomy uses to understand and evaluate its core operating performance and trends, to prepare and approve its annual budget and to develop short‑ and long-term operating plans.

Going Concern 

The Company requires additional capital in order to fund its liabilities (such liabilities include, among others, liability to non-controlling interest and convertible bond liability). There is no assurance that the Company will be able to obtain such required additional capital. The Company believes that these conditions raise substantial doubt regarding the Company's ability to continue as a going concern. For further details, refer to Note 1b to the Company's Financial Statements and to the Auditors' Report.

Projected Consolidated Sources and Expected Uses of Funds Statement through March 2020

Pursuant to the requirements the Hybrid Disclosure Model which apply only to dual listed companies that issue bonds on TASE, this announcement includes a special statement of projected consolidated sources and expected uses of funds statement through March 2020 (the "Projected Statement"). The Projected Statement is not intended to create any continuous on-going disclosure obligation for the Company. See Appendix A. See also "Cautionary statement regarding forward-looking statements" below.

Cautionary statement regarding forward-looking statements

This announcement includes certain forward-looking statements, forecasts, estimates, projections, and opinions. These forward-looking statements may be identified by the fact that they do not relate only to historical or current facts or the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. Forward-looking statements include statements regarding the Proposed Plan, the negotiations with Rainmaker and the bondholders, the business strategy, objectives, financial condition, results of operations and market data of the Company and its subsidiaries (the "Group"), as well as any other statements that are not historical facts. These statements reflect the Company's current view concerning future events and are based on assumptions made by the Company (including, without limitation, assumptions concerning currency exchange rate fluctuations, requirements of additional capital, costs of sale or closure of various operations and changes to regulations) and information currently available to the Company.

Although the Company considers that these views and assumptions are reasonable, by their nature, forward-looking statements involve unknown risks, uncertainties, assumptions and other factors because they relate to events and depend on circumstances that will occur in the future whether or not outside the control of the Group. These factors, risks, uncertainties, and assumptions could cause actual outcomes and results to be materially different from those projected. Past performance cannot be relied upon as a guide to future performance and should not be taken as a representation that trends or activities underlying past performance will continue in the future. No representation is made or will be made that any forward-looking statements will be achieved or will prove to be correct. These factors, risks, assumptions, and uncertainties expressly qualify all subsequent oral and written forward-looking statements attributable to the Company or persons acting on its behalf.

The forward-looking statements speak only as of the date of this announcement. Each of the Company and its respective affiliates expressly disclaim any obligation or undertaking to update, review or revise any forward-looking statement and disclaims any obligation to update its view of any risks or uncertainties described herein, or to publicly announce the result of any revisions to the forward-looking statements made in this announcement to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based or otherwise, except as required by law.

No statement in this announcement is intended or is to be construed, as a profit forecast or estimate or to be interpreted to mean that earnings per Company share or overall earnings for the current or future financial years will necessarily match or exceed the historical published earnings per Company share or overall earnings.

By order of the Board:

Sami Totah, Chairman of the Board and Chief Executive Officer (Interim)

Ilan Tamir, Chief Financial Officer (Interim)

About Matomy Media Group Ltd.

Matomy Media Group Ltd. (LSE: MTMY, TASE: MTMY.TA) is a global advertising technology company. Founded in 2006 with headquarters in Tel Aviv and offices in Germany, Matomy is dual-listed on the London and Tel Aviv Stock Exchanges.

For more information:

Press / Investor Relations: 

Noam Yellin

Noam@smartteam.co.il

+972544246720

Website: http://investors.matomy.com 

MATOMY MEDIA GROUP LTD. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF 31 MARCH 2019

U.S. DOLLARS IN THOUSANDS

UNAUDITED

INDEX

- - - - - - - - - - - - - - - - - - -

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The Board of Directors

Matomy Media Group Ltd.

We have reviewed the consolidated financial statements of Matomy Media Group Ltd. and its subsidiaries (collectively "the Company"), which comprise the consolidated balance sheet as of 31 March 2019, and the related consolidated statement of operations, changes in shareholder's equity and cash flows for the three-month period ended 31 March 2019 and 2018.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of the interim financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control sufficient to provide a reasonable basis for the preparation and fair presentation of interim financial statements in conformity with U.S. generally accepted accounting principles.

Auditor's Responsibility

Our responsibility is to conduct our review in accordance with auditing standards generally accepted in the United States applicable to reviews of interim financial statements. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, the objective of which is the expression of an opinion regarding the financial statements. Accordingly, we do not express such an opinion.

Conclusion

Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for it to be in conformity with U.S. generally accepted accounting principles.

Emphasis of Matter Regarding Going Concern

The accompanying interim financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1b to the interim financial statements, during the three-months period ended 31 March, 2019 the Company incurred a net loss of $ 15,362, and its working capital deficiency amounted to $ 31,339 as of 31 March, 2019. These conditions, among others, raise substantial doubts about the Company's ability to continue as a going concern. Management's evaluation of the events and conditions and management's plans regarding these matters are also described in Note 1b. The interim financial statements do not include any adjustments that might result from the outcome of this uncertainty.

U.S. dollars in thousands

The accompanying notes are an integral part of the interim consolidated financial statements.

U.S. dollars in thousands

The accompanying notes are an integral part of the interim consolidated financial statements.

U.S. dollars in thousands except share and per share data

The accompanying notes are an integral part of the interim consolidated financial statements.

US dollars in thousands, except share data

*) Represents an amount lower than $ 1.

The accompanying notes are an integral part of the interim consolidated financial statements.

US dollars in thousands, except share data

US dollars in thousands

The accompanying notes are an integral part of the interim consolidated financial statements.

US dollars in thousands

The accompanying notes are an integral part of the interim consolidated financial statements.

NOTE 1:- GENERAL

a. Matomy Media Group Ltd. ("Matomy") together with its subsidiaries (collectively - the "Company") offered and provided a portfolio of proprietary programmatic data-driven platforms focusing on two core activities of domain monetization and mobile digital advertising to advertisers, advertising agencies, Apps developers and domain owners.

Matomy was incorporated in 2006. The Company's markets are located primarily in the United States and Europe. The Company's shares are traded on the London Stock Exchange and also on the Tel Aviv Stock Exchange.

In the period spanning from mid-2017 through November 2018, the Company exited all of its data-driven advertising platforms with the exception of Team Internet AG ("Team Internet"), a market leading domain advertising and monetization platform, with two key activities: (i) a proprietary domain parking platform that enables customers to monetize their domain portfolios; and (ii) a proprietary self-serve platform that allows publishers and advertisers to buy and sell traffic on a smart programmatic real time bidding model. The Company, through its UK and German subsidiaries, currently holds 90% of the share capital of Team Internet. (Refer to Note 1b(ii)).

In the three-months period ended 31 March 2019, the Company incurred a net loss of $ 15,362. In addition, the Company's working capital deficiency amounted to $ 31,339 as of 31 March 2019. The main factor contributing to this loss were goodwill impairment charges of $15,984 related to its Domain Monetisation reporting activity (see Note 2e).

b. i. The Company requires additional capital in order to fund its liabilities. Such liabilities include, among others, liability to non-controlling interest (minority shareholder in Team Internet) and convertible bond liability (as further described in subsections ii and iii below). There is no assurance that the Company will be able to obtain such require additional capital.

In order for the Company to act in a manner that is intended to address the interests of all stakeholders, the Company has engaged in two parallel processes: first, negotiated a proposed comprehensive plan that will enable it to raise funds from its shareholders, adjust the terms of the Bonds to the Company's current and anticipated financial position and planned future activity, and fund its liability to the minority shareholder in Team Internet, according to main principles that were published by the Company (the "Proposed Plan"), and second, the sale of Team Internet.

In light of the current and anticipated activity and financial position of the Company, it is unlikely that the Proposed Plan in its original structure and terms will be executed, and any potential alternative plan will require adjustments to its terms in order to reflect the current circumstances.

To date, no agreement has been signed and there can be no assurance with respect to the outcome of such discussions between the Company and the various stakeholders, including the bondholders.

NOTE 1:- GENERAL (Cont.)

ii. In accordance with the share purchase agreement dated December 2017 (the "2017 SPA") with the minority shareholders of Team Internet, Rainmaker Investments GmbH ("Rainmaker"), the Company was required to buy the remaining 10% stake in Team Internet (the "Third Sale Exit") from Rainmaker on November 30, 2018. The Company failed to pay the amount due on 30 November 2018, which is claimed by Rainmaker to be equal to EUR 16,015 thousand. Failure by the Company to pay the consideration for the Third Sale Exit, triggers certain rights of Rainmaker, among other remedies, such as interest on late payment and a right to repurchase some or all of the Company's shares in Team Internet, at Rainmaker's discretion, at a price of 60% of the original purchase price paid by the Company on such shares. Such price, after giving effect to the foregoing discount and assuming all shares are purchased is approximately EUR 31,688 thousand. The agreement with Rainmaker also provides that in the event that it can be demonstrated that the failure by the Company, through its UK and German subsidiaries, to make the payment is due to lack of funds despite any and all necessary efforts of the Company to obtain such funds (including by taking loans and selling assets), then the sole remedy available to Rainmaker is the exercise of the repurchase option. If the failure to pay is not as specified above, then Rainmaker is not limited in the legal remedies that it may pursue.

The shares purchased by the Company are detailed below:

On April 4, 2019, the Company received an offer to sell all of its shares in Team Internet (90%), to a German Private Equity fund and Rainmaker, (the "Sale Offer" and the "Potential Purchaser", respectively). Due to changes in compliance requirements, a handful of its publishers have been deactivated, which resulted in negative impact on the Company's financial results (see also Note 2e), the Potential Purchaser has informed the Company that it will require additional time to assess the Company's business and financial position and evaluate the feasibility and pricing of a revised purchase offer, which shall reflect lower economic values compared to the original Sale Offer.

The Company continues in its efforts to sell its holdings in Team Internet to the potential purchaser or to other potential buyers. There is no certainty that such negotiations will result in a sale transaction or in a binding agreement. The Company is evaluating this transaction along with other alternatives and will determine its preferred route.

In addition, under the 2017 SPA, it was agreed by the parties on a one-off bonus of $1,000 to be paid to Rainmaker for the extension of the cooperation between Team Internet and its unrelated search engine provider beyond 31 July 2019. As of 31 March 2019, the Company expected payment for the search engine renewal bonus, and therefore a provision was recorded and the expense was recorded as other expense on the statement of operation for the three-month period ended 31 March 2019.

NOTE 1:- GENERAL (Cont.)

iii. Beginning in the fourth quarter of 2018, the Company has been holding discussions with the trustee of the outstanding Bonds (the "Trustee") and with the representatives and legal counsel of the bondholders in order to reach an agreement to adjust certain terms of the Bonds. 

The bondholders have, among other things, made a claim that they are entitled, at the fourth quarter of 2018, to call the Bonds for immediate repayment based on the "material adverse effect on the Company's business" clause, comparing the then current Company's business conditions and the Company's business conditions as of the bond's issuance date. The Company rejected this claim.

During January 2019, the Trustee issued a voting proxy, according to which the bondholders are requested to either vote in favor of an indicative non-binding approval of the Company's Proposed Plan or demand immediate repayment of the Bonds. On 29 January 2019, the majority of the bondholders voted in favor of the Proposed Plan of the Company and resolved not to require immediate repayment of the Bonds pursuant to that voting proxy. To date no agreement was reached.

Due to the recent developments, as described in Note 1b(i) above, there is uncertainty regarding the feasibility of the execution of the Proposed Plan in its current structure and terms and that it is most likely that the Proposed Plan will require adjustments in order to adapt it to the current and anticipated activity and financial position of the Company.

On July 1, 2019 the Trustee has published a notice to convene a bondholders meeting. On the agenda of such meeting was a resolution of a contingent demand of an immediate repayment of the bonds. According to the notice, if the bondholders approve the resolution on the agenda by a simple majority, and the Company does not make a partial early repayment of the bonds, in the amount of $4,500, within 45 days following the day of the publication of the results of such bondholders meeting, the trustee will demand an immediate and full repayment of the bonds ("Proposed Repayment Demand Resolution").

On July 7, 2019 the Company sent, a letter to the Trustee, in which it argued against such proposed resolution and emphasised the difficulties that such proposed resolution entailed and its potential implications.

On July 9, 2019 the Trustee has published the results of such bondholders' vote, according to which the Proposed Repayment Demand Resolution was rejected.

The Company continues to seek a solution for this situation, and is working closely with the Bondholders' representative to achieve an agreed upon settlement.

iv. In respect of the Company's convertible bond, as described in Note 5 herein, noncompliance with certain covenants during two consecutive quarters constitutes a default event, which under certain circumstances, as detailed in the bond, entitles the holders to claim immediate repayment of the Bonds. The following includes summary of the bond financial covenants:

NOTE 1:- GENERAL (Cont.)

As of 31 March 2019 and 31 December 2018, the Company was not in compliance for two or more consecutive quarters with its Minimum Equity covenant and with the Adjusted EBITDA covenant. Therefore, under ASC 470, Debt, the convertible bond in the amount of $19,828 and $18,540 (principal of $27,808 as of 31 March 2019) was classified to short term liabilities as of 31 March 2019 and 31 December 2018, respectively. As of 31 December2018 the Company was not in compliance with the Net Debt to Adjusted EBITDA Ratio covenant, however, as of 31 March 2019 the Company was compliant with such covenant.

Noncompliance with certain covenants in the bonds triggers an increase of interest. As a result of the Company's Shareholders' Equity being lower than $50,000, the interest rate on the outstanding balance of the principal of the Bonds was increased by 0.5% as of October 1, 2018. In addition, as a result of the Adjusted EBITDA being lower than $10,000, the interest rate on the outstanding balance of the principal of the Bonds was increased by additional 0.5% as of 1 January, 2019. Therefore, the updated annual interest rate for the period commencing on the 1 January, 2019 and through 31 December, 2019 will be 6.5%.

v. On 28 December 2017, major shareholders of the Company holding in the aggregate approximately 30% of the Company's voting share capital, provided letters of support addressed to the Company stating that such shareholders agreed to provide sufficient financial support, if necessary, to the Company to ensure that the Company can continue its operations for at least twelve months from 27 December 2017. Under such letters, all eligible shareholders will have the right to participate under the same terms, which will be determined by the Board, subject to receipt of any applicable shareholder approvals (the "Letters of Support").

With respect to such Letters of Support, the Company received two letters, the first letter from legal counsel to the minority shareholder in Team Internet, Rainmaker, claiming, among other things, that the Letters of Support impose a liability upon such major shareholders to inject funds into the Company in order to enable it to pay the consideration for the Third Sale Exit.  The second letter from legal counsel to the major shareholders, who provided the Letters of Support, which include, inter alia, claims that the obligation under the Letters of Support is intended to cover funding relating to the Company's on-going operations, that is, salaries payments and other on-going expenses etc., but does not cover the consideration for the Third Sale Exit or discharge the Company's liabilities. The bondholders have also raised claims that based on their interpretation, the Letters of Support are intended to cover the payments due to them.

NOTE 1:- GENERAL (Cont.)

On 20 December 2018, the Company received a letter from legal counsel to the shareholders who provided the Letters of Support, confirming that in support of the current discussions among the Company and various stakeholders, including the bondholders, the aforementioned shareholders agree not to claim that the Letters of Support expire with respect to the period up to 10 January 2019. This extension further states that the foregoing extension relates only to the extent of the circumstances under which the major shareholders would have been required to provide support pursuant to the terms of the original Letters of Support until 27 December 2018. The Company received several additional letters from legal counsel to the shareholders who provided the Letters of Support, further extending the Letters of Support as described above up to August 6, 2019.

It should be noted that the Company engaged independent legal experts in order to advise about the appropriate measures and actions it should take in connection with the Letters of Support. In light of the continued negotiations regarding the Sale Offer and the extension of the Letters of Support as described above, the Company is of the opinion that it is not necessary, at this stage, to reach a conclusion regarding the above disputed interpretation of the Letters of Support.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

a. Unaudited interim financial statements

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("US GAAP") for interim financial information. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results for the three-month period ended 31 March 2019 are not necessarily indicative of the results that may be expected for the year ended 31 December 2019.

In the preparation of the interim consolidated financial information, except as described in Note 3, it applied the significant accounting policies, on a consistent basis to the annual financial statements of the Company as of 31 December 2018.

The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's financial statements ("the Annual Report") for the year ended 31 December 2018.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

b. Use of estimates:

The preparation of the consolidated financial information in conformity with US GAAP requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions it uses are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial information, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

On an ongoing basis, the Company's management evaluates estimates, including those related to accounts receivable, fair values of financial instruments, fair values and useful lives of intangible assets and reporting units, fair values of stock-based awards, deferred taxes and income tax uncertainties and contingent liabilities. Such estimates are based on historical experience and on various other assumptions that it believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

c. Internally developed software:

The Company capitalizes certain internal software development costs, consisting of direct labor associated with creating the internally developed software. Software development projects generally include three stages: the preliminary project stage (all costs expensed as incurred), the application development stage (costs are capitalized) and the post implementation/operation stage (all costs expensed as incurred).

The costs capitalized in the application development stage primarily include the costs of designing the application, coding and testing of the system. Capitalized costs are amortized using the straight-line method over the estimated useful life of the software, generally 3 years, once it is ready for its intended use. The Company believes the straight-line recognition method best approximates the manner in which the expected benefit will be derived. During the three month period ended 31 March 2019, the Company capitalized software development costs of $ 156. Amortization expense for the related capitalized internally developed software in the three month periods ended 31 March 2019 and 2018 totalled $ 134 and $1,090, respectively, and is included in cost of revenues in the accompanying consolidated statements of operations. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

Capitalized internally developed software of $ 841 and $ 818 are included in property and equipment in the consolidated balance sheets as of 31 March 2019 and 31 December 2018, respectively.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

d. Fair value of financial instruments

The carrying amounts of financial instruments carried at cost, including cash and cash equivalents, short-term deposits, accounts receivable, prepaid expenses and other assets, accounts payable, accrued expenses and other liabilities approximate their fair value due to the short-term maturities of such instruments.

The Company follows the provisions of ASC 820 which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

In determining a fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an asset or liability, based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect assumptions that market participants would use in pricing an asset or liability, based on the best information available under given circumstances.

The hierarchy is broken down into three levels, based on the observability of inputs and assumptions, as follows:

·; Level 1 - Observable inputs obtained from independent sources, such as quoted prices for identical assets and liabilities in active markets.

·; Level 2 - Other inputs that are directly or indirectly observable in the market place.

·; Level 3 - Unobservable inputs which are supported by little or no market activity.

The following table present liabilities measured at fair value on a recurring basis as of 31 March 2019 and 31 December 2018: