MTMY.L Regulatory News (MTMY)

Matomy Media Group Ltd 2019 interim Results

29 August 2019

Matomy Media Group | 2019 Interim Results 

Interim results for the six months period ended 30 June 2019 (Unaudited)

Matomy Media Group Ltd. (the "Company" or "Matomy"), a global advertising technology company, announces its interim results for the six months ended 30 June 2019. 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, a market leading domain advertising and monetization platform. 

Matomy's domain monetization activity recorded revenue of $33.7 million and Adjusted EBITDA of $4.9 million in H1 2019. 

Selected Domain Monetization Activity's Financial Data:

In H1 2019, Matomy's domain monetization activity's revenue and Adjusted EBITDA decreased comparing to H1 2018, as a result of changes in compliance requirements, which resulted in negative impact on the Company's financial results.

Matomy sold the mobile advertising platform Mobfox in November 2018, which is classified for accounting purposes as a "discontinued" activity and is excluded from 2018 results below. All other activities that were sold or otherwise closed are referred as "exited" activities and are included in operations and the chart below.

Matomy Non-GAAP Unaudited Financial Highlights:

 *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.

**Adjusted EBITDA

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.

Business and operating highlights

·; Liam Galin Matomy's President and Chief Executive Officer announced his resignation in March 2019.

·; The Company remains focused on its domain monetization activity, in which it has a competitive edge, and exited all other activities. Following such sales, Matomy reduced the corporate team and significantly decreased operational overhead.

·; Due to changes in compliance requirements, a handful of the Company's publishers have been deactivated, which resulted in negative impact on the Company's projected EBIDTA. As a result, the Company recorded goodwill impairment charges of $15,984 related to its Domain Monetisation reporting unit, using a weighted average cost of capital and a long-term growth rate of 15% and 2%, accordingly (see Note 2e in the Company's financial statements).

·; In the six-months period ended 30 June 2019, the Company incurred a net loss of $16.6 million. In addition, the Company's working capital deficiency amounted to $32.6 million as of 30 June 2019. The main factors contributing to this loss were goodwill impairment charges of $16.0 million related to its Domain Monetisation reporting activity, as detailed above (see Note 2e in the Company's financial statements).

·; In the six months period ended 30 June 2019, Matomy's domain monetization activity, now the Company's single activity, generated revenues of $33.7million, (H1 2018: $42.6 million) and Adjusted EBITDA of $4.9 million (H1 2018: $8.5 million).

·; Noncompliance with certain covenants in the bonds triggers an increase of interest (see Note 1c(iv) in the Company's financial statements). As a result of such increase in the interest, the updated annual interest rate for the period commencing on the 1 January, 2019 and through 31 December, 2019 will be 6.5%.

Sami Totah, Chairman of the Board of Matomy, said:

"Matomy continues in its efforts to address the interests of all stakeholders of the Company, including by means of selling its subsidiary Team Internet. Despite recent compliance events, Team Internet continues to show profitability and positive cash flow and we believe it will continue to thrive and succeed"

A copy of this announcement will be available on the Matomy website:

http://investors.matomy.com/rns.aspx.

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 

LinkedIn: www.linkedin.com/company/matomy-media-group 

Twitter: @MatomyGroup

Facebook: www.facebook.com/MatomyMediaGroup

CHAIRMAN'S STATEMENT

Introduction

H1 2019 was a period of regrouping - Matomy completed its reduction of headquarter costs, and Team Internet realigned its activity with revised regulatory requirements.

Operating Performance

In 2019, Matomy showed a decrease in both revenue and EBITDA as it closed all activities outside of domain monetization activity. Following recent compliance events, Team Internet itself, showed a reduction in its financial performance for in H1 2019, but continued to show profitability and positive cash flow.

Outlook

Team Internet has gone through a short challenging period due to changes in its compliance environment. The Company is taking steps to address these changes and to regain its position and momentum. 

Sami Totah

Chairman

OPERATIONAL REVIEW

Revenues by Media Channel

The following table sets out Matomy's revenues by business unit for the six month ended 30 June 2019 and 2018, not including the discontinued Mobfox operations. Mobfox's performance in 2018 is detailed in the financial statements, under the discontinued operations note.

Domain monetization

Domain monetization revenues decreased by $8.9 million, for the six month ended 30 June 2019 compared to 2018, as the Company removed non-compliant traffic sources.

Team Internet's performance is mainly attributable to its leading technology across its various platforms. The technology yields enhanced performance in comparison to peers and has led to increased recruitment of new clients and higher market share.

FINANCIAL REVIEW

Revenue

As Matomy exited non-core activities and removed revenue sources no longer compliant with key partners' requirements, revenues in H1 2019 decreased compared to H1 2018. 

Cost of revenues including exited activities and excluding the discontinued Mobfox operations:

Cost of revenues for the Group (excluding the discontinued Mobfox operations) decreased by $17.7 million, or 40.0%, to $26.5 million (78.6% of total revenues) for the six months ended 30 June 2019 from $44.2 million (81.2% of total revenues) last year.

Other cost of revenues, which includes allocated costs, server expenses and amortization of capitalized R&D and intangible assets, also decreased with the closure of non-core activities.

Adjusted gross margin remained largely consistent, decreased slightly by 2.4%.

Non GAAP Operating expenses including exited activities and excluding the discontinued Mobfox operations and excluding exceptional items

Operating expenses from continuing operations (Non-GAAP) decreased by $4.0 million, or 42.1%, to $5.5 million (H12018: $9.5 million). Operating expenses as a percentage of revenues were 16.3% (HI2018: 17.5%).

The decrease in operating expenses is mainly attributable to the sale of exited activities throughout the year 2018, which lowered general, administrative, sales and marketing costs. This trend is expected to continue through the year 2020. 

Financial expenses (income)

Net financial expenses, excluding bond issuance costs, increased by $1.8 million to $2.1 million income for the six months ended 30 June 2019 (H12018: $0.3 million expense). The increase is primarily due to financial expense recorded due to change in the fair value of the convertible bond, off-set in part by decrease in interest expenses on liability to non-controlling interests.

Taxes on income

Taxes on income (benefit) shifted to $(0.8) million income for the six‐month period ended 30 June 2019 (4.6% of loss before taxes), from an expense of $2.1 million for the same period last year. The low effective tax rate in H1 2019 is due to a $(2.0) million decrease in deferred taxes as a result in decrease in the value of our domain monetization segment.

Amortization of intangible assets

Amortization expenses from continuing operations were $0.6 million in H1 2019 and $2.3 million in H1 2018. The decrease is a result of intangible assets being fully amortised or impaired in prior years and during 2018.

Net loss

Net loss from continuing operations was $16.6 million in H1 2019 (H1 2018: $4.5 million), and total net loss was $16.6 million (H1 2018: $19.1 million). The net loss attributable to Matomy Media Group's shareholders from continuing operations was $16.6 million in H1 2019 (H1 2018: $4.5 million). The Net loss of $16.6 million in H1 2019 was mainly related to impairment of goodwill of $16.0 million and one-off bonus expenses of $1.0 million.

Exceptional items

Matomy views the following items, which were recorded in profit and loss, either as expense or income, as exceptional items which are material to the financial statements and therefore has excluded them from non-GAAP measures:

·; Impairments of, goodwill and capitalized R&D amounting to $16.0 million in H1 2019 and $0.8 million in H1 2018.

·; One-off bonus of $1.0 million in H1 2019 to be paid to Rainmaker for the extension of the cooperation between Team Internet and its unrelated search engine provider

·; Earnout adjustments income of $0 million in H1 2019 and $0.5 million in H1 2018.

·; Restructuring costs (income) relating to the exited and sold activities amounting to ($0.2) million in H1 2019 and $0.8 million in H1 2018.

Liquidity and cash flows

The following table sets out selected cash flow information for the Group for the six months ended 30 June 2019 and 2018.

Cash and cash equivalents decreased by $2.5 million, or 17%, to $11.9 million as at 30 June 2019, compared to $14.4 million as at 30 June 2018.

Cash flows provided by operating activities were 3.8 million in H1 2019. This positive cash flow in H1 2019 is a result of the exit from non-core activities in the end of the year 2018 which was not part of Matomy's activity in 2019

Net cash provided by investing activities of $1.5 million (H1 2018: used $(2.6) million) was mainly related to $1.9 million cash received in H1 2019 from sale of activity in 2018 and decrease in capitalisation of R&D costs and domains investments, reflecting an aggregate increase of $4.1 million compared to H1 2018.

Cash flows used in financing activities increased to $3.7 million (H1 2018: $0.6 million), due to repayment of short term bank credit and bank loans ($3.7). As at 30 June 2019, Matomy had $1.6 million in term loans, of those, $0.9 million are due within one year.

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 1c to the Company's financial statements and to the Auditors' Report.

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. The Company continues in its efforts to sell its holdings in Team Internet to potential buyers. There is no certainty that such negotiations will result in a sale transaction or in a binding agreement (see Note 1c in the Company's financial statements).

Projected Sources and Expected Uses of Funds Statement through December 2020

Pursuant to the requirements of the Hybrid Disclosure Model which apply only to dual listed companies that issue bonds on TASE, this announcement includes a special statement of projected sources and expected uses of funds statement through June 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.

Principal risks

The Directors assess and monitor the key risks of the business on an ongoing basis. The principal risks and uncertainties that could have a material effect on the Group's performance include, among other things, the following:

·; As a result of recent dispositions, reflecting Matomy's recently-adopted strategy, Matomy's operations are currently focused exclusively on the domain monetization business through its subsidiary Team Internet. Such a focus creates a significant dependence on a single Group entity, which scope of business is much narrower and less diverse than the business that the Group as a whole used to operate until recently.

·; If Matomy fails to comply with the terms or covenants of its debt obligations, our financial position may be adversely affected (and see Note 1c of the financial statements for details about Matomy's noncompliance with certain covenants under its publicly listed bonds and about its negotiations with the bondholders in that regard).

·; Matomy is negotiating with Team Internet's minority shareholder, Rainmaker and the holders of its publicly-traded bonds (for description of disputes and negotiations with Rainmaker and the bondholders, see Note 1c of the financial statements). There is no assurance that the negotiations with either Rainmaker and/or the bondholders will be successfully concluded or as to the full implications of not reaching an agreement, or delay in reaching an agreement, with respect to any (or both) of these two main stakeholders.

·; Matomy is attempting to sell its subsidiary Team Internet in order to address the interests of all stakeholders. There is no assurance that such efforts will be successfully concluded.

·; Matomy announced that it was informed by the Trustee of the bondholders and by Rainmaker that Rainmaker and the representatives of the bondholders are having direct discussions in order to reach a potential settlement by and between Rainmaker and the bondholders, to address a scenario in which the sale of Team Internet will not be consummated. The Company is not a party to such discussions. There is no information about the nature of such settlement.

·; Matomy is currently going through changes in its management team thereby adding further managerial challenges in this transitional period.

·; Matomy is dependent on relationships with certain third parties with significant market positions; Specifically, the Group's current mode of operation in the domain monetization business is significantly based on the relationship with significant costumer.

·; Certain internet and technology companies may intentionally or unintentionally adversely affect Matomy's operations, mainly, due to announced or unannounced changes and restrictions by such companies.

·; The delivery of digital ads and the recording of the performance of digital ads are subject to complex regulations, legal requirements and industry standards

·; Matomy's revenue and operating results are highly dependent on the overall demand for advertising. Factors that affect the amount of advertising spending, such as economic downturns, particularly in the fourth quarter, can make it difficult to predict our revenue and could adversely affect our business

·; Seasonal fluctuations in digital advertising activity, which may historically have been less apparent due to our historical core activities and growth, could adversely affect our cash flows and operating results

·; Matomy operates in an intensely competitive market that includes companies that have greater financial, technical and marketing resources than we do

·; The digital advertising industry is highly competitive and fragmented and currently experiencing consolidation, resulting in increasing competition 

·; Matomy relies on the continued compatibility of its technological platforms with third-party operating systems, software and content distribution channels

·; Matomy may be subject to third-party claims brought against it

·; Matomy has historically derived the majority of its revenues from customers that use its solutions for display marketing campaigns which are now rapidly declining

·; The digital advertising industry remains susceptible to fraud

·; Matomy is an Israeli-domiciled company and as such the rights and obligations of shareholders are governed by Israeli law and differ in some respects from English law

·; As a result of the announcement of Brexit, the British government has begun negotiating the terms of the U.K.'s future relationship with the E.U. Although it is unknown what those terms will be, it is possible that these changes may affect our operations and financial results.

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 and between Rainmaker and the bondholders, the business strategy, the sale of Team Internet, 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.

Directors' responsibility

The Directors confirm that to the best of their knowledge the condensed set of reviewed financial statements, which has been prepared in accordance with US GAAP principles, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the undertakings included in the consolidation as a whole as required by DTR 4.2.4R and the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R

 Sami Totah Ilan Tamir

Chairman COO

Reconciliation of GAAP measures to non-GAAP measures

The following table presents a reconciliation of Adjusted gross profit to gross profit and to revenues, the most directly comparable financial measures calculated in accordance with US GAAP, for the periods indicated:

The following table presents a reconciliation of Adjusted EBITDA from continuing operations to net loss from continuing operations, the most directly comparable financial measure calculated in accordance with US GAAP, for the periods indicated:

MATOMY MEDIA GROUP LTD. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED FINANCIAL INFORMATION

AS OF 30 JUNE 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 information of Matomy Media Group Ltd. and its subsidiaries (collectively "the Company"), which comprise the consolidated balance sheet as of 30 June 2019, and the related consolidated information of operations, changes in shareholder's equity and cash flows for the six-month periods ended 30 June 2019 and 2018.

Management's Responsibility for the Financial Information

Management is responsible for the preparation and fair presentation of the interim financial information 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 information 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 information. A review of interim financial information 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 information. 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 information 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 information have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1a to the interim financial information, during the six-month period ended 30 June, 2019 the Company incurred a net loss of $ 16,572, and its working capital deficiency amounted to $ 32,598 as of 30 June, 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 1c. The interim financial information 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 information.

U.S. dollars in thousands

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

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

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

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 information.

US dollars in thousands, except share data

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

US dollars in thousands

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

US dollars in thousands