RTHM.L Regulatory News (RTHM)

RHYTHMONE PLC ANNOUNCES UNAUDITED

FIRST HALF FINANCIAL YEAR 2017 RESULTS

Company Exceeds Expectations, Led by 45% Growth of "Core" Programmatic Products, and Reaffirms Return to Full-Year Profitability in Financial Year 2017

London, England and San Francisco, CA - 15 November 2016 - RhythmOne plc (LSE AIM: RTHM, "Company" or "Group"), today reports unaudited results for the six months ending 30 September 2016 ("H12017" or "the Period"). The Company's H12017 conference call will be webcast live at https://investor.rhythmone.com on 15 November 2016 at 9:30AM GMT; 4:30AM EST; 1:30AM PST. 

Financial Highlights

· Structural transformation to Core mobile, video and programmatic products is now complete, focus moves to growth and profitability;

· Accelerated investments and success in Core programmatic products drove financial performance ahead of expectations in the first half of the year, across key metrics:

- Revenues of $80.7M (H12016: $91.3M), 83% from Core products;

- Core product revenues of $67M (H12016: $63M);

- Programmatic revenues of $55M (H12016: $38M), 45% growth year-on-year;

- Adjusted EBITDA1 loss of ($2.5M), a 63% improvement over H12016.

· Achieved profitability on an adjusted EBITDA1 basis in each of the last two months of the Period, significantly ahead of internal estimates;

· Invested approximately $7M in development and capital investments, working capital and restructuring and acquisition-related costs, to end the Period with a strong debt-free balance sheet with over $69M in cash, cash equivalents and marketable securities;

· Continued cost discipline, with OpEx during the Period of $36.5M (H12016: $49.2M), a decrease of more than 26% or $12.7M over the previous year.

Operational Highlights

· Continued to build and scale an industry leading programmatic platform, RhythmMax, which now drives a majority of the Company's revenues and represents a c. $100M per year run rate business that was entirely built within one year;

· Continued drawdown of Non-Core and transition of non-programmatic products to the programmatic platform;

· Increase in supply footprint with access to over 440M unique users across all formats, establishing platform as one of top five Supply side players by size, globally;

· Total programmatic transaction volume grew by over 85% year-on-year, with notable increases in quality and pricing;

· Programmatic KPIs for the Period are as follows:

· Simultaneously launched in 9 international markets, including Canada, Australia and 7 EU countries, which collectively now represent over 10% of Core programmatic revenues;

· Enhanced proprietary brand safety technology ("RhythmGuard") through integrations with all major traffic quality partners, including White Ops, Integral Ad Science, DoubleVerify, Moat and Pixalate, and ad quality verification partners The Media Trust and RiskIQ; 

· Added or ramped over 50 new and existing programmatic demand side partners, including marquee platforms such as The Trade Desk, DataXu and Mediamath;

· Added over 18 supply partners, including SpotXchange, Facebook (LiveRail) and Teads.tv;

· Forged or expanded direct relationships with major brands such as Honda, McDonalds, Dr. Pepper Snapple Group, Ford, Exxon, Nestle, Verizon and T. Marzetti Company.

Commenting on the results, S. Brian Mukherjee, CEO of RhythmOne, said: "It is encouraging to see the financial results of the Company begin to reflect our strategic and operational focus on Core mobile, video and programmatic products, as we continue to draw-down Non-Core and non-programmatic product lines. Driven by the 45% growth in programmatic revenues, Core products now represent 83% of total revenues, compared with 69% in H12016.

Within the course of a year, the team has successfully built and scaled an Industry-leading, +$100M run-rated programmatic business, which ranked as high as #3 in quality and #4 in size globally. RhythmMax maximizes the efficiency of brand-consumer interactions by delivering unique audiences of uniform quality, on a unified platform, at scale. Programmatic revenues during the Period grew well in excess of Industry growth rates - a trend we expect to continue.

We believe that the significant steps we took last year to realign the business around our Core capabilities have begun to show evidence of success, and have set us on course for both top-line revenue growth and a return to full year profitability this financial year. The strong traction gained with Core products, now enables us to accelerate the planned drawdown of Non-Core product lines, and explore acquisitions in order to augment our strategic capabilities and catalyze financial performance in the second coming of ad tech - characterized by fewer, fully integrated players that deliver scale, scope, reach and effectiveness to advertisers and publishers alike."

Notes:

1. This press release contains references to adjusted EBITDA and adjusted Loss for the Period attributable to equity holders of the parent. These financial measures do not have any standardized meaning prescribed by IFRS and are therefore referred to as non-GAAP measures. The non-GAAP measures used by RhythmOne may not be comparable to similar measures used by other companies. Adjusted EBITDA is defined as profit/(loss) attributable to equity holders of the parent before interest, other expenses, taxes, depreciation and amortization, share based payment expense, acquisition and exceptional costs. Management believes that this measure is a useful supplemental metric as it provides an indication of the results generated by the Company's principal business activities prior to consideration of how the results are impacted by non-recurring costs, how the results are taxed in various jurisdictions, or how the results are affected by the accounting standards associated with the Group's share based payment expense.

2. Q12016 and Q22016 KPIs are adjusted to reflect on-platform (RhythmMax) and off-platform (third-party) programmatic products.

3. Volume of transactions (ad requests) processed through the platform. Volumes are continuously optimized for performance and yield.

4. Proportion of the transaction volume monetized. The Q12016 and Q22016 adjustments now include combined on-platform and off-platform metrics, which resulted in year-on-year increases in volume and price, and a decrease in the fill rate due to improved quality controls and yield optimization.

5. Average price across all ad formats, expressed as Cost per Mille or Thousand Impressions.

Press Contacts for RhythmOne

Overview

As indicated at the start of the Period, the operating theme for Financial Year 2017 is sustainable growth and a return to profitability, accomplished through a dramatic shift in the revenue, product and cost profile of the Company. Over the past six months, RhythmOne continued to invest in its Core strategic capabilities of mobile, video and programmatic trading. Concurrently, the Company accelerated its drawdown of certain historical Non-Core and also non-programmatic product lines that no longer are considered strategic to future growth and will cease to be the focus of ongoing operations.

Performance in H12017 was led by strong growth in Core revenues and, in particular, programmatic trading. The Company achieved profitability on an adjusted EBITDA1 basis in each of the last two months of the Period, significantly ahead of internal estimates. This performance was fueled by the rapid expansion of the Company's unified programmatic platform, RhythmMax, which led 45% growth in programmatic revenues year-on-year, contributing $55M in revenue during the Period, compared with $38M during H12016. The platform also experienced an 85% increase in transaction volumes year-on-year.

The Company's product investments during the Period were fully aligned with key Industry growth vectors. Programmatic trading is now well established as the primary buying mechanism for digital advertising. Over 73% of digital display ad spend is now executed through programmatic channels. This number is expected to grow to over 82% of spend by 2020. This trend applies not only to desktop display advertising, but also to the rapidly growing mobile and video segments. Over 75% of mobile display and over 60% of video advertising will be programmatic in 2016; mobile and video are expected to grow at compound annual growth rates of 29% and 31% respectively over the next two years. This points to an important shift in how online advertising is being bought and sold - no longer are advertisers buying ads on specific websites as a proxy for audience segments; rather, they are buying actual audiences, across connected devices and ad formats, based on measurable data and in real time.

These fundamental shifts are ushering the "Second Coming of AdTech". Within its Core focus, the Company has identified two key areas of investment and differentiation, in order to drive ongoing growth within this new landscape:

1) A unified, cross format, cross device programmatic advertising platform; and

2) Owned or controlled, unique, high quality audiences

1) Unified Programmatic Advertising Platform

RhythmOne spent much of calendar year 2016 focused on integrating its supply footprint. The RhythmMax programmatic platform was purpose built to deliver highly targeted audiences across all devices and formats, at significant scale. A majority of the Company's supply sources is now aggregated and accessible through RhythmMax, providing advertisers with an efficient and effective, turnkey solution.

During the Period, RhythmOne integrated its platform with over 30 industry-leading programmatic supply and demand partners, including marquee names such as Facebook, SpotXchange and Teads.tv. The Company expects demand-side integrations to continue to ramp, including through international expansion across key EMEA and APAC regions, with a corresponding increase in programmatic revenues. Simultaneously, RhythmOne attracted new and repeat advertisers, including Honda, McDonalds, Dr. Pepper Snapple Group, Ford, Capella University, Crystal Farms, T. Marzetti Company, Exxon, Nestle, Reckitt Benckiser and Verizon.

Leveraging its industry-leading RhythmGuard technology, RhythmOne has taken highly visible measures on brand safety - a prerequisite for attracting and maintaining premium demand. Ad fraud, viewability and verification continue to be key areas for advertisers. According to the Association of National Advertisers (ANA), ad fraud will cost advertisers $7.2B in 2016, up nearly $1B since 2015. During H12017, the Company continuously enhanced its proprietary brand safety filtering technology, RhythmGuard, which eliminates suspicious and underperforming traffic before it reaches the marketplace - improving ROI for advertisers and maximizing yield for quality publisher partners.

Complementing its RhythmGuard brand safety initiative, RhythmOne also partnered with all major viewability and verification vendors, including White Ops, Integral Ad Science, DoubleVerify, Moat and Pixalate, whom the Company believes will be instrumental in helping to establish common standards for the Industry. RhythmOne has contributed to shaping these standards through its work with OpenVV.org, membership in the Interactive Advertising Bureau ("IAB") and participation in the Trustworthy Accountability Group ("TAG") initiative. Equally, on the Demand side, the Company further enhanced its creative scanning and ad verification processes through integration with The Media Trust and RisqIQ, the two leading ad quality vendors. Complementing the significant scale, scope and reach of RhythmMax, brand safety has become one of the fundamental tenets of the platform. RhythmOne remains committed to providing the highest levels of quality assurance to its advertising partners as it seeks to maximize the return on digital advertising spend.

2) Unique Audiences

In addition to platform investments in RhythmMax, the Company also has sought to distinguish its supply footprint by offering unique owned, controlled and first-look audiences that are compelling to advertisers and brands. During the Period, RhythmOne made significant improvements to the content and targeting features available through its owned and operated websites: All Music, SideReel and Celebified, serving as a critical test platform to enhance its quality and targeting algorithms for the Company's controlled and extended supply. In addition, the Company significantly improved the performance of its Software Development Kit (SDK) that is distributed to mobile application developers, to provide ad blocking mitigation tools, offer further MOAT integration and support additional browsers. The Company also continued to develop several new tools and services to attract and retain quality, high-value publisher partners. Header bidding is one such tool. Also known as advance bidding or pre-bidding, header bidding is an increasingly popular programmatic technique that allows Publishers to offer their inventory in advance to select partners, before putting it up for general auction through the Ad Server. By letting multiple, higher value demand sources bid on the same inventory at the same time instead of through a waterfall structure, publishers in theory are able to increase their yield and better monetize their content. The Company has developed a header bidding solution that allows publishers to make RhythmOne one of their select demand partners.

Another pioneering initiative designed to enhance the experience for RhythmOne publishers is called Support Free Content. This initiative arose out of the need to recapture revenues lost due to ad blocking. Support Free Content helps publishers address ad blocking by offering consumers choice - gating their access to publisher content via a set of monetization options that range from subscription, to white listing within their ad-blocker, to downloading a browser extension that provides alternative avenues for monetization. Finally, through its Advanced Creative Platform (ACP), RhythmOne continues to invest in creative innovation. In alignment with recently released guidelines from the Interactive Advertising Bureau (IAB), RhythmOne is expanding its ad portfolio to take advantage of the latest features and standards that allow for greater creative innovation and interaction within standard "polite", or programmatic-friendly, ad units. As programmatic adoption continues to grow, the Company believes that the ability to offer bespoke, high-impact creative ad units that are contextually relevant and exclusive to supply within its platform, will be a key differentiator - and another proxy for unique inventory.

Market

Online advertising continued to demonstrate strong growth in 2016. Today, worldwide digital ad spend accounts for 35% of total media ad spend, or approximately $195B of over $550B in total - and is projected to grow at a 15% CAGR over five years (2016-2020), nearly 6 times the rate of population growth and faster than any other industry. By 2020, worldwide digital ad spend is projected to ramp significantly to $336B, which would equate to almost half (46%) of total media ad spend of over $730B.

Programmatic trading, or the automated buying, selling and fulfillment of ads using technology, is now the most common buying modality for display, mobile and video advertising. In the US, eMarketer estimates that programmatic display ad spend will reach $25B in 2016. Of that amount, mobile programmatic accounts for seven out of ten programmatic dollars (70%, or $18B) spent. Mobile - and especially mobile video - is quickly becoming the advertising format of choice, and is gaining programmatic adoption. In fact, three out of four US mobile display ad dollars will transact programmatically in 2016 (75%). This represents a slightly larger share than programmatic digital display ad spending as a whole (73%), mainly because of the influence of social network ad buying.

Key sector trends of note include:

1. The majority of US digital display ad dollars (73%, $25B) will be spent through programmatic channels, and that share is expected to rise dramatically (82%, $38B) by 2018. Much of this growth is led by programmatic spend on mobile and video advertising. Mobile programmatic accounts for 70% of all programmatic spend overall. For video, 2016 will mark the first year in which more than half of US digital video advertising will be sold programmatically - accounting for 60% of total video ad spend. Within programmatic trading, there is a distinct and growing sub-trend around "Direct" or "Private Marketplace" transactions, where supply and demand partners pre-select one another.

2. An overwhelming majority of Internet users consumes video. In the US, nearly two-thirds of the population views digital video. Concurrent with increased consumption, video advertising spend is projected to increase at 15% CAGR over the next five years. According to eMarketer, advertisers will spend $10 billion on video this year and that figure is projected to increase significantly by 2020, reaching an estimated $18 billion.

3. Smartphone and tablet use is surging - and advertising dollars are following suit. In 2016, nearly 80% of US Internet users use a smartphone and 63% use a tablet. In line with this trend, mobile advertising spending in 2016 is expected to outpace desktop/laptop spending by $20 billion. Within mobile, video ad spending is projected to reach nearly $4.5 billion in 2016 (almost 10% of total mobile spending).

4. Ad blocking in the US continues to be a concern for online advertisers. In 2016, an estimated 70M people in the US will use an ad blocker, a jump of 34% over 2015. Next year, that figure is anticipated grow by another 24%, to 87M people. Globally, ad blocking has seen growth of nearly 41% over the past 12 months with nearly 200M people today using ad-blocking software. The estimated impact of this trend on publishers is a potential revenue loss of between 10% and 50%. Publishers are employing a number of tactics to preserve monetization - serving more "native" ads that are delivered directly from publishers' content management systems so that they are harder to block, installing anti-ad blocking software and enabling pay walls to access content. Currently, the impact of ad blocking on RhythmOne's business has been minimal, since the Company only counts unblocked inventory in its opportunity set. However, ad blocking does highlight a larger trend - the need to establish a sustainable value exchange equation that is respectful of consumer choice, impactful for the advertiser, sustainable for the publisher and effective at scale, which makes the Company's investments in unique supply and publisher tools even more critical.

5. Ad fraud, viewability and verification continue to be top-of-mind for advertisers. The Industry has taken critical steps to monitor internally and self-correct this issue. According to the ANA, ad fraud will cost $7.2B in 2016, up nearly $1B since 2015. Creating an environment for clean, trustworthy transactions is an industry imperative both for the supply and demand sides of the value chain. The Company's proprietary RhythmGuard brand safety technology has been a significant and differentiating asset, helping to ramp existing Demand sources and onboard new partners during the Period.

6. Another noteworthy trend is the rise of influencer and native advertising. Both of these advertising segments allow for brands to authentically connect with consumers, either through their social channels and communities, or as a more integrated part of the web experience. By 2021, native ad spending will more than double to reach $36.3 billion. There is also a significant opportunity to realize economies of scale by delivering these types of advertising programs programmatically. RhythmOne launched its RhythmInfluence and RhythmContent offerings during the Period, allowing the Company to participate in the growing spend associated with these channels. Both offerings tap into the Company's programmatic inventory for increased scale and efficiency.

7. Proprietary data segmentation is driving efficient audience targeting. The ability to marry third-party segments with a brand's first party data is one of the ways advertising technology platforms are seeking to differentiate themselves. According to the IAB, the number one topic that will command the lion's share of marketers' attention in 2016 is cross-device audience recognition. One of the key benefits that RhythmOne provides is the ability to leverage data across its significant supply footprint, including 300M device IDs and data from campaigns run across the Company's platform. Not only does this allow RhythmOne to offer more effective cross-device targeting, it also presents an opportunity to enhance location and beacon-based targeting, as well as dynamic ad delivery. The Company has already begun to explore packaging this data in ways that resonate with advertisers, while maintaining Consumer privacy - making its campaigns more attractive because of their ability to reach discreet user segments with a compelling message across devices and formats, at scale.

8. The opportunity is global. Total worldwide ad spend is set to top out at $195 billion in 2016. Of that, 37% is being spent in the US ($72.1 billion). This leaves a significant opportunity for growth internationally, especially via programmatic advertising. By 2019, global spend is projected to be about even across desktop banner, desktop video, mobile banner and mobile video. This growth trajectory aligns with RhythmOne's plans to expand its programmatic offering. The Company launched the platform in 9 new international markets during the Period, with plans to add additional EU and APAC markets in calendar year 2017.

9. Industry consolidation continues to increase with the "Second Coming of Ad Tech." Figures released by Ad Ops Insider reveal there were over 125 significant M&A transactions in the Media space from January-October 2016, with an estimated value of over $129B - including such large deals as AT&T (Time Warner), with Microsoft (LinkedIn) and Verizon (AOL and Yahoo!) being the most notable within the Ad Tech subsector. Point solutions are becoming increasingly unsustainable and some platforms that have achieved substantial scale have not yet hit key profitability milestones. Industry consolidation also represents a potential path to scale quickly. As parts of the ecosystem combine, there will be opportunity to augment the Company's supply footprint. During the period, RhythmOne continued to actively assess a number of strategic M&A opportunities across Demand, Audience, and Performance segments of the ecosystem, as a means to accelerate revenue scale, profitability and long-term competitiveness.

Technology & Products

Throughout the Period, RhythmOne continued to invest in products, platforms, research and development, with a focus on enhancing and expanding the Company's programmatic trading capabilities. The Company also invested in products and services to attract high-quality publishers. The RhythmMax platform grew sharply and the Company processed over 7 trillion programmatic requests during the Period (up 86% year-on-year), or on average 40B requests per day.

RhythmMax now provides a centralized platform to access cross-device, cross-format RhythmOne inventory across Owned, Controlled and Extended supply sources. It also provides advertisers with the flexibility to purchase the Company's supply through their desired buying modality, whether traditional direct deals, private "walled garden" marketplaces with closed site lists, or via auction-based mechanisms - all of which use the OpenRTB (Real-Time Bidding) protocol. Through RhythmMax, advertisers can reach target audiences to achieve measurable ROI at their desired spend level through a single entry point.

To support this growth, RhythmOne has updated its international data centers and increased capacity (server and network) across its infrastructure. These integrations let agencies and brands access RhythmOne's global inventory on-demand. With programmatic trading gaining in prominence, RhythmOne's unified platform allows the Company to represent its inventory through automated trading channels in a highly efficient manner, at scale. However, the average fill rate of 0.56% during the period means that less than 1% of this supply was monetized - representing a massive, captive growth opportunity, as additional demand integrations are completed. Importantly, high-value ad formats such as video, rich media and native, remain to be fully integrated and scaled, which could materially increase both fill rate and price.

RhythmOne also made critical enhancements to its RhythmGuard technology, including the development of automated creative scanning and ad quality verification processes. These added protections help to increase transparency around supply and demand quality. The result is a highly differentiated marketplace proposition that allows the Company to enrich inventory made available to advertisers through its programmatic channels, and drive greater demand. Through RhythmMax, the Company can provide one of the cleanest sources of pre-filtered, verified and targetable inventory in the Industry, at scale. These capabilities make the platform strategically important to key ecosystem partners, including Mobile and Cable Carriers, Web, Video and App Developers, Content Publishers, Trading Desks, Agencies and Marketers. During the period, the Company ranked as high as #3 on Pixalate's Trusted Seller Index, featuring in the top 2% of Industry peers globally.

On the supply side, RhythmOne developed several tools designed to attract and retain high-quality publisher and app developer partners. Specifically, the Company built and released header bidder functionality, which helps advertisers better monetize their inventory. In addition, as part of the Company's Support Free Content initiative, RhythmOne built a tool that helps publishers address ad blocking by offering consumers choice - gating their access to publisher content via a tree of monetization options. The release of this feature on the Company's owned and operated properties resulted in engagement rates in excess of 80%, a dramatic drop in ad blocking from 18% to less than 6%, and a 10% lift in revenues. In addition, the Company released a new version of its software development kit (SDK) for mobile app developers, allowing for easier installation and campaign management, as well as deeper reporting features. The SDK supports all standard video and rich media ad units and includes emerging viewability standards for both display and video.

Finally, RhythmOne also made enhancements to its Advanced Creative Platform (ACP), a self-serve utility that allows demand partners to dynamically build custom rich media ads. ACP is expected to drive parallel revenue streams - a modest software-as-a-service (SaaS) revenue from demand partners that access the tool independently for ad production, and greater incremental media fees for advertisers that use the tool as a value-add platform within the RhythmOne programmatic marketplace.

These developments represent a significant step forward as the Company bundles its products and technology to better serve advertisers and publishers in a competitive and challenging marketplace, and continues to invest in capacity to drive future growth.

Integration and Operating Discipline

In line with its recent integration initiatives, the Company has reduced its headcount to 265 from a peak of over 364 employees, and has consolidated offices from 21 to 11 globally. RhythmOne also built a highly efficient and scalable hybrid cloud infrastructure that facilitated reduction of its operations infrastructure from 12 legacy and acquired data centers to 5 globally distributed ones. During the Period, RhythmOne made significant enhancements to its infrastructure in Amsterdam, enabling the Company to better serve the EMEA market.

The Company continues to exercise strong operating discipline, with OpEx during the Period of $36.5M (H12016: $49.2M), a decrease of more than 26% or $12.7M over the previous year. Moreover, the Company has now fully integrated its technology stack and is beginning to reap the benefit of gearing inherent to this operational model.

Financial Highlights

During the Period, revenue totaled $80.7M, compared with $91.4M in revenue reported for the half year ended September 2015 (H12016). The Company saw strong revenue growth in its Core products including programmatic, mobile and video ad formats, which accounted for 83% of the overall H12017 revenues versus 69% in H12016, as it continued to draw down Non-Core and non-programmatic revenues. Programmatic revenues have grown 45% year on year, accounting for 83% of total Core revenues. Adjusted EBITDA for H12017 was ($2.5M) compared with adjusted EBITDA of ($6.8M) for H12016, a 63% reduction. Loss from operations for the period was ($10.7M) which decreased from ($79.2M) for H1-2016. Adjusted loss from operations for H12017 was ($6.3M) compared with an adjusted loss from operations of ($13.1M) for H12016.

The total expense base for H1 2017 was $87.0M compared with $104.5M for H1 2016, a 17% reduction. Cost of revenues of $50.6M increased to 62.6% of revenues compared with 60.5% last year, driven by a shift in product mix. Operating expenses of $36.5M decreased from $49.2M, a 26% drop year-on-year, driven primarily by the benefits accrued due to prior year cost reduction initiatives and operational improvements.

Total loss for the period was ($10.9M) compared to ($79.5M) for H1-2016. Adjusted net loss for H1 2017 was ($6.5M) compared with an adjusted net loss of ($13.4M) for H12016, a 54% reduction year on year.

RhythmOne's cash and marketable securities as at 30 September 2016 totaled $69.2 million, compared with $78.5 million at 31 March 2016. The decrease of $9.3 million during the Period included $2.5 million in Adjusted EBITDA loss, $2.0 million to fund working capital seasonality, $3.0 million in development and capital investments, $1.3 million in restructuring charges, and $0.5 million in acquisition related costs. The principal risks and uncertainties affecting the Group have not changed since those disclosed in the annual report for the year ended 31 March 2016.

Outlook

Building on the results of H12017, the Company anticipates continued Core revenue growth throughout Financial Year 2017, led by its programmatic capabilities. The industry is fast culminating in the second coming of Ad Tech, characterized by fewer, dominant, better integrated players that are able to deliver sustainable value to both Demand and Supply sides of the value chain. The Company now has the unique combination of technology, talent and relationships in place to scale both organic and inorganic growth as the Industry continues to evolve and consolidate.

RhythmOne expects its unified programmatic platform, RhythmMax, to be the primary engine for growth across the Company's selling channels, facilitating the delivery of targeted, quality audiences, across devices and formats, at scale - globally. Programmatic growth in Financial Year 2017 is anticipated to derive from a number of well-understood drivers, including: international expansion across EMEA and APAC regions; the addition of unique and exclusive supply, fueling greater demand, fill rates and pricing; the delivery of high impact, high margin video and rich media campaigns programmatically; higher pricing as a result of data-driven targeting capabilities; increased throughput from existing supply and demand side relationships; new direct and programmatic supply and demand side partners; and the establishment of private (trading) marketplaces to directly connect preferred supply and demand within the RhythmMax platform.

In addition to organic growth, the Company also is assessing a number of strategic M&A opportunities across Demand, Audience and Performance segments of the ecosystem, as a means to fortify its programmatic base, and augment its scale, financial performance and long-term competitiveness.

RhythmOne enters the second half of the financial year in a confident position, with a product portfolio that is well aligned with Industry growth trends. Based on current visibility and despite the planned simultaneous drawdown of Non-Core and non-programmatic products, the Company reaffirms its expectations for both top-line revenue growth and a return to full-year profitability in FY2017.

RHYTHMONE PLC

CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)

Results for the six months to 30 September 2016 (in thousands, except per share amounts)

*Adjusted for acquisition and exceptional costs of $1.7m (FY2016:$61.0m) and amortization of purchased intangibles of $2.7m (FY2016: $5.1m).

** Adjusted for acquisition and exceptional costs of $1.7m (FY2016:$61.0m), amortization of purchased intangibles of $2.7m (FY2016: $5.1m), and other expense of $16 thousand (FY2016: other expense of $27 thousand).

RHYTHMONE PLC

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

For six months ended 30 September 2016

RHYTHMONE PLC

CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

As at 30 September 2016

(in thousands)

RHYTHMONE PLC

CONDENDSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)

For the six months to 30 September 2016 (in thousands)

RHYTHMONE PLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

For the six months to 30 September 2016 (in thousands)

RHYTHMONE PLC

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

1. General information, basis of preparation and accounting policies

RhythmOne plc ("the Company") is incorporated in England and Wales under the Companies Act 2006. The address of the registered office is 40 Dukes Place, London, EC3A 7NH, United Kingdom. The Company is a public limited company, which is listed on the London Stock Exchange (AIM).

These condensed interim financial statements were approved for issue on 15 November 2016.

The Company and its subsidiaries provide internet advertising services primarily to its customers in the U.S. The Group's business is not significantly seasonal.

These condensed interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2016 were approved by the board of directors on 17 May 2016 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. Statutory financial statements for the year ended 31 March 2016 are available on the Company's website www.investor.rhythmone.com.

These condensed interim financial statements have been reviewed, not audited.

These condensed interim financial statements for the six months ended 30 September 2016 have been prepared in accordance with the AIM rules and with IAS 34, 'Interim financial reporting', as adopted by the European Union. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 March 2016, which have been prepared in accordance with IFRSs as adopted by the European Union.

These condensed interim financial statements have been prepared on a going concern basis. The directors have considered the financial resources of the Group and the risks associated with doing business in the current economic climate and believe the Group is well placed to manage these risks successfully. The directors have reviewed management's business plan setting out key business assumptions and considered it to be reasonable and are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future being a period of no less than 12 months from the date of signing of this interim report. Accordingly, they continue to adopt the going concern basis in preparing this interim announcement.

The accounting policies adopted are consistent with those of the previous financial year. Amendments to IFRS's effective from the financial year ending 31 March 2017 are not expected to have a material impact on the Group.

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these condensed interim financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 March 2016.

The group's activities expose it to a variety of financial risks. These are discussed in detail in the group's annual financial statements as at 31 March 2016. There have been no changes in the risk management department or in any risk management policies since the year end.

The directors consider that the principal risks and uncertainties which may have a material impact on the Group's performance in the second half of the financial year remain the same as those outlined in the Annual report for the year ended 31 March 2016.

As discussed in detail in the Group's Annual report for the year ended 31 March 2016, RhythmOne has one operating and reportable segment in accordance with IFRS 8. Discrete financial information is only available for the whole Group and the Group's chief operating decision maker reviews financial information for the Group as a whole.

2. Share-based payments

Included within operating expenses are the following amounts in respect of share based payments:

3. Taxation

Income tax expense is recognised based on management's estimate of the weighted average annual income tax rate expected for the full financial year.

The tax charge for the six month period ended 30 September 2016 was $0.4 million compared to $0.2 million for the six month period ended 30 September 2015. The tax charge for the Period represents the best estimate of the average annual effective income tax rate expected for the full year plus the effect of discrete items recognized in the period. The Company has not recognized an additional deferred tax asset for the current period losses, which has reduced the effective tax rate, but has retained the previously recognized deferred tax asset based on future forecasts and expected loss utilization.

4. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following information.

* Adjusted for acquisition and exceptional costs of $1.7m (FY2016: $61.0m), amortization of purchased intangibles of $2.7m (FY2016: $5.1m), and other expense of $16 thousand (FY2016: other expense of $27 thousand).

5. Share capital

The increase of share capital in the period relates to the issuance of 1,027,120 shares on the exercise of employee share options.

6. Shares to be issued

The shares to be issued reserve relates to shares that are expected to be issued to former Burst shareholders, as part of the consideration, who have not yet submitted the paperwork to effect the exchange of Burst shares for RhythmOne shares.

7. Acquisition and exceptional costs

In line with the way the Board and chief operating decision maker review the business, large one-off acquisition and exceptional costs and other costs related to acquisitions such as amortization of purchased intangibles, are separately identified and adjusted results are shown. The types of costs included within acquisition costs are those which are directly attributable to an acquisition, such as legal and accounting expenses, integration costs, severance and retention remuneration. The types of cost considered exceptional include restructuring charges, goodwill impairment and change in intangible asset life.

Acquisition and exceptional costs:

Restructuring charges during the current period relates mostly to onerous leases. During the Period ended 30 September 2015 the Company took decisive steps to build out its Core Mobile, Video and Programmatic capabilities and began to exit and limit investments in historical product lines that are considered Non-Core, including certain Desktop products, services and technologies. Based on these actions and an adjusted forecast due to weaker than expected performance of some products, certain value of Goodwill related to Non-Core legacy assets acquired was impaired as the recoverable amount was less than its carrying value, leading to a non-cash impairment charge of $50.3 million. In addition, management assessed the useful lives of certain legacy acquired intangible assets and consequently have recognized an accelerated amortization charge of £9.0 million in the Period ended 30 September 2015.

8. Related party transactions

The directors are considered to be the Group's key management personnel. Their remuneration is disclosed within the Directors' Report as reported in the Statutory financial statements for the year ended 31 March 2016 which does not form part of this report. There were no other related party transactions in either the current Period or prior Period.

9. Financial instruments

Marketable securities represent the only category of financial instruments which are carried at fair value.

Marketable securities:

Marketable securities are denominated in US dollar. The maximum exposure to credit risk at the reporting date is the carrying value of the debt securities classified as marketable securities. None of these financial assets is either past due or impaired.

There were no changes in valuation technique of the above assets during the Period.

The fair value of the following financial assets and liabilities approximate their carrying amount:

· Trade receivables

· Other receivables

· Cash and cash equivalents

· Trade and other payables

Independent review report to RhythmOne plc

Report on the Condensed interim financial statements

Our conclusion

We have reviewed RhythmOne plc's Condensed interim financial statements (the "interim financial statements") in the first half financial year 2017 results of RhythmOne plc for the 6 month period ended 30 September 2016. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the AIM Rules for Companies.

What we have reviewed

The interim financial statements comprise:

· the Condensed consolidated balance sheet as at 30 September 2016;

· the Condensed consolidated income statement and the Condensed consolidated statement of comprehensive income for the period then ended;

· the Condensed consolidated cash flow statement for the period then ended;

· the Condensed consolidated statement of changes in equity for the period then ended; and

· the explanatory notes to the interim financial statements.

The interim financial statements included in the first half financial year 2017 results have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the AIM Rules for Companies.

As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The first half financial year 2017 results, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the first half financial year 2017 results in accordance with the AIM Rules for Companies which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the company's annual financial statements.

Our responsibility is to express a conclusion on the interim financial statements in the first half financial year 2017 results based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the AIM Rules for Companies and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the first half financial year 2017 results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

Uxbridge

15 November 2016

a) The maintenance and integrity of the RhythmOne plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.

b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.