Xlmedia Regulatory News (XLM)

XLMedia PLC

("XLMedia" or "the Group" or "the Company")

Final results for the year ended 31 December 2016

Another strong financial performance driven by organic growth and diversification

XLMedia (AIM: XLM), a leading provider of digital performance marketing services, is pleased to announce its final results for the year ended 31 December 2016.

Financial highlights

· Revenues increased 16% to $103.6 million (2015: $89.2 million);

· Gross profit increased 30% to $53.3 million (2015: $41.1 million);

· Adjusted EBITDA increased 22% to $34.6 million (2015: $28.4 million);

· Profit before tax increased 28% to $31.0 million (2015: $24.3 million);

· Net income increased 27% to $25.6 million (2015: $20.2 million);

· Strong balance sheet with $35.2 million cash and short term investments;

· Earnings per share increased 20% to $0.12 (2015: $0.10); and

· Final dividend of $7.5 million or 3.7864 cents per share, making a total of 7.6069 cent per share for the year.

Operating highlights

· Strong organic growth in the publishing business, mainly in English speaking markets and non-Scandinavian European markets;

· Significant progress in the media segment underpinned by strong mobile penetration:

o Dau-Up received Facebook marketing partner status for technology; 

o New mobile offering enabling additional performance models (incl. revenue share);

· Continued diversification of the business:

o The gambling sector represented 70% of Group revenues in 2016 (2015: 74%, 2014: 83%);

o The Group's largest customer accounted for 7% of total revenues in 2016 (2015: 9%, 2014: 15%);

o Revenues from Scandinavia were 32% of the Group's revenues with an additional 27% from other European countries and 21% from North America.

Post period end - further diversification through acquisitions

· Acquisition of mobile platform ClicksMob Inc ("ClicksMob"):

o Provides performance-based user acquisition to leading apps;

o Strong mobile user acquisition technology; and

o An established customer base in Asia and in non-gambling verticals such as e-commerce, travel, entertainment and finance.

· Acquisition of Greedyrates.ca ("Greedyrates"):

o Greedyrates is one of Canada's leading credit card comparison websites;

o Increases the Group's North American customer base; and

o Further demonstrates XLMedia's ability to diversify its revenue streams - this time into the financial services sector.

Ory Weihs, Chief Executive Officer of XLMedia, commented:

"We are proud to have delivered another record breaking year in which we have made further progress in executing on our strategic priorities and generated significant value for our shareholders. Our strong financial performance coupled with our ability to maintain a market leading position is supported by our commitment to invest in proprietary products whilst integrating complementary acquisitions.

"The Board would like to thank management and our employees for another excellent year of results and remain committed to delivering further progress in 2017."

Our full annual financial statements are available on our website at the following address:

http://www.xlmedia.com/company-reports/

For our Company presentation please visit:

http://www.xlmedia.com/media/

A webcast of our results presentation will be available on our website later today: http://www.xlmedia.com/media/

A presentation for retail and private investors will be held at 4.00pm on Wednesday 8 March 2017 at the offices of Berenberg (60 Threadneedle Street, London EC2R 8HP). Admittance is strictly limited to those who register their attendance for the event. To register, please contact Vigo on xlmedia@vigocomms.com.

For further information, please contact:

Business review

2016 was another strong year for the Group, with record breaking revenues and profits, reflecting the Group's consistent execution of its stated growth strategy.

Our strategic plan is focused on the following key growth initiatives:

· broaden our reach to additional geographies and verticals;

· continue to develop our technology infrastructure to enable growth and increase our competitive edge; and

· make selective acquisitions that diversify and develop the Group's core operational base.

2016 was another successful year of progress in all aspects. We have achieved diversification both geographically and vertically through a blend of acquisitive and organic growth. Our efforts during the year brought to close two acquisitions in early 2017:

· Acquisition of Greedyrates, which was completed in January 2017. Greedyrates is the Group's first significant publishing asset in the financial services vertical and significantly enhances the customer base in North America.

· Acquisition of ClicksMob, which was completed in February 2017. ClicksMob enhanced the Group's presence in the fast growing market for mobile apps, and delivers an enlarged customer base, with over 30% of revenues from Asia.

Further diversification was achieved through organic growth, and a focus on non-gaming apps, e-commerce, and English speaking markets.

Technology is a key component to maintaining the Group's competitive edge and driving growth. During the past year we have continued to invest in our technology infrastructure and achieved a number of key milestones:

· Dau-Up, the Company's mobile and social media performance marketing platform, was awarded Facebook marketing partner status for technology with Facebook recognising the benefits of the Group's bespoke Rampix system in optimizing campaign management for user acquisition across the Facebook platform.

· The Group continued to improve Palcon, our proprietary platform for centralised management of websites. During the year we saw improved performance, particularly in mobile, of websites migrated to the Palcon platform. Traffic and click-through rates improved for these websites, which we expect to drive performance and revenues in the publishing business.

· We further enhanced our internal business intelligence systems to support the growing scales of data produced. Our systems ingest data from thousands of sources daily, which is then processed and analysed to provide business information for campaign and asset optimisation.

· Our technology teams consisted of 80 employees at the end of 2016, up from 57 at the beginning of the year. This includes both product and development teams and we continue to value the acquisition of talent as a key driver in supporting our organic growth initiatives.

The Group continues to work on broadening our offering in order to drive organic growth, leveraging our existing channels, customers and markets to grow revenues as well as targeting new channels, customers and markets.

The integration of Dau-Up and Marmar Media was completed during 2016 and included the streamlining of both companies into one location and the rationalization of their information systems. We have also optimised our joint sales capabilities in order to better cross-sell our services across existing and new customers. This optimisation has resulted in increased revenues, mainly from existing customers taking additional services from across our enlarged platform.

We have extended Dau-Up's activities into non-gaming apps and introduced performance based revenue share agreements for mobile apps alongside the Cost Per Installation (CPI) model. 

The Group also delivered strong organic growth in the publishing segment, mainly in key strategic geographies, notably English speaking and other European countries (outside Scandinavia).

As we add more services, customers and verticals we expect the Group to continue to see benefits of scale with improved operational infrastructure as well as further diversification of the customer base. In 2016 the largest customer in the Group accounted for 7% of Group revenues and we believe that figure will continue to decline.

The Company has maintained its progressive dividend policy by declaring a final dividend of $7.5 million or 3.7864 cents per share payable on 7 April 2017 to shareholders on the register at 17 March 2017. The ex-dividend date is 16 March 2017. Together with the interim dividend of 3.8205 declared in the interim results, this amounts to a total dividend for the year of 7.6069 cent per share.

Business Segments review

Publishing

Publishing revenues grew 52% to $46.1 million (2015: $30.3 million). The growth was primarily organic, with some additions from new assets acquired at the end of 2015.

We invested significant amounts in technology infrastructure to support the centralised management of our assets and we have seen improvement in conversions and performance of our assets as a result, particularly in mobile.

In January 2017, we announced the acquisition of Greedyrates, a leading Canadian credit card comparison website. This acquisition is our first significant publishing asset in the financial services vertical, and is in line with our stated strategy to expand both geographically and in sector expertise. The consideration of $9.3 million is presented as payment on account of website acquisition on the balance sheet as of 31 December 2016 since the payment for the acquisition was deposited in escrow at the end of December 2016.

Media

Media revenues grew 4% to $47.6 million (2015: $45.8 million). The growth in the media segment is attributed to strong growth in the gambling verticals offset by a decrease in activities in the utilities verticals, as flagged at the interim results. As we continue to diversify our business and add more verticals we expect overall growth to be less volatile. The recent acquisitions of Greedyrates and ClicksMob have added more customers and verticals to our portfolio and we expect the media division to deliver stronger growth in 2017.

In 2016 we continued to invest in developing our mobile proposition and enhancing our capabilities in that area. This included the integration of media acquisitions into the Group, creating a unified platform from which to offer broad media solutions to customers, and investing in systems and additional performance models.

Mobile marketing continues to drive digital advertising growth with recent research showing digital advertising revenues in the U.S having increased 19% to $32.7 billion in H1 2016, versus the same period in 2015. In addition, 67% of time spent online is spent on mobile devices with 47% of US advertising revenues in H1 2016 generated through mobile.1 As the industry shifts to mobile we continue to establish our position as a leader in mobile and the acquisition of ClicksMob, a specialist in mobile user acquisition, is a further step in achieving this.

Direct profit from media for 2016 was $13.8 million or 29% of revenues compared to $15.4 million or 34% or revenues in 2015. As we further grow the media operations in mobile and new verticals we expect to see growth in lower margin products which will in turn lower the overall margin for the division as a percentage of revenues but increase the absolute profit for the division.

Partner Network

Partner network revenues decreased to $9.9 million (2015: $13.1 million, 2014: $6.1 million) as result of a review of our partner base. As part of our ongoing business development and process enhancement activities, we commenced a full review of our partners in this network, with a view to implementing a more stringent sign up and operations criteria. Where necessary, the Group will also cease activity with certain partners to improve overall quality. The consequence of this review has been a reduction in revenues from this segment in 2016. Our partner network serves as a complimentary channel, giving us the opportunity to provide marketing services to clients which are not currently serviced through our existing publishing and media divisions.

Current Trading and Outlook

We have made a strong start to 2017 with sales across all products and verticals progressing well. The integration of the recently acquired ClicksMob and Greedyrates businesses is on track and once completed, these acquisitions are expected to add significant value to the Group.

The Board therefore looks forward to another year of strong growth and is extremely confident of the medium term trading prospects of the Group.

Financial review

With record revenues and profits, 2016 was another great year for the Group.

Revenues for the year were $103.6 million, reflecting 16% growth compared to the last year. The increase in revenues was mainly due to strong organic growth in the publishing segment in the year. The media division continues to be the largest segment generating 46% of FY16 revenues. Strong organic growth drove publishing revenues and profits as the second largest segment with 44% of FY16 revenues.

Gross profit reached $53.3 million or 51% of revenues, representing 30% growth compared to last year (2015: $41.1 million, 46%). The material margin improvement in gross profit during the year stems from the higher growth in the higher-margin publishing segment.

As we continue to implement our strategy to further increase and develop our media business, we expect the Group's revenue mix to shift further towards media, reducing gross margins. Whilst this shift will lower total gross margins (in terms of percentage) across the Group we expect this impact to be more than offset by an increase in higher margin activity in the Group's publishing division.

Operating income increased to $30.1 million or 29% of revenues (2015: $23.0 million, 26%), again due to the higher profitability of the publishing segment, as a result of the organic growth during 2016.

Operating expenses included $2.2 million for research and development expenses (2015: $1.4 million) in addition to capitalized R&D of $3.1 million (2015: $2.0 million). We continue to expand our technology infrastructure, and as at 31 December 2016 our technology and product teams consisted of 80 people compared with 57 people at the beginning of the year. We continue to develop our in-house technology base in order to maintain our competitive edge and drive growth further.

Adjusted EBITDA2 reached $34.6 million or 33% of revenues, reflecting an increase of 22% to the previous year (2015: $28.4 million, 32%).

Net financial income for the year was $0.9 million, attributable mainly to the Company's dynamic hedging activity to mitigate material exposure to foreign currencies. As a significant portion of the Group's revenues are denominated in Euros, the Company entered into a series of forward contracts for the sale of Euros and purchase of US Dollars. Additional forward contracts were entered into for the sale of British Pounds and for buying Israeli Shekels for lesser amounts. The Euro exchange rate decreased by 3.4% versus the US Dollar during this period. The Company gained financial income from its hedging activity which partially compensated for the decrease. The majority of financial income was recorded as fair value gains for forward contracts not yet matured and therefore was not received in cash. The Company has entered into additional forward contracts which will mature over the course of the next 12 months.

As a result of the high adjusted EBITDA as well as the financial gain from changes in exchange rates, profit before tax increased by 27% to $31.0 million (2015: $24.3 million).

As of 31 December 2016 we had $35.2 million cash and short term investments compared to $42.6 million on 31 December 2015. The change in cash reflects an increase of $27.0 million provided by operating activity, offset mainly by use of $21.7 million on investments in technology and acquisitions and $12.4 million of dividends paid during 2016.

Current assets at 31 December 2016 were $56.7 million (31 Dec 2015: $60.9 million) and non-current assets reached $70.4 million (31 December 2015: $57.9 million). The increase in non-current assets is attributed mainly to the investments in domains and websites, as well as additions to our in-house technology.

Total equity on 31 December 2016 reached $103.3 million, or 81% (2015: 75%). This, with cash and short term investments of $35.2 million, positions the Group well to continue executing its strategic plan.

1 - IAB/PwC Internet Ad Revenue Report, HY 2016 - industry survey conducted by PwC and sponsored by the Interactive Advertising Bureau (IAB), November 2016

2- Earnings before interest, taxes, depreciation and amortisation and adjusted to exclude share based payments and expenses related to acquisition agreements

*) Lower than USD 1 thousand.

NOTE 1: GENERAL

(a) General description of the Group and its operations:

The Group is an online performance marketing company. The Group attracts paying users from multiple online and mobile channels and directs them to online businesses who, in turn, convert such traffic into paying customers.

Online traffic is attracted by the Group's publications and advertisements and are then directed, by the Group, to its customers in return for mainly a share of the revenue generated by such user, a fee generated per user acquired, fixed fees or a hybrid of any of these models.

For further information regarding online marketing and the Group's business segments see Note 2.

The Company commenced its operations in 2012. The Company's registered office is located in 12 Castle Street, St Helier, Jersey.

On 21 March 2014 the Company completed an Initial Public Offering ("IPO") on the London Stock Exchange's Alternative Investment Market (AIM).

(b) Assessment of going concern:

The Board of Directors has adopted the going concern basis of accounting in preparing the consolidated financial statements.

NOTE 2: OPERATING SEGMENTS

(a) General:

The operating segments are identified on the basis of information that is reviewed by the chief operating decision maker ("CODM") to make decisions about resources to be allocated and assess its performance. Accordingly, for management purposes, the Group is organised into operating segments based on the products and services of the business units and has operating segments as follows:

Segment performance (segment profit) is evaluated based on revenues less direct operating costs.

Items that were not allocated are managed on a group basis.

 (b) Reporting on operating segments:

(c) Geographic information:

Revenues classified by geographical areas based on internet user location: