Xlmedia Regulatory News (XLM)

23 July 2020

XLMedia PLC

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

H1 2020 Trading Update

XLMedia (AIM: XLM), a leading global digital performance publisher, today reports on the performance of the Company in the first six months of the 2020 Financial Year, and the progress it is making on its business transformation.

The first half of the year, as previously reported, was impacted heavily by a manual penalty being applied by Google to over 100 of the Company's websites ("Google deranking") in January this year, and the subsequent global slowdown caused by the Covid-19 pandemic. For the first 6 months of 2020 XLMedia expects to report:

· Revenue of approximately $27.5 million

· EBITDA of approximately $3.5 million.

· The Group's balance sheet remains strong, with cash balances at the end of June of approximately $27.9 million.

As anticipated, monthly revenue is currently running around $2 million below the level being achieved before the impact of the Google deranking, with the vast majority of this dropping through to the bottom line. The Company believes that around half of the revenue drop is directly associated with the deranking of these predominantly Casino websites, with the remainder caused by the impact of Covid-19 on the Sports and Personal Finance verticals and the management decision to discontinue the media buying operations.

The first quarter of the year was stronger than the second, with revenue of $15.6 million, due to a normal period of trading before the deranking in late January and the impact of Covid-19 not being felt until the middle of March. A strong focus on cost management and the recently announced reduction in employee numbers contributed to the healthy cash position at the end of June.

Google deranking

The Google deranking in January significantly impacted the search ranking of the affected websites, and therefore the ability to generate new business; 23 of the impacted sites were premium revenue generating assets. The Company has been, and will remain, focussed on reranking these sites. For the last six months, the Company has been raising the quality of the content on the sites to make it more relevant and engaging, including user-generated content, enhancing the offerings for a more targeted audience, assisted by data science, and migrating to an outsourced platform, which enables it to benefit from the accelerated innovation provided by an open-source community. The managed reranking process will begin in August, when the first sites are resubmitted to Google. It is assumed that upon a website having the manual penalty removed, it would take around six months for it to be delivering 50% of the original revenue level, and up to a further 12 months to return to the level before the original deranking.

Covid-19

The Company's global workforce has been working remotely since March 2020, with some staff only recently beginning to return to the workplace as guidelines and regulations allow. Operationally, the business has seamlessly implemented both remote and flexible working measures, with no impact on short term productivity.

The altered working patterns and lockdowns caused by the pandemic have in general benefitted websites dedicated to general Casino and Gaming. However, unlike some of our competitors, who have reported significant upside during the period, the Company has been unable to take full advantage of this in the short term due to the predominantly Casino deranking detailed earlier. XLMedia's Sports and Personal Finance assets have been impacted by the global shut down of sporting events and lower levels of activity in credit card issuance and investments. Recently, the Company has seen encouraging improvements in the performance of these assets, which suggests the issue is temporary and not company specific.

Recent developments

XLMedia has announced a number of developments recently, which evidence progress against the strategic priorities set out by the Company since the change of leadership last year.

In June, the Company announced its intention to consider the disposal of some or all of its Finnish casino assets. XLMedia has no requirement to dispose of assets, but any disposals could accelerate the rebalancing of the asset portfolio, with a greater emphasis on regulated and high-growth markets and verticals. The Company will now consider expressions of interest to assess how to maximise shareholder value.

Also in June, Ken Dorward joined XLMedia as President, North America. Ken's successful track record and deep knowledge of the industry will help to expedite progress in North America, where the Company sees the opportunity as very significant in both Sports and Personal Finance.

In July, the Company completed a buy-out of the remaining interests of the founders in its premium website, 101GreatGoals.com. Although a small transaction in financial terms, the Company believes that the simplification in control and operating structure will accelerate the development of the website in current and future geographies, including Europe and North America, where the opportunity is significant and growing. 

Also in July, XLMedia transitioned its Corporation Tax residence from Cyprus to the UK. Although the Company continues to benefit greatly from the people skills in both Cyprus and Israel, this transition reflects the shift in senior management control, with the CEO, CFO and COO now based in the UK.

The Company is being restructured internally to enable it to deliver on the strategic priorities. This has reduced overall headcount by around 70 and delivered ongoing annualised cost savings of approximately $5 million. Most importantly, it is creating an agile organisation capable of responding rapidly to both challenges and opportunities.

Outlook

While financial performance in the first six months was disappointing, XLMedia continues to make good progress on its transformation agenda and the delivery of its strategic priorities. Alongside this, the Company is prioritising removing the penalties imposed by Google on some of its premium sites. Combined with recent encouraging signs of increased activity in Sports and Personal Finance, this would provide an increasing level of confidence in the Company's ability to grow revenue and profit in 2021 and beyond.

XLMedia remains a strong business and a leader in its industry, with a clear strategic vision and the operational and financial strength to deliver it.

The information contained within this announcement (the "Announcement") is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this Announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

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Notes:

XLMedia is a leading global digital performance publisher. Operating globally across a variety of verticals including online gambling, personal finance, sports and technology, the Group uses proprietary tools and methodologies to identify and target high value clients for platform operators.

XLMedia has a clear transformation strategy, which will enable it to shape the future of the performance publishing industry. As previously communicated, the Company has set three Strategic Goals:

· Consolidation of publishing assets

o The Company will consolidate its range of publishing assets, focusing its resources on a core set of premium sites in its chosen markets. XLMedia will seek to build stronger relationships with consumers through content-rich, engaging websites, underpinned by intelligent market-leading technology which enhances the yield from each interaction. This rebalancing of the portfolio will be supported by organic investment, disposals and acquisitions.

· Investment in US Sports and Personal Finance

o XLMedia has identified North America as a core target market, where it has already established a solid foothold in Personal Finance, led by content-rich websites which are gaining traction. The Company will seek to further develop its Personal Finance presence and significantly increase its investment in the burgeoning US Sports market through partnerships and acquisitions.

· Further Investment in regulated markets

o The Company is seeking to generate an increasing proportion of its revenue from more stable, regulated markets, both within current serviced verticals, such as gambling and personal finance and, over time, within additional target segments, where its core skills and scale can provide competitive advantage.