Xlmedia Regulatory News (XLM)

XLMedia PLC

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

Interim results for the six months ended 30 June 2018

Acquisitions and further diversification set foundations for the future

XLMedia (AIM: XLM), a leading provider of digital performance marketing services, announces its unaudited interim results for the six months ended 30 June 2018.

Financial highlights

· Revenues of $59.1 million (H1 2017: $67.9 million)

· Gross profit of $33.5 million (H1 2017: $35.2 million)

· Adjusted EBITDA of $20.9 million (H1 2017: $22.8 million)

· Profit before tax of $16.8 million (H1 2017: $19.5 million)

· Interim dividend of $6.5 million or 3.0040 cents per share (H1 2017: 4.0226 cents per share); and

· Strong balance sheet with $51.3 million of cash and short-term investments to be deployed in further acquisitions for future growth

· On track to meet profit expectations for the full year

Operating highlights

· Completed a series of acquisitions in the period totalling $45.8 million, including:

o Leading Finnish gambling related informational websites for $18.0 million

o WhichBingo.co.uk, one of the leading online informational portals and comparison sites for online bingo games in the UK for $10.5 million

o Three US personal finance informational websites for $5.9 million

o Shortly after period end, acquired Investorjunkie.com a leading US personal finance website for $5.8 million

· Solid performance from our Personal Finance assets, growing both in asset base and amount of clients.

· Preparation for launch into the significant future potential US gambling market  

· Enhanced the Group's Asia-Pacific presence in the mobile apps vertical and increased revenues from new clients in the region

· Management have worked hard to mitigate previously reported regulatory headwinds and operating challenges and remain on track to deliver the year end market consensus profit number

Ory Weihs, Chief Executive Officer of XLMedia, commented:

"The Group produced a solid profit performance in the first half, albeit against a backdrop of regulatory pressures and challenging market conditions in the online gambling sector. However, we are now seeing positive signals and expect to meet profit expectations for the full year.

"Since the beginning of this year we have been focusing on implementing our strategy and executing acquisitions in order to accelerate growth, allocating over $45 million of capital for acquisitions. Our newly acquired assets perform as expected and we are confident they will deliver a strong return.

A webcast of our results presentation will be available on our website later today: https://www.xlmedia.com/investor-relations/webcasts/

XLMedia will be holding a presentation for private and retail investors at 4.00pm on Tuesday 25 September 2018. To register for the event, please contact Vigo Communications on xlmedia@vigocomms.com.

For further information, please contact:

Business review

The Group delivered a solid performance in H1 despite experiencing disruption in some regions in which we operate, in addition to discontinuing a number of underperforming activities. As a consequence, revenues for the six months ended 30 June 2018 were $59.1 million compared to $67.9 million in H1 2017.

Regulatory environment

Regulatory developments in the online gambling sector had an impact on our performance in the first six months of the year, including: the closure of the Australian online casino market at the end of 2017; uncertainty regarding the regulatory status of certain European markets, specifically Germany, where some operators suspended activity while others lowered marketing spend pending clearer guidelines; as well as changes to gambling advertising regulations in the UK.

At the beginning of H1 2018 we saw some decline in marketing campaigns in the UK in order to adjust to the implementation of new, more stringent UK gambling advertising guidelines.

Whilst these developments affected our performance, we believe this should lead to a clearer and more functional environment, and to long-term stability in the market and higher quality earnings for the Company.

EU GDPR regulation, which became effective in May 2018, is also applicable across a number of our territories. In preparation for this regulation and to ensure our compliance we have conducted a comprehensive preparatory compliance program. The program included mapping and evaluating our information gathering practices in all business segments and processes and an adjustment of our practices as required. We have implemented internal guidelines, policies and practices and are closely monitoring market developments on an ongoing basis to ensure our continued compliance with the regulation. The Group does not expect GDPR to have a material effect on performance.

Strategy

We continued to execute on our strategy and, during the period, completed a series of acquisitions for an aggregate consideration of $45.8 million. We continue to evaluate potential assets and targets and expect to accelerate this activity. As with previous acquisitions, our ability to both source and integrate at scale underpins our future aspirations and enables management to further diversify our operations.

The acquisitions we completed during the period were identified from a pipeline of opportunities, following a rigorous internal due diligence process. The Group adopts key criteria in identifying potential targets, including:

· complementary assets, adding diversity in geographies, customers and sectors with specific focus placed on personal finance and regions where gambling is fully regulated;

· active in additional sub-sectors - for example, in our personal finance arsenal of assets - adding complementary customers with potential cross-sales opportunities between these assets. The recently acquired Investorjunkie.com asset increased our customer base in the personal finance investment sub-sector allowing us to cross sell additional products; and

· demonstration of growth potential and benefits of scale for us once migrated onto our Palcon infrastructure and integrated into the Group. Recent Finnish acquisitions are expected to deliver improved profit margins once fully integrated.

We continue our strategy to diversify our revenues both geographically and by sector. In H1 2018 North America generated 19% of revenues (H1 2017: 28%), Scandinavia generated 35% of revenues (H1 2017: 26%), the UK generated 11% (H1 2017: 8%), other European countries generated 17% of revenues (H1 2017: 29%) and Asia generated 7% (H1 2017: 5%).

In terms of sector diversification: gambling accounted for 70% of H1 2018 revenues (H1 2017: 63%) and Mobile Apps accounted for 20% of H1 revenues (H1 2017: 24%). The increase in the proportion of gambling related revenue was mainly due to the Group's decision to discontinue certain lower margin media buying activities.

We believe that we have laid solid foundations and believe the Financial Services sector will be an important growth engine for the Group in the medium term, performing alongside our more traditional end markets.

Business Segments review

H1 2018 showed increase in the publishing segment but a decrease in the media, which resulted in overall revenues of $59.1 million, a decrease of 13% (H1 2017: $67.9 million).

Publishing

Publishing revenues grew 9% in the period to $32.4 million (H1 2017: $29.8 million), driven by acquisitions. H1 performance was impacted by a reduction in activity in a number of specific territories, in addition to regulatory changes outlined above. Some of these issues included spamming and other attacks on our websites as well as technical issues. Concurrently, the Group has been focused on recovery steps with the majority of technical and attacks issues having been resolved by now. In addition, we have been developing additional revenue generating activities. In 2018 we acquired websites and domains for an aggregate consideration of $45.8 million and will continue to acquire and develop more assets.

Direct profit margins reduced slightly, as previously guided, to $25.6 million or 79% of publishing revenues (H1 2017: $24.9 million, 83%) mainly as a result of increased investment in content and integrating recently acquired websites. We continue to invest and develop our existing assets and optimise recently acquired assets in order to improve performance going forward.

Media

Media revenues decreased 31% to $23.5 million (H1 2017: $33.9 million). This was primarily driven by proactive measures to cease low margin activities, lower levels of mobile traffic within the gaming segment and previously announced gambling regulatory changes. We are focusing our efforts in other sectors in the mobile division including driving sales across Asia, most notably Korea, as well as in other sectors such as financial apps and e-commerce through our US activities. In the medium term we see growth potential in media activities for fully regulated markets both for gambling as well as for personal financial products.

Direct profit for the media segment decreased 29% to $7.1 million or 30% of revenues (H1 2017: $10.0 million, 29%).

Current Trading and Outlook

We have started the second half of 2018 well, buoyed by the impact of recent acquisitions and positive signs of recovery in a number of key segments and markets. Management has worked to continue the diversification of the Group's core operational activities, with continuous focus on setting strong foundations, and adding both scale and product diversity. We believe these measures and the investments made will underpin growth in the medium term.

The Board is therefore confident of meeting profit expectations for the full year and as such is declaring an interim dividend of $6.5 million or 3.0040 cents per share , to be paid in Pound Sterling (2.2728 pence per share) 2 November 2018 to shareholders on the register at 5 October 2018 . The ex-dividend date is 4 October 2018.

Financial review

The first half of 2018 was impacted by the regulatory trends, a withdrawal from low margin activities and other SEO performance issues which resulted in revenues of $59.1 million, a decrease of 13% compared to the same period last year.

Gross profit was $33.5 million or 57% of revenues, representing a 5% decrease compared to the same period last year (H1 2017: $35.2 million, 52%).

Operating expenses during the first six months of the year were $16.2 million, an increase of 1% compared to the same period last year (H1 2017: $16.0 million). The increase in costs was not significant. As we are focused on meeting performance expectations we control expenses but will continue to proportionally increase our operational expenses base in order to support future growth.

Operating expenses included $1.0 million of research and development expenses, reflecting a decrease compared to the same period last year (H1 2017: $2.5 million). These expenses are in addition to investments in technology and internal systems developed during the period of $4.3 million (H1 2017: $1.7 million). Total R&D spend together with capitalised costs was $5.3 million compared to $4.2 million in H1 2017. As we progress and enhance our systems a bigger portion of the spend serves for future benefits and less for ongoing support of our systems. We see technology as a key driver to increasing revenues and profit for the coming years.

Adjusted EBITDA1 reached $20.8 million or 35% of revenues, reflecting a decrease of 9% relative to the same period last year (H1 2017: $22.9 million, 34%).

As a result of the reduced revenues and gross profit as compared to the same period last year, profit before tax decreased by 14% to $16.8 million (H1 2017: $19.5 million). Net income for the period was $14.1 million, reflecting a decrease of 9% (H1 2017: $15.5 million). Net income included non-controlling interest of $0.5 million.

As at 30 June 2018 we had $51.3 million of cash and short-term investments compared to $43.3 million as at 31 December 2017. The increase in cash reflects an increase of $13.4 million provided by operating activity, and an additional increase from share capital issuance of $42.6 million, offset mainly by investing $43.7 million mainly on acquisitions and $8.0 million of dividends paid out during the first half of 2018.

Current assets as at 30 June 2018 were $77.0 million (31 Dec 2017: $67.1 million) and non-current assets were $129.0 million (31 Dec 2017: $87.4 million). The increase in non-current assets is attributed mainly to acquisitions of domains and websites.

Total equity as at 30 June 2018 was $166.2 million, or 81% of total assets (2017: 76%). At the end of 2017 and during H1 2018 we drew down bank loans totaling $11 million. With our current pipeline of potential acquisition targets, we expect to have access to larger bank facilities to execute them. The strong balance sheet combined with cash and short-term investments of $51.3 million together with strong banking relationships ensures the Group is well positioned to continue to execute its strategic plan.

[1] Earnings Before interest, Taxes, Depreciation and Amortization and adjusted to exclude share based payments

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

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

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

*) Lower than USD 1 thousand.

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

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

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

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)

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

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: GENERAL

XLMEDIA PLC and its subsidiaries (The Group) are an online performance marketing companies. The Group attracts paying users from multiple online and mobile channels and directs them to online businesses.

The Group attracts users through online marketing techniques (such as publications and advertisements) which are then directed, by the Group, to its customers in return for a share of the revenue generated by such user, a fee generated per user acquired, fixed fees or a hybrid of any of these three models.

For further information regarding online marketing and the Group's business segments, see Note 3.

NOTE 2: SUPPLEMENTARY INFORMATION

(a) In January 2018, the Company issued 16,000,000 Ordinary shares in a placing to institutional investors at a price of 198 pence per Ordinary share. The total gross funds raised were approximately GBP 31.7 million (USD 44.2 million) and the related costs amounted to approximately GBP 1.1 million (USD 1.6 million).

(b) During the period the Group acquired additional assets for the publishing segment for total cash consideration of approximately USD 40 million.

(c) On March 13, 2018, the Company declared a dividend to its shareholders of USD 8 million ($0.04 per share).

(d) In January 2018, the Company granted 3,000,000 options to employees (including to the Company's CEO and other key management personnel), exercisable to 3,000,000 ordinary shares in an exercise price of GBP 2.0 per share. The options vest over a period of 4 years from the grant date and are exercisable for a period of up to 8 years.

The following table specifies the inputs used for the fair value measurement of the grant:

The total fair value of the options granted was calculated at USD 3,413 thousands at the grant date (USD 1.14 per option)

NOTE 3: 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:

NOTE 3: OPERATING SEGMENTS (Cont.)

 (c) Geographic information:

Revenues classified by geographical areas based on internet user location:

NOTE 4: SUBSEQUENT EVENTS

On September 23, 2018 the Company announced a dividend distribution to its shareholders of USD 6.5 million (USD 0.03 per share).