Interim results

XLMedia PLC

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

Interim results for the six months ended 30 June 2015

Strong momentum continues

XLMedia (AIM: XLM), a leading provider of digital performance marketing services, is pleased to announce its interim results for the six months ended 30 June 2015.

Financial highlights

· Revenues increased 85% to $36.8 million (H1 2014: $19.9 million);

· Gross profit increased 63% to $18.4 million (H1 2014: $11.3 million); 

· Adjusted EBITDA increased 103% to $12.9 million (H1 2014: $6.4 million);

· Profit before tax up 187% to $13.2 million (H1 2014: $4.6 million);

· Net cash from operating activities increased 111% to $12.1 million (H1 2014: $5.7 million);

· Interim dividend of $5.0 million or 2.595 cent per share; and

· Strong balance sheet with $43.2 million cash and short term investments.

Operating highlights

· Continued development of mobile capabilities through investments in technology and in house systems;

· Extended reach of existing network through bolt on acquisition of UK focused, mobile targeted websites;

· First stage of EDM integration completed and accelerated into the Group;

· Post period end, the Group announced the completion of the acquisition of a majority stake in Marmar Media broadening the Group's offering and operational profile; and

· Strong six months of trading reflecting the results of investments made during the past 18 months.

Ory Weihs, Chief Executive Officer of XLMedia, commented:

"We are delighted to report another record breaking six months. During the first six months of the year we continued to develop the business and invest in our main technology and mobile capabilities, which further underpin our key revenue and profit drivers.

"We made significant progress with executing our strategic plan, with acquisitions of performance marketing companies as well as bolt on publishing assets. These acquisitions complement the Group's existing business and add diversification through the addition of more clients, products, regions and marketing channels. EDM, which was acquired last year, is performing well and as such the integration of the business has been accelerated. We believe that using a unified technological infrastructure throughout the Group will enhance performance and bring additional benefits of scale to the Group.

"The Board is extremely confident of meeting expectations for the full year. Our confidence level is demonstrated by our declaration of an interim dividend of $5.0 million or 2.595 cents per share.

"We believe we have a set of strong foundations underpinning the growth potential of our business and we look to reporting on our continued progress."

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

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

Our updated investor presentation is also available on our website at the following address:

http://www.xlmedia.com/media/ 

For further information, please contact:

Operational review

Following the Company's IPO in March 2014, we have been in the process of executing our strategy of driving growth and establishing our position as a dominant player in the area of online monetisation. Furthermore, we have continued to build on the positive momentum and footprint established in 2014 and the Group has delivered record profits in the first half of 2015. This delivery is a result of a combination of factors; inter alia, our strong organic growth, the positive impact from the acquisitions as well as the benefit of less expenses falling in to the first half than had been anticipated.

As a reflection of the growth seen in the first half of 2015, the Group has maintained its progressive dividend policy and will be issuing a dividend of 2.595 cents per share payable on 30 October 2015 to shareholders on the register at 2 October 2015. The ex-dividend date is 1 October 2015. We remain confident that demand for performance marketing services is set to continue to grow across all media platforms.

Business Summary

Over the course of the last 18 months, we have successfully executed a number of growth initiatives. Below is an overview of the progress we have achieved to date:

· Successful acquisitions have broadened our market reach across geographies and verticals

o Completed a series of bolt on acquisitions of domains and websites complementing our publishing asset base and providing access to additional markets and products. All of these acquired assets have been integrated into our publishing division and platform and are benefitting from our increased scale and access to our in house technology.

o Continued efforts to evaluate potential acquisitions have resulted in the Company acquiring a group of UK focused, mobile targeted websites.

o Acquired EDM, a leading social and mobile gaming marketing company, in September 2014. Deriving the majority of its revenues from the US, EDM provides the Group with access to complementary markets as well as giving it entry in to a new vertical focused on social gaming. We completed the first phase of EDM's integration in to the Group during the period and, as reported earlier this month, due to EDM's strong performance in the first year following its acquisition we have decided to waive performance conditions for contingent consideration in order to accelerate the full integration into the Group. The Board believes this was an essential action for the Group as it is expected that social gaming will be a strong growth driver for XLMedia over the coming years.

o On 1 July 2015 the Group announced the completion of the acquisition of the majority stake in Marmar Media, a performance media company for web and mobile. Marmar Media adds additional know how and scale, as well as a wider customer base and vertical diversification.

o All of the acquired assets and companies are performing in line with or above management's expectations.

· Significant increase in organic revenues and client base

o Together with the Group's stated acquisition strategy, the Group continues to deliver strong organic growth in all of its business segments with the 2014 year-end trading performance exceeding market expectations.

o The first half of 2015 delivered record revenues for the business, representing growth of 85% and 103% in revenues and adjusted EBITDA respectively. We expect to deliver further solid performance during the second half of the year.

· Investments in Technology

o We have continued to make significant investments in our technology and our staff to support expansion in our media division as well as continuing to support organic growth in the publishing division.

o We use our in-house marketing technology to optimize media buying and enhance performance.

o We will continue to invest further in our technology so that we can continually improve performance and efficiency. This will ensure we maintain our strong position in the market place and that we can adapt to changes in the online and mobile search ecosystem.

Business Segments review

· Publishing

Publishing revenues grew 36% to $14.4 million (H1 2014: $10.7 million). The growth was primarily organic, with some additions from new assets acquired during the second half of 2014 and 2015.

We invested significant amounts in technology infrastructure to support the centralised management of our assets and to improve conversions and performance of our assets.

Since the launch of our proprietary content management system, "Palcon", in November 2014, we have seen an improvement in the day to day operation of our network of over 2,000 specialist content websites. Palcon is a consolidated management system across all websites, enabling fast and dynamic updates and upgrades, comprehensive tracking support for website optimization as well as enhanced mobile and social features in our websites. All of the new assets we have acquired have been integrated and adjusted to our Palcon technology as well as existing websites migrated to the new technology, allowing us to benefit from the advantages of scale. We continue to develop our in-house systems to ensure we benefit from the maximum efficiencies possible.

During 2015 we invested $1.7 million in new websites and domains and we plan to continue buying and developing more assets to further drive our growth.

· Media

Organic growth in the Media division came from strong and growing demand for digital advertising and resulted in revenues growing 160% to $17.5 million (H1 2014: $6.7 million). Further growth in this division was also achieved through the acquisition of EDM which contributed $6.0 million to H2 revenues in 2014.

Our revenue model is performance based - either through revenue share, cost per acquisition, cost per installation or other models. Customers pay for performance only, avoiding the risk of applying funds to media campaigns that don't deliver return on investment ("ROI"). We use our expertise, in-house proprietary systems and trained staff and own funds to run thousands of simultaneous campaigns which yield positive ROI for us and for our customers.

EDM specializes in social and mobile advertising specifically targeted at 'user acquisition' for social gaming applications. The acquisition of EDM in September 2014 significantly added to our expertise in the social and mobile advertising, gave the Group a further presence in the US and delivered new customers and capabilities. With the strong demand in EDM's markets, demonstrated by the performance of EDM since acquisition, the Board believes social gaming will be a strong driver of the Group's growth in the coming years.

We continue to build our media base both organically and through acquisitions of EDM and Marmar Media. By increasing our media operations we aim to reach the widest possible audience by mass online communication. Although these activities can have lower margins they reach high volumes rapidly. As previously outlined, although we expect to see a decrease in the Group's media margins, in line with industry trends, we believe this decrease will be more than compensated for with the increased traffic generated through our operations. Hence we expect to continue growing Media earnings. The acquisition of a majority stake in Marmar Media, announced during the period, will bolster our offering in this space and provides us with additional scale and exposure to new markets for our media business.

· Partner Network

Partner network revenues grew 94% to $4.9 million (H1 2014: $2.5 million). Our partner network remains an important part of our business, offering the opportunity to provide marketing services which are not currently serviced through our existing publishing and media networks.

Current Trading and Outlook

The Group has continued to trade strongly into the second half of the year. The business has established solid foundations for growth and continues to enhance and improve its offering, notably with the recent acquisition of Marmar Media. The Board is extremely confident of meeting expectations for the full year and has maintained its progressive dividend policy by declaring a dividend of $5 million or 2.595 cents per share payable on 30 October 2015 to shareholders on the register at 2 October 2015. The ex-dividend date is 1 October 2015.

Financial review

The first half of 2015 has delivered another set of record revenues for the business. Revenues in the first six months of the year totaled $36.8 million, reflecting 85% growth compared to the same period last year. Revenues in 2015 reflect the consolidation of EDM which was acquired in September 2014, as well as strong organic growth in all business segments during the period.

Gross profit reached $18.4 million or 50% of revenues, representing 63% growth compared to last year (H1 2014: $11.3 million, 57%). In the first half of 2015 the media segment has grown to be the largest segment with 48% of revenues. As we continue implementing our strategy of further increasing and developing our media business, revenue mix will shift further towards media lowering gross margins, and as such we expect total gross margins (in terms of percentage) to decrease further across the Group.

Operating expenses during the first six months of the year were $7.4 million, an increase of 19% compared to the same period last year (H1 2014: $6.3 million). During the first six months of 2015, we saw some delays in our planned recruitments, partially due to our focus on successful integration of our acquired businesses as well as due to market conditions for recruiting technology experts. We are now recruiting more employees and therefore operating expenses will grow in the second part of 2015.

Operating expenses included $0.7 million of research and development expenses, reflecting an increase of 66% compared to the same period last year (H1 2014: $0.4 million). These expenses are in addition to the increase of 146% in investments in technology and internal systems developed during the period of $1.6 million (H1 2014: $0.7 million). The Group expects to further enhance investment in technology as we see technology as a key driver to growth and profit for the coming years.

Adjusted EBITDA1 reached $12.9 million or 35% of revenues, reflecting an increase of 185% to the same period last year (H1 2014: $6.4 million, 32%). As the mix of revenues changes towards more media, we expect adjusted EBITDA to decrease in terms of margins but to grow in absolute numbers.

Financial income for the first six months of the year was $2.4 million, attributed to the Company's dynamic hedging activity to mitigate material exposure to foreign currencies. Since the majority of the Group's revenues are denominated in Euro, the Company entered into a series of forward contracts for the sale of Euro and purchase of US Dollars. The Euro exchange rate decreased by 8% versus the US Dollar during this period. However, the Company gained financial income from its hedging activity which partially compensated for the decrease. Out of the financial income $1.3 million was received in cash (when forward contracts matured) while the remaining $1.1 million is recorded as fair value gains for forward contracts not yet matured. The remaining forward contracts will mature over the course of the next 12 months and therefore if the Euro vs. USD exchange rate increases the Company will record financial expenses.

As a result of the high adjusted EBITDA as well as the financial gain from changes in exchange rates, profit before tax increased by 186% to $13.2 million (H1 2014: $4.6 million).

As of 30 June 2015 we had $43.2 million cash and short term investments compared to $44.1 million on December 31, 2014. The change in cash reflects an increase of $12.1 million provided by operating activity, offset by spending $9.4 million on investments in technology and acquisitions and $3 million of dividends during the first half of 2015. Investments during the period include a payment of $5.4 million on account of acquisition of Marmar media.

Current assets as of 30 June 2015 were $58.9 million (31 Dec 2014: $57.8 million), and non-current assets reached $50.0 million (31 Dec 2014: $42.0 million). The increase in non-current assets is attributed mainly to the payment on account of Marmar media shares ($5.4 million), investments in domains and websites of $1.7 million, as well as additions to our in-house technology of $0.7 million.

With total equity on 30 June 2015 reached $85 million, or 78% (2014: 76%), and cash and short term investments of $44.1 million the Group is well positioned to continue executing its strategic plan.

*) Lower than USD 1 thousand.

NOTE 1: GENERAL

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.

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.

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 (Cont.):

(c) Geographic information:

Revenues classified by geographical areas based on internet user location:

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[1]Earning Before interest, Taxes, Depreciation and Amortization and adjusted to exclude share based payments IPO expenses and expenses related to EDM acquisition agreement