Final Results
The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.
31 March 2020
Tremor International Ltd
("Tremor" or the "Company")
Full Year Audited 2019 Results
- Tremor now focused on end-to-end video advertising solutions
- Delivered adjusted EBITDA of $60 million in FY 2019
Tremor International Ltd (AIM: TRMR), a global leader in video advertising technologies, announces its full year results for the year ended 31 December 2019.
Financial Highlights
· A strong performance from Tremor's brand advertising activities continued to drive profitability
· Revenues of $325.8 million, up 18% (2018: $276.9 million), underpinned by the acquisition and integration of RhythmOne plc offsetting the decline in the performance-based division
o Revenue split by division: Branding: $248. 5 million; Performance: $77. 3 million (2018: Branding $146.0 million, Performance $130.8 million)
o Revenue from Connected TV ("CTV") grew from $2.2 million in Q1 2019, to $18.1 million in Q4 2019, total year of $31.9 million
· Gross profit increased by 24% to $138.5 million (2018: $111.4 million)
· Increase in gross margin to 42.5% (2018: 40.3%) resulting from enhanced synergy and operational leverage in the branding activity
· Adjusted EBITDA* increased 37% to $60.4 million (2018: $44.1 million), as management focused on brand advertising.
· Reported EPS of 5.6 cents (2018: 32.81 cents) and Adjusted Diluted EPS of 37.05 cents (2018: 52.36 cents)
· Net cash inflow from operating activities of $ 45.1 million (2018: $37.5 million)
· Net cash as at 31 December 2019 of $76.9 million*** (31 December 2018: net cash of $54.4 million), this strong cash position was delivered post the $25 million share buyback programme during 2019 and $5 million of data pre-payments for 2020.
· Business remains highly cash-generative with a strong balance sheet
*Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortisation, non-recurring income/expenses and share-based payment expenses.
** Net cash is defined as cash and cash equivalents less short and long-term interest-bearing debt including capital and finance leases
Operational Highlights
· Tremor is now an established digital video advertising technologies business of real scale with an end-to-end technology stack
· Completed integration of RhythmOne, delivering $ 40 million of cost savings (annualized) thanks to operational synergies ( payroll, data centers, rent and R&D tools)
· Launched a number of combined product offerings, including:
o Private Marketplace Packages: provide high-quality video supply, auction-based marketplaces
o A combined CTV solution
o The Creative Studio: dedicated team of video advertising solution industry experts
o RhythmOne's programmatic advertising marketplace in Europe
o Introduction of a number of self-service enhancements to the Company's existing DSP
· Added a number of new clients including Estee Lauder, Honda Powersports, Pinterest, Remy Martin, Symantec, Takeda, TikTok and Twitch
· Renewed global data partnership with Alphonso, the TV data and measurement business, for a further two years, with data continuing to drive Tremor's ongoing success
Post-period End / Outlook
· In January 2020, Tremor announced the acquisition of Unruly Ltd and a global partnership with News Corp, strengthening the Company's focus on video
o The acquisition broadened Tremor's global footprint, supply-side platform, customer base, and its data capabilities
o Tremor now has the exclusive right to sell outstream video to more than 50 News Corp titles
· COVID-19 update:
o It is too early in the outbreak of COVID-19 to fully assess the impact on Tremor's performance and overall outlook for 2020, but the Company will keep shareholders informed as to market guidance as appropriate
o However, certain verticals will be more effected than others, such as travel, hospitality and retail restaurants, whilst other verticals such as entertainment, CPG, utility services, pharmaceuticals, ecommerce and online services may be less effected
o A number of initiatives are already being implemented to help mitigate the impact of the pandemic on the Company, including accelerating the Unruly integration, launching new initiatives and solutions and closely monitoring Tremor's cost-base
o Much of Tremor's global workforce is successfully working remotely, with the health and wellbeing of the Company's employees remaining of the utmost importance
· Despite the current uncertainty in the global economy, the Company's business model remains strong and management is confident Tremor's talent and market position will be maintained
· The Company has a strong balance sheet with net cash of $76.9 million, which allows it to undertake a share buy-back of $10 million and be confident of trading through the coming period of uncertainty
Ofer Druker, Chief Executive Officer of Tremor, commented:
"In 2019 we successfully established our business as a leading player in video, one of the most exciting and high growth segments within the advertising ecosystem. Clearly the RhythmOne merger has been central in delivering this change and the success of our strategy is reflected in the performance of our video brand advertising division, which generated $248.6 million of high-margin revenues in 2019.
"We have made a good start to 2020, most notably, executing on the acquisition of Unruly, which is directly in line with our strategy to focus on Video, CTV and data, and provides us with further opportunities through which to drive material growth in our core markets.
"We continue to closely monitor the impact of COVID-19 across the world, with the health and safety of our staff of paramount importance. As a business we remain optimistic about the long-term prospects of the Company and we remain focused on delivering value for all our key stakeholders."
A webcast detailing Tremor's full year results will be made available this week on the Company's website: https://www.tremorinternational.com/investors/
For further information please contact
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Tremor International Ltd Ofer Druker, Chief Executive Officer Sagi Niri, Chief Financial Officer
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Tel: +972 3 545 3900 |
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finnCap Ltd (Nominated Adviser and Broker)
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Tel: +44 (0)20 7220 0500 |
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Corporate Finance - Jonny Franklin-Adams, James Thompson, Hannah Boros ECM - Tim Redfern, Richard Chambers
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Vigo Communications (Financial Public Relations) Jeremy Garcia Antonia Pollock Charlie Neish
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Tel: +44 (0)20 7390 0230 |
About Tremor International
Tremor International Ltd is a global leader in advertising technologies, it has multiple core divisions: Tremor Video, RhythmOne and Unruly.
Tremor Video helps advertisers deliver impactful brand stories across all screens through the power of innovative video technology combined with advanced audience data and captivating creative. Tremor Video is one of the largest and most innovative video advertising companies in North America, with offerings in CTV, in stream, and in-app.
The media side of Tremor, RhythmOne, drives real business outcomes in multiscreen advertising. Its highly ranked programmatic platform efficiently and effectively delivers performance, quality, and actionable data to demand and supply-focused clients and partners.
Unruly is a strong video marketplace with more than 2,000 direct integrations with publishers, unique demand relationships with the world's biggest advertisers and privileged access to News Corp inventory. Unruly works with 95% of the AdAge 100 and 82% of video views are delivered across Comscore 1,000 sites.
Tremor International Ltd is headquartered in Israel and maintains offices throughout the US and Canada, Europe, Asia-Pacific and Australia and is traded on the London Stock Exchange (AIM: TRMR).
CHAIRMAN'S STATEMENT
Tremor has entered 2020 in a strong and unique position following a year in which management fundamentally repositioned the business. This transformation was largely driven by the merger with RhythmOne plc (the "Merger") and its subsequent integration and consolidation into the group, enabling us to undergo a strategic pivot to focus on video as our key digital advertising medium.
Clearly, the COVID-19 pandemic is having a significant global impact. Tremor has put in place the initiatives necessary to protect our workforce and we are taking measures to ensure the capabilities of the Company are maintained. We will, of course, continue to monitor the situation closely.
Tremor traded strongly throughout 2019 achieving a 18% increase in revenues to $325.8 million (2018: $276.9 million), and a 36% increase in adjusted EBITDA to $60.4 million (2018: $44.1 million), with our brand advertising segment performing particularly well as our focus on video began to come into fruition. Tremor remains highly cash-generative, and at the year ended 31 December 2019, had a net cash position of $76.9 million. this strong cash position was delivered post the $25 million share buyback programme during 2019 and $5 million of data pre-payments for 2020. We are consistent in our approach of deploying capital in the best interests of our shareholders and we will continue to review options as a Board. Today, we have also announced the commencement of a $10 million buyback program. In addition, our strong cash position gives us the flexibility to continue to evaluate select strategic acquisitions which continues to form an important part of our growth strategy.
One such example, is the acquisition of Unruly Group Ltd ("Unruly"), which we announced in January 2020 alongside the exclusive partnership with News Corp. This highly strategic transaction further augments our expert focus on video, and through the alliance with News Corp gives us access to a roster of premium titles globally. In addition, it provides us with a very well-regarded brand in Unruly, from which to drive our international growth outside North America, which is key to our ongoing success.
During 2019 and post-period end, we announced a number of appointments to the board and senior management in order to bolster our leadership team. This included Ofer Druker's appointment as Chief Executive Officer in April 2019 and Christopher Stibbs' appointment as Non-executive Director in May 2019. In addition, post period-end, in January 2020, we announced the addition of Rebekah Brooks to the board as Non-executive Director (who joins the Board as of today) as well as the appointments of Norm Johnston as Non-Executive Director and Sagi Niri as Chief Financial Officer who will bothjoin the Board, subject to shareholder approval, after the upcoming Annual General Meeting. Once completed, we will have a market-leading team with an unrivalled breadth and depth of experience both across traditional and evolving media channels to drive Tremor forward on our exciting growth trajectory.
Whilst we had aptly positioned the business for an exciting 2020, the COVID-19 pandemic is affecting the global economy including business sentiment, and we anticipate it will have an effect on our performance at least in the short-term, although it is too early to tell the extent of this impact, however we feel assured in the Company's capabilities, fundamentals and scale and therefore its resilience amidst the current global uncertainty.
I would like to thank the whole Tremor team for their contribution to-date in what has been a significant period of change and adjustment. The board remains confident in delivering year-on-year growth and we look forward to further updating our shareholders as we continue to deliver on our strategy.
Tim Weller
Non-executive Chairman
30 March 2020
CHIEF EXECUTIVE OFFICER'S REVIEW
Introduction
2019 was a milestone year for Tremor, as we established ourselves as a global leader in the digital video advertising technologies space. The merger with RhythmOne in April provided Tremor with end to end technology capabilities, including a Media platform with knowledge and deep business relationships in Connected TV ("CTV"), one of the most exciting and high-growth segments in video advertising, and Tremor is already benefitting from this trend as demonstrated below. In addition, TV retargeting, which has become core to Tremor in the past four years, is gaining strong validation in the market.
We have succeeded in building a company of significant scale with a comprehensive end-to-end technology solution, which includes Tremor Video's demand-side platform ("DSP"), RhythmOne's exchange and supply-side platform ("SSP"), that is CTV rich. This end-to-end solution, puts our business at the vanguard of the space, providing a substantial opportunity for further growth.
The acquisition of RhythmOne brought a number of strong components and capabilities to the Company, including:
1) The RhythmOne Exchange, with a strong specialism and focus in video
2) A CTV component with a significant track-record rooted in YuMe, a CTV focused company that was acquired by RhythmOne a year prior to the Merger
3) A sales team and client base focused on using CTV as a medium to reach their target audiences.
4) A media business which has enabled Tremor to offer Private Marketplaces ("PMP") to our top-tier clients who choose to work with their preferred DSP
CTV has fast become an important element in video advertising and today it's the driving force in the growth of the segment. In the USA alone, the size of CTV market is growing rapidly with advertising spend of c. $8.8 billion expected in 20201.
After integrating the RhythmOne teams into Tremor and merging the technology stack, CTV revenues grew from c. $2.2 million in Q1 2019, to $18.1 million in Q4 2019, and we expect our CTV capabilities to form the bedrock of Tremor's growth in the short to medium-term. In addition, RhythmOne's processes, such as accounting policies, have been brought in-line with Tremor's.
We released our PMP product at the end of 2019 and this product, along with the practices which are central to Unruly, which we acquired in January 2020, will provide us with an important growth engine in the coming years. In addition, Tremor is now able to offer an end-to-end self-serve platform, focused primarily on CTV, we expect to see growth in this business unit in the second half of 2020, and that it will become a key growth platform for Tremor going forward.
The Company traded strongly in 2019, generating a 18% increase in revenues to $325.8 million (2018: $276.9 million), and a 36% increase in adjusted EBITDA to $60.4 million (2018: $44.1 million). This is impressive growth, as the Taptica performance revenues decreased, with revenues from video and branding mitigating this well-flagged decline. Tremor also remains highly cash-generative, with a net cash position at 31 December 2019 of over $76.9 million.
Our growth strategy continues to be underpinned by three core components:
1) Video - the highest growth medium in digital advertising, with this trend expected to continue
· Tremor has a sharp focus on video, which was further enhanced through the acquisition of Unruly
2) Data - Tremor's commercial edge is bedded-in TV retargeting
· The Company has had a leading position in this segment for over four years and encompasses unique data sources
3) Media with an emphasis on Connected TV - our end-to-end position is providing us with an advantage in the marketplace and CTV is the engine of growth within the exchange
· Tremor's presence within CTV through its now combined RhythmOne assets is well ahead of much of the market with its solution gaining significant traction
Video advertising market growth
The global market for digital video advertising both in the US - a key market for Tremor - and worldwide is expected to continue to grow markedly. Video advertising spend in the US alone is anticipated to be c. $42.6 billion in 20202. However, all forecasts pre-date the outbreak of the COVID-19 pandemic.
These overarching market trends underpinned the Company's strategic shift to focus wholly on video advertising and more specifically key areas like CTV, which given the proliferation of smart TVs and the ever-increasing number of streaming providers, will remain an exciting growth segment. In addition, the increase in video advertising spend globally is showing no signs of abating, with the market anticipated to grow to over $110 billion by 20243, and importantly the shift from desktop video to mobile video spend is also expected to continue. International expansion is central to Tremor's strategy and we believe we are well-placed to do so following the acquisition of Unruly.
Our proposition
Tremor's proposition is all about video, and our robust end-to-end solutions, which is the new model for companies in this field, enables us to offer a diverse of products to generate a number of revenue streams. These include:
· Direct/managed - our sales force offers two main products, which are CTV and retargeting solutions, as well as a combination of both
· Private Marketplaces - we enable leading agencies that only work with preferred marketplaces, the ability to run, including on CTV media, and use TV retargeting segments that are connected to our Exchange
· Self-Serve - we offer second tier agencies a full platform to run their video campaigns and we offer a DSP with connectivity to our exchange and a rich CTV portfolio, as well as offering TV retargeting and other data segments
Operational Review
Brand Advertising
Tremor's video advertising business continued to trade well in 2019, benefitting from the incorporation of RhythmOne's video assets into the Company. The division achieved record revenues in 2019 of $248.6 million (2018: $146 million), driven by the shift of advertising spend to digital video, as outlined above. The division added a number of key clients during the period, including Estee Lauder, Honda Powersports, Pinterest, Remy Martin, Symantec, Takeda, TikTok and Twitch.
In December 2019, we renewed our partnership with Alphonso, the leading TV re-targeting enabler in the US and Canada, for a further two years. Tremor leverages the data collected by Alphonso to identify and target select audiences in real time on an exclusive basis. When combined with RhythmOne's YuMe offering, Alphonso's data allows Tremor to maintain a leadership position in the TV retargeting market. This also goes beyond the TV screen, as advertising campaigns can be delivered across platforms such as mobile, CTV, laptop and tablet, which deliver maximum impact.
Media
Tremor's media platform is one of the most robust when it comes to video and specifically CTV. We host thousands of direct premium publishers and also connect to the leading SSPs in the market to grow our reach.
Our media platform received further reinforcement following the acquisition of Unruly in January 2020. Unruly is home to over 2,000 publishers, further increasing the reach of our platform. In addition, in Q4 2020, we launched a self-serve platform for publishers to manage their own media with advertisers.
Introducing RhythmOne's Exchange into international markets began in mid-2019 and was further bolstered through the acquisition of Unruly, which has strong presence in key markets including the UK, Germany, Australia, Japan and Singapore.
Unruly
Post period-end, in January 2020, Tremor acquired Unruly and entered into a global partnership with News Corp. Tremor now has the exclusive right to sell outstream video to more than 50 News Corp titles in the UK, US and Australia.
In addition, the transaction has:
· Transformed the Company into a global business;
· Bolstered Tremor's supply-side platform adding 2,000 direct premium publishers;
· Expanded Tremor's customer base, adding leading blue-chip customers; including U7 council members with tier 1 brands including P&G, Unilever, Nestle, American Express and others;
· Deepened Tremor's data and insight capabilities through Unruly's pioneering testing and targeting solution UnrulyEQ; and
· Added individuals from Unruly's management that contribute significant knowledge and experience, with Rebekah Brooks, CEO of News UK, joining the board from today.
The integration of Unruly into the enlarged group is already underway, and significant progress has been made in the consolidation of operations as well as the incorporation of its technology. Crucially, the acquisition of Unruly brought even greater scale to the Company and strong brand recognition, which is key as we look to capitalise on the opportunity within video advertising technologies internationally.
Growth strategy
2019 was a year in which the Company established the infrastructure and technology stack, from which to deliver material growth. Looking forward, we are focused on aggressively expanding our global customer base alongside continuing to develop our product offering. Therefore, our growth strategy priorities are to:
· Drive organic growth in the US - leverage our technology stack and business capabilities to grow market share
· Leverage CTV expertise and capabilities - use the strong foundations which we have established in CTV to further grow, as evidenced by the strong growth in CTV we demonstrated in 2019 in this segment
· Continue to offer innovative solutions - mainly focused on CTV, generate growth through our PMPs and self-serve solutions to agencies and clients
· Expand international footprint - further growing our presence beyond the US by introducing products into relevant markets in Europe and Asia and leveraging international operations and the Unruly brand
· Target select acquisitions - evaluate potential acquisition targets in order to further broaden the user base, leveraging Tremor's position as a consolidator in the market
Capital allocation
The Company ended 2019 with over $76.9 million of net cash after completing the $25 million share buyback program and making a $5 million advance payment for the extension of the Alphonso partnership. The board constantly evaluates how best to deploy the Company's cash to maximise shareholder value.
The Company has a strong balance sheet with net cash of over $76.9 million, which therefore allows it to undertake a share buy-back of $10 million whilst being confident in trading through the coming period of uncertainty.
As referenced above, the board continues to assess strategic acquisitions alongside continued organic investment in the business.
Outlook / COVID-19 Update
Tremor has made a solid start to 2020, however the COVID-19 pandemic will continue to cause global uncertainty in the short to medium-term. Management is aware that the pandemic could markedly affect a number of our end-customers and continues to monitor the situation closely.
Management are already undertaking a number of initiatives to help mitigate the potential impact of COVID-19 on business performance, which include:
· Accelerating the integration of Unruly into Tremor, which is due to be completed faster than anticipated
· Launching new capabilities alongside enhanced existing solutions to capture the wider opportunities in the market
· Monitoring the cost structure of the Company
Much of Tremor's global workforce are successfully working remotely as a result of the current regulations. The health and wellbeing of the Company's employees remains of the utmost importance.
Ofer Druker
Chief Executive Officer
30 March 2020
1Source: eMarketer, October 2019
2Source: eMarketer, February 2019
3Source: Cowen and Company, Jan 10, 2019
CHIEF FINANCIAL OFFICER'S REVIEW
Revenues for the twelve months ended 31 December 2019 increased by 18% to $325.8 million compared with $276.9 million for 2018. Revenue split by division in 2019 was as follows: Branding contributed $248.5 million; and Performance: $77.3 million (2018: Branding $146.0 million, Performance $130.8 million), reflecting the decreasing contribution from the Performance division.
Gross profit increased by 24% to $138.5 million (2018: $111.4 million). Cost of sales, which consists primarily of traffic acquisition and data costs that are directly attributable to revenue generated by the Company and based on the revenue share arrangements with audience and content partners, decreased as a proportion of revenue compared with the prior year.
Operating profit for the year decreased by 88% to $3.2 million (2018: $26.7 million), mainly due to the acquisition and integration of RhythmOne, increased in share based payments as demonstrated below.
Adjusted EBITDA for full year 2019 was $60.4 million compared with $44.1 million for 2018, which is comprised as follows:
| 2019 $'m | 2018 $'m |
Operating profit | 3.2 | 26.7 |
Depreciation | 11.9 * | 1.2 |
Amortization | 20.5 | 9.6 |
Share-based payments | 15.8 | 8.0 |
Restructuring cost | 5.5 | - |
Acquisition-related cost | 2.8 | 0.2 |
Other income | 0.7 | (1.6) |
Adjusted EBITDA | 60.4 | 44.1 |
*Including 9.1 IFRS 16 influence
Net Profit for the year decreased by 72% to $6.4 million (2018: $22.5 million).
Operating costs for the year increased by 60% as a result of the acquisition of RhythmOne. The Company continues to selectively invest in areas that management believe should drive better results and business performance whilst focusing on driving efficiencies and savings across its operations.
R&D expenses increased to $33.1 million in the year (2018: $20.2 million). The main increase is attributed from $12.2 million due to RhythmOne consolidation.
Sales & Marketing expenses increased to $62.1 million (2018: $44.7 million). The main increase is attributed from $20.4 million due to RhythmOne consolidation, offset by cost saving efficiency of $3.0 million.
General & administrative expenses increased to $40.2 million (2018: $19.9 million). The main increase is attributed as follows; $5.5 million due to RhythmOne consolidation, $7.8 million from share based payments (mainly to CEO and COO) ,$2.6 million due to increase in doubtful debt allowance and $2.6 million increase due to acquisition cost
The Company continued to be cash-generative with cash generated from operating activities of $45.1 million (2018: $37.5 million).
As at 31 December 2019, cash and bank deposits were c. $79.0 million after and net cash as at 31 December 2019 of $76.9 million* was delivered post the $25.0 million share buyback programme during 2019 and $5.0 million of data pre-payments for 2020.
Tremor has announced its intention to launch a discretionary $10 million share buy-back imminently. The share buy-back commitment forms parts of Tremor's broader strategy to deliver shareholder value.
Sagi Niri
Chief Financial Officer
30 March 2020
* Net cash is defined as cash and cash equivalents less short and long-term interest-bearing debt including capital and finance leas
Auditors' Report to the Shareholders of Tremor International Ltd.
We have audited the accompanying consolidated statements of financial position of Tremor International Ltd. (hereinafter - "the Company") as at 31 December 2019 and 2018 and the consolidated statements of comprehensive income, statements of changes in equity and statements of cash flows, for each of the two years in the period ended 31 December 2019. These financial statements are the responsibility of the Company's Board of Director and of its Management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards in Israel, including standards prescribed by the Auditors Regulations (Manner of Auditor's Performance) - 1973. Such standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its consolidated subsidiaries as of 31 December 2019 and 2018 and their results of operations, changes in equity and cash flows for each of the two years in the period ended 31 December 2019, in accordance with International Financial Reporting Standards (IFRS).
Somekh Chaikin
Certified Public Accountants (Isr.)
Member Firm of KPMG International
March 30, 2020
Consolidated Statements of Financial Position as at 31 December
|
|
|
2019 |
2018 |
|
|
Note |
USD thousands |
USD thousands |
|
Assets |
|
|
|
|
Cash and cash equivalents |
10 |
79,047 |
67,073 |
|
Trade receivables, net |
8 |
95,278 |
64,329 |
|
Other receivables |
8 |
13,340 |
6,990 |
|
Total current assets |
|
187,665 |
138,392 |
|
|
|
|
|
|
Fixed assets, net |
5 |
3,1 32 |
2,879 |
|
Right-of-use assets |
6 |
21,003 |
- |
|
Intangible assets, net |
7 |
210,285 |
53,605 |
|
Deferred tax assets |
4 |
17,606 |
2, 383 |
|
Other long term assets |
|
1,332 |
- |
|
Total non-current assets |
|
253,358 |
58, 867 |
|
|
|
|
|
|
Total assets |
|
441,023 |
197, 259 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Current maturities of bank loans |
|
- |
12,273 |
|
Current maturities of lease liabilities |
6 |
9,637 |
399 |
|
Trade payables |
9 |
70,428 |
39,630 |
|
Other payables |
9 |
27,471 |
14,920 |
|
Total current liabilities |
|
107,536 |
67,222 |
|
|
|
|
|
|
Employee benefits |
|
556 |
836 |
|
Long-term lease liabilities |
6 |
14,632 |
- |
|
Deferred taxliabilities |
4 |
17,687 |
991 |
|
Liability for put option on non-controlling interests |
16(C) |
- |
3,941 |
|
Total non-current liabilities |
|
32,875 |
5,768 |
|
|
|
|
|
|
Total liabilities |
|
140,411 |
72,990 |
|
|
|
|
|
|
Equity |
13 |
|
|
|
Share capital |
|
351 |
198 |
|
Share premium |
|
224,692 |
65,305 |
|
Capital reserves |
|
16,791 |
7,713 |
|
Retained earnings |
|
58,778 |
51,053 |
|
|
|
|
|
|
Total equity |
|
300,612 |
124, 269 |
|
|
|
|
|
|
Total liabilities and equity |
|
441,023 |
197, 259 |
|
|
|
|
|
|
|
Chairman of the Board of Directors |
|
CEO |
|
CFO |
* See Note 6 regarding initial application of IFRS 16, Leases. According to the transitional method that was chosen, comparative data were not restated.
Date of approval of the financial statements: March 30, 20 20
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Comprehensive Income for the Year Ended 31 December
|
|
|
2019 |
2018 |
|
|
Note |
USD thousands |
USD thousands |
|
Revenues |
11 |
325,760 |
276,872 |
|
Cost of sales |
|
187,246 |
165,440 |
|
Gross profit |
|
138,514 |
111,432 |
|
|
|
|
|
|
Research and development expenses |
|
33,042 |
20,187 |
|
Selling and marketing expenses |
|
62,025 |
44,702 |
|
General and administrative expenses |
12 |
40,244 |
19,847 |
|
|
|
135,311 |
84,736 |
|
|
|
|
|
|
Profit from operations |
|
3,203 |
26,696 |
|
Profit from operations before amortization of purchased intangibles |
|
|
|
|
and business combination related expenses* |
|
23,148 |
35,642 |
|
|
|
|
|
|
Financing income |
|
773 |
1,251 |
|
Financing expenses |
|
(1,088) |
(778) |
|
Financing income (expenses), net |
|
(315) |
473 |
|
|
|
|
|
|
Other income |
|
700 |
- |
|
|
|
|
|
|
Profit before taxes on income |
|
3,588 |
27,169 |
|
|
|
|
|
|
Taxes on income |
4 |
2,636 |
(5, 015 ) |
|
|
|
|
|
|
Profit for the year |
|
6,224 |
2 2 , 154 |
|
Profit for the year before amortization of purchased intangibles and |
|
|
|
|
business combination related expenses (net of tax)** |
|
22,452 |
30, 960 |
|
|
|
|
|
|
Other comprehensive income items: |
|
|
|
|
Foreign currency translation differences for foreign operation |
|
139 |
361 |
|
|
|
|
|
|
Total other comprehensive income for the year |
|
139 |
361 |
|
|
|
|
|
|
Total comprehensive income for the year |
|
6,363 |
22, 515 |
|
|
|
|
|
|
Earnings per share |
|
|
|
|
Basic earnings per share (in USD) |
14 |
0.0 560 |
0.32 81 |
|
Basic earnings per share (in USD) before amortization of purchased |
14 |
0.2018 |
0.458 5 |
|
Intangibles and business combination related expenses (net of tax)** |
|
|
|
|
Diluted earnings per share (in USD) |
14 |
0.0 542 |
0.3179 |
|
Diluted earnings per share (in USD) before amortization of purchased |
14 |
|
|
|
Intangibles and business combination related expenses (net of tax)** |
|
0.1956 |
0.44 42 |
* Amounting to USD 19,945 thousand (2018: USD 8,946 thousand) of amortization of purchased intangibles acquired in business combination and related acquisition expenses.
** A mounting to USD 16,228 thousand (2018: USD 8,806 thousand) of amortization of purchased intangibles acquired in business combination and related acquisition expenses, net of tax.
*** See Note 6 regarding initial application of IFRS 16, Leases. According to the transitional method that was chosen, comparative data were not restated.
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Changes in Equity for the Year Ended 31 December
|
|
Share |
Share |
Capital |
Retained |
|
|
|
capital |
premium |
reserves* |
Earnings |
Total |
|
|
USD thousands |
||||
|
Balance as at |
|
|
|
|
|
|
1 January 2018 |
180 |
32,886 |
1,276 |
30,576 |
64,918 |
|
|
|
|
|
|
|
|
Total comprehensive |
|
|
|
|
|
|
income for the year |
|
|
|
|
|
|
Profit for the year |
- |
- |
- |
22,154 |
22,154 |
|
Other comprehensive |
|
|
|
|
|
|
income |
- |
- |
361 |
- |
361 |
|
Total comprehensive |
|
|
|
|
|
|
income for the year |
- |
- |
361 |
22,154 |
22, 515 |
|
|
|
|
|
|
|
|
Transactions with |
|
|
|
|
|
|
owners, recognized |
|
|
|
|
|
|
directly in equity |
|
|
|
|
|
|
Revaluation of liability for |
|
|
|
|
|
|
put option on non- |
|
|
|
|
|
|
controlling interests |
- |
- |
- |
4,678 |
4,678 |
|
Issuance of shares (net of |
|
|
|
|
|
|
issuance cost) |
15 |
29,707 |
- |
- |
29,722 |
|
Buy Back shares |
- |
(135) |
- |
- |
(135) |
|
Share based payments |
- |
25 |
8,012 |
- |
8,037 |
|
Exercise of share options |
3 |
2,822 |
(1,936) |
- |
889 |
|
Dividends to owners |
- |
- |
- |
(6,355) |
(6,355) |
|
Balance as at |
|
|
|
|
|
|
31 December 2018 |
198 |
65,305 |
7,713 |
51,053 |
124, 269 |
|
|
|
|
|
|
|
|
Comprehensive |
|
|
|
|
|
|
income for the year |
|
|
|
|
|
|
Profit for the year |
- |
- |
- |
6,224 |
6,224 |
|
Other comprehensive |
|
|
|
|
|
|
income |
- |
- |
139 |
- |
139 |
|
Total comprehensive |
|
|
139 |
6,224 |
6,363 |
|
income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with |
|
|
|
|
|
|
owners, recognized |
|
|
|
|
|
|
directly in equity |
|
|
|
|
|
|
Revaluation of liability for |
|
|
|
|
|
|
put option on non- |
|
|
|
|
|
|
controlling interests |
- |
- |
- |
1,501 |
1,501 |
|
Issuance of shares (net of |
184 |
175,166 |
- |
- |
175,350 |
|
issuance cost) |
|
|
|
|
|
|
Buy Back shares |
(41) |
(24,696) |
- |
- |
(24,737) |
|
Share based payments |
- |
26 |
16,016 |
- |
16,042 |
|
Exercise of share options |
10 |
8,891 |
(7,077) |
- |
1,824 |
|
Balance as at |
|
|
|
|
|
|
31 December 2019 |
351 |
224,692 |
16,791 |
58,778 |
300,612 |
* Includes reserves for share-based payments and other comprehensive income.
** See Note 6 regarding initial application of IFRS 16, Leases. According to the transitional method that was chosen, comparative data were not restated.
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Cash Flows for the Year Ended 31 December
|
|
| 2019 | 2018 |
|
|
| USD thousands | USD thousands |
Cash flows from operating activities |
|
|
|
Profit for the year |
| 6,224 | 22,154 |
Adjustments for: |
|
|
|
Depreciation and amortization |
| 32,359 | 10,808 |
Net financing income |
| (19) | (505) |
Loss (gain) on sale of fixed assets |
| 11 | - |
Loss (gain) on IFRS 16 change contracts |
| (2,705) | - |
Loss (gain) on sale of business unit |
| (700) | - |
Share-based payment |
| 15,809 | 8,037 |
Income tax expense |
| (2,636) | 5,015 |
|
|
|
|
Change in trade and other receivables |
| 38,017 | 15,557 |
Change in trade and other payables |
| (35,754) | (10,580) |
Change in employee benefits |
| (290) | (73) |
|
|
|
|
Income taxes received |
| 3,184 | 217 |
Income taxes paid |
| (8,089) | (12,774) |
Interest received |
| 604 | 381 |
Interest paid |
| (942) | (693) |
Net cash provided by operating activities |
| 45,073 | 37,544 |
Cash flows from investing activities |
|
|
|
Decrease (increase) in pledged deposits |
| 532 | 51 |
IFRS 16 Receipt |
| 1,669 | - |
Payment of earn-out |
| - | (1,218) |
Acquisition of fixed assets |
| (1,063) | (1,461) |
Acquisition and capitalization of intangible assets |
| (5,672) | (1,444) |
Proceeds from sale of intangible assets |
| 6 | 118 |
Grant of short-term loans |
| 309 | - |
Decrease (Increase) in bank deposit, net |
| (57) | - |
Acquisition of subsidiaries, net of cash acquired |
| 23,714 | - |
Net cash used in investing activities |
| 19,438 | (3,954) |
Cash flows from financing activities |
|
|
|
Issuance of shares |
| - | 29,539 |
Repayment of loans |
| (17,273) | (18,195) |
Buy back of shares |
| (24,737) | (135) |
Proceeds from exercise of share options |
| 1,824 | 889 |
IFRS 16 repayment |
| (12,607) | - |
Dividends paid |
| - | (6,355) |
Net cash provided by financing activities |
| (52,793) | 5,743 |
Net increase in cash and cash equivalents |
| 11,718 | 39,333 |
|
|
|
|
Cash and cash equivalents as at the beginning of the year |
| 67,073 | 26,985 |
Effect of exchange rate fluctuations on cash and cash equivalents |
| 256 | 755 |
Cash and cash equivalents as at the end of the year |
| 79,047 | 67,073 |
* See Note 6 regarding initial application of IFRS 16, Leases. According to the transitional method that was chosen, comparative data were not restated.
The accompanying notes are an integral part of these consolidated financial statements.
Notes to the Consolidated Financial Statements as at 31 December 2019
Note 1 - General
A. Reporting entity
Tremor International Ltd. (the "Company" or "Tremor International") formerly named Taptica International Ltd. was incorporated in Israel under the laws of the State of Israel on 20 March 2007, and is listed on the AIM Market of the London Stock Exchange. The address of the registered office is 121 Hahashmonaim Street Tel-Aviv, Israel.
Tremor International Ltd is a global leader in advertising technologies, it has multiple core divisions: Tremor Video, RhythmOne and Unruly. Tremor International Ltd is headquartered in Israel and maintains offices throughout the US and Canada, Europe, Asia-Pacific and Australia and is traded on the London Stock Exchange (AIM: TRMR).
On April 1, 2019, the Company completed an Acquisition Transaction (hereinafter-"Acquisition") with RhythmOne Plc, a company incorporated under the laws of England and Wales, whereby the Company acquired the entire issued ordinary shares of RhythmOne and each RhythmOne shareholder received 28 new shares of the Company for every 33 RhythmOne shares held, so that following the completion of the Acquisition, the Company ' s current shareholders held 50.1% and, RhythmOne Shareholders held 49.9% of the merged Group. In addition, as part of the Acquisition, the RhythmOne options and RhythmOne RSUs holders rolled over the equivalent options and RSUs over Tremor shares, see also Note 15 (3).
The consideration of the Acquisition amounted to USD 176 million (including consideration allocated to issuance of ordinary shares and Replacement Award).
See also Note 18B (1).
Following the completion of the Acquisition the Company executed share buy-back program, see also Note 13A (4).
With respect to an acquisition announced by the Company subsequent to the balance sheet date, see note 21.
Since January 2020, the Coronavirus outbreak has dramatically expanded into a worldwide pandemic creating macro-economic uncertainty and disruption in the business and financial markets. Many countries around the world, including Israel, have been taking measures designated to limit the continued spread of the Coronavirus, including the closure of workplaces, restricting travel, prohibiting assembling, closing international borders and quarantining populated areas. Such measures present concerns that may dramatically affect the Company's ability to conduct its business effectively, including, but not limited to, adverse effect relating to employees' welfare, slowdown of commerce, travel and other activities which are essential and critical for maintaining on-going business activities. Given the uncertainty around the extent and timing of the future spread or mitigation of COVID-19 and around the imposition or relaxation of protective measures, the Company cannot reasonably estimate the impact to its future results of operations, cash flows or financial condition; infections may become more widespread and the limitation on the ability to work, travel, as well as any closures or supply disruptions, may be extended for longer periods of time and to other locations, all of which would have a negative impact on the Company's business, financial condition and operating results. In addition, the unknown scale and duration of these developments have macro and micro negative effects on the financial markets and global economy which could result in an economic downturn that could affect demand for the Company's products and have a adverse effect on its operations and financial results, earnings, cash flow and financial condition.
B. Definitions
In these financial statements -
(1) The Company - Tremor International Ltd. (former name: Taptica International Ltd.)
(2) The Group - Tremor International Ltd. and its subsidiaries.
(3) Subsidiaries - Companies, the financial statements of which are fully consolidated, directly or indirectly, with the financial statements of the Company.
(4) Related party - As defined by IAS 24, "Related Party Disclosures".
Note 2 - Basis of Preparation
A. Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS).
The consolidated financial statements were authorized for issue by the Company's Board of Directors on March 30, 2020.
B. Functional and presentation currency
These consolidated financial statements are presented in USD, which is the Company's functional currency, and have been rounded to the nearest thousands, except when otherwise indicated. The USD is the currency that represents the principal economic environment in which the Company operates.
C. Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis except for the following assets and liabilities:
• Deferred tax assets and liabilities
• Put option to non-controlling interests
• Provisions
For further information regarding the measurement of these assets and liabilities see Note 3 regarding significant accounting policies.
D. Use of estimates and judgments
The preparation of financial statements in conformity with IFRS requires management of the Group to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
The preparation of accounting estimates used in the preparation of the Group's financial statements requires management of the Group to make assumptions regarding circumstances and events that involve considerable uncertainty. Management of the Group prepares estimates on the basis of past experience, various facts, external circumstances, and reasonable assumptions according to the pertinent circumstances of each estimate.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Information about assumptions made by the Group with respect to the future and other reasons for uncertainty with respect to estimates that have a significant risk of resulting in a material adjustment to carrying amounts of assets and liabilities in the next financial year are included in Note 6, on leases, with respect to determining the lease term and determining the discount rate of a lease liability, in Note 7, on intangible assets, with respect to the accounting of software development, and Note 18, on subsidiaries, with respect to business combination
E. Determination of fair value
Preparation of the financial statements requires the Group to determine the fair value of certain assets and liabilities. When determining the fair value of an asset or liability, the Group uses observable market data as much as possible. There are three levels of fair value measurements in the fair value hierarchy that are based on the data used in the measurement, as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly
• Level 3: inputs that are not based on observable market data (unobservable inputs).
Further information about the assumptions that were used to determine fair value is included in the following notes:
• Note 15, on share-based payments;
• Note 16, on financial instruments; and
• Note 18, on subsidiaries (regarding business combinations).
F. Initial application of new standards, amendments to standards and interpretations
(1) IFRS 16, Leases
As from January 1, 2019 (hereinafter: "the date of initial application") the Group applies International Financial Reporting Standard 16, Leases (hereinafter: "IFRS 16" or "the standard"), which replaced International Accounting Standard 17, Leases (hereinafter: "IAS 17" or "the previous standard").
The main effect of the standard's application is reflected in annulment of the existing requirement from lessees to classify leases as operating (off-balance sheet) or finance leases and the presentation of a unified model for lessees to account for all leases similarly to the accounting treatment of finance leases in the previous standard. Until the date of application, the Group classified most of the leases in which it is the lessee as operating leases, since it did not substantially bear all the risks and rewards from the assets.
In accordance with IFRS 16, for agreements in which the Group is the lessee, the Group recognizes a right-of-use asset and a lease liability at the inception of the lease contract for all the leases in which the Group has a right to control identified assets for a specified period of time, other than exceptions specified in the standard. Accordingly, the Group recognizes depreciation and amortization expenses in respect of a right-of-use asset, tests a right-of-use asset for impairment in accordance with IAS 36 and recognizes financing expenses on a lease liability. Therefore, as from the date of initial application, lease payments relating to assets leased under an operating lease, which were presented as part of general and administrative expenses in the income statement, are capitalized to assets and written down as depreciation and amortization expenses. Furthermore, leased assets, which were classified as finance
leases at inception of the lease and were recognized in the statement of financial position as fixed assets, were reclassified as right-of-use assets.
The Group elected to apply the modified retrospective approach upon the initial adoption of the new Lease Standard by measuring the right-of-use asset at an amount equal to the lease liability, as measured on the transition date.
In respect of all the leases, the Group elected to apply the transitional provisions such that on the date of initial application it recognized a liability at the present value of the balance of future lease payments
discounted at its incremental borrowing rate at that date calculated according to the average duration of the remaining lease period as from the date of initial application, and concurrently recognized a right-of-use asset at the same amount of the liability, adjusted for any prepaid or accrued lease payments that were
recognized as an asset or liability before the date of initial application. Therefore, application of the standard did not have an effect on the Group's equity at the date of initial application.
Furthermore, as part of the initial application of the standard, the Group has chosen to apply the following expedients:
(1) Not separating non-lease components from lease components and instead accounting for all the components as a single lease component;
(2) Relying on a previous definition and/or assessment of whether an arrangement is a lease in accordance with the accounting principles that existed before IFRS 16 with respect to agreements that exist at the date of initial application;
(3) Applying a single discount rate to a portfolio of leases with reasonably similar characteristics;
(4) Assessing whether a contract is onerous in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets (hereinafter: "IAS 37") immediately before the date of initial application instead of assessing impairment of right-of-use assets.
(5) Using hindsight when determining the lease term if the contract includes an extension or termination option.
The table below presents the cumulative effects of the items affected by the initial application on the statement of financial position as at January 1, 2019:
|
|
|
According to |
|
According to |
|
|
|
IAS 17 |
The change |
IFRS 16 |
|
|
|
USD thousands |
USD thousands |
USD thousands |
|
Fixed assets, net |
2,879 |
(418) |
2,461 |
|
|
Right-of-use assets |
- |
11,244 |
11,244 |
|
|
Deferred rent liability |
185 |
(185) |
- |
|
|
Lease liabilities |
399 |
10,917 |
11,316 |
|
In measurement of the lease liabilities, the Group discounted lease payments using the nominal incremental borrowing rate at January 1, 2019. The discount rates used to measure the lease liability range between 2.322% and 3.128%. This range is affected by differences in the lease term, differences between asset groups, and so forth .
(2) IFRIC 23, Uncertainty Over Income Tax Treatments
IFRIC 23 clarifies how to apply the recognition and measurement requirements of IAS 12 for uncertainties in income taxes. According to IFRIC 23, when determining the taxable profit (loss), tax bases, unused tax losses, unused tax credits and tax rates when there is uncertainty over income tax treatments, the entity should assess whether it is probable that the tax authority will accept its tax position. Insofar as it is probable that the tax authority will accept the entity's tax position, the entity will recognize the tax effects on the financial statements according to that tax position. On the other hand, if it is not probable that the tax authority will accept the entity's tax position, the entity is required to reflect the uncertainty in its accounts by using one of the following methods: the most likely outcome or the expected value. IFRIC 23 clarifies that when the entity examines whether or not it is probable that the tax authority will accept the entity's position, it is assumed that the tax authority with the right to examine any amounts reported to it will examine those amounts and that it has full knowledge of all relevant information when doing so. Furthermore, according to IFRIC 23 an entity has to consider changes in circumstances and new information that may change its assessment. IFRIC 23 also emphasizes the need to provide disclosures of the judgments and assumptions made by the entity regarding uncertain tax positions.
Note 3 - Significant Accounting Policies
The accounting policies set out below have been applied consistently for all periods presented in these consolidated financial statements, and have been applied consistently by Group entities.
A. Basis of consolidation
(1) Business combinations
The Group implements the acquisition method to all business combinations. The acquisition date is the date on which the acquirer obtains control over the acquiree. Control exists when the Group is exposed, or has rights, to variable returns from its involvement with the acquiree and it has the ability to affect those returns through its power over the acquiree. S ubstantive rights held by the Group and others are taken into account when assessing control.
The Group recognizes goodwill on acquisition according to the fair value of the consideration transferred less the net amount of the identifiable assets acquired and the liabilities assumed.
The consideration transferred includes the fair value of the assets transferred to the previous owners of the acquiree, the liabilities incurred by the acquirer to the previous owners of the acquiree and equity instruments that were issued by the Group . In addition, the consideration transferred includes the fair value of any contingent consideration. After the acquisition date, the Group recognizes changes in the fair value of contingent consideration classified as a financial liability in profit or loss, whereas contingent consideration classified as an equity instrument is not re-measured.
If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree's employees (acquiree's awards) and relate to past services, then all or a portion of the amount of the acquirer's replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based value of the replacement awards compared with the market-based value of the acquiree's awards and the extent to which the replacement awards relate to past and/or future service. The unvested portion of the replacement award that is attributed to post-acquisition services is recognized as a compensation cost following the business combination.
Costs associated with the acquisitions that were incurred by the acquirer in the business combination such as: finder's fees, advisory, legal, valuation and other professional or consulting fees are expensed in the period the services are received.
(2) Subsidiaries
Subsidiaries are entities controlled by the Group. The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commenced, until the date that control is lost.
(3) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.
(4) Issuance of put option to non-controlling interests
A put option issued by the Company to non-controlling interests that is settled in cash is recognized as a liability at the present value of the exercise price under the anticipated acquisition method. In subsequent periods, the Group elected to account for the changes in the value of the liability in respect of put options in the Equity (see also note 16(C)).
Accordingly, the Group's share of a subsidiary's profits includes the share of the non-controlling interests to which the Group issued a put option.
B. Foreign currency
(1) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of the Group at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated in to the functional currency at the exchange rate on that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortized cost in foreign currency translated at the exchange rate as of the end of the year.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate on the date that the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate on the date of the transaction.
(2) Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to USD at exchange rates at the reporting date. The income and expenses of foreign operations are translated to USD at exchange rates at the dates of the transactions.
Foreign currency differences are recognized in other comprehensive income and are presented in equity in the capital reserve.
C. Financial instruments
(1) Non-derivative financial assets
Initial recognition and measurement of financial assets
The Group initially recognizes trade receivables and debt instruments issued on the date that they are created. All other financial assets are recognized initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. A financial asset is initially measured at fair value plus transaction costs that are directly attributable to the acquisition or issuance of the financial asset. A trade receivable without a significant financing component is initially measured at the transaction price. Receivables originating from contract assets are initially measured at the carrying amount of the contract assets on the date classification was changed from contract asset to receivables.
Derecognition of financial assets
Financial assets are derecognized when the contractual rights of the Group to the cash flows from the asset expire, or the Group transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. When the Group retains substantially all of the risks and rewards of ownership of the financial asset, it continues to recognize the financial asset.
Classification of financial assets into categories and the accounting treatment of each category
Financial assets are classified at initial recognition to one of the following measurement categories: amortized cost; fair value through other comprehensive income - investments in debt instruments; fair value through other comprehensive income - investments in equity instruments; or fair value through profit or loss.
Financial assets are not reclassified in subsequent periods unless, and only if, the Group changes its business model for the management of financial debt assets, in which case the affected financial debt assets are reclassified at the beginning of the period following the change in the business model.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated at fair value through profit or loss:
- It is held within a business model whose objective is to hold assets so as to collect contractual cash flows; and
- The contractual terms of the financial asset give rise to cash flows representing solely payments of principal and interest on the principal amount outstanding on specified dates.
A debt instrument is measured at fair value through other comprehensive income if it meets both of the following conditions and is not designated at fair value through profit or loss:
- It is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
- The contractual terms of the debt instrument give rise to cash flows representing solely payments of principal and interest on the principal amount outstanding on specified dates.
All financial assets not classified as measured at amortized cost or fair value through other comprehensive income as described above, as well as financial assets designated at fair value through profit or loss, are measured at fair value through profit or loss. On initial recognition, the Group designates financial assets at fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
The Group has balances of trade and other receivables and deposits that are held within a business model whose objective is collecting contractual cash flows. The contractual cash flows of these financial assets represent solely payments of principal and interest that reflects consideration for the time value of money and the credit risk. Accordingly, these financial assets are measured at amortized cost.
Subsequent measurement and gains and losses
Financial assets at fair value through profit or loss
These assets are subsequently measured at fair value. Net gains and losses, including any interest income or dividend income, are recognized in profit or loss (other than certain derivatives designated as hedging instruments).
Financial assets at amortized cost
These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
(2) Non-derivative financial liabilities
Non-derivative financial liabilities include bank overdrafts, loans and borrowings from banks, and trade and other payables.
Initial recognition of financial liabilities
The Group initially recognizes debt securities issued on the date that they originated. All other financial liabilities are recognized initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.
Subsequent measurement of financial liabilities
Financial liabilities (other than financial liabilities at fair value through profit or loss) are recognized initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortized cost using the effective interest method. Financial liabilities are designated at fair value through profit or loss if the Group manages such liabilities and their performance is assessed based on their fair value in accordance with the Group's documented risk management strategy, providing that the designation is intended to prevent an accounting mismatch, or the liability is a combined instrument including an embedded derivative.
Transaction costs directly attributable to an expected issuance of an instrument that will be classified as a financial liability are recognized as an asset in the framework of deferred expenses in the statement of financial position. These transaction costs are deducted from the financial liability upon its initial recognition, or are amortized as financing expenses in the statement of income when the issuance is no longer expected to occur.
Derecognition of financial liabilities
Financial liabilities are derecognized when the obligation of the Group, as specified in the agreement, expires or when it is discharged or cancelled.
(3) Share capital
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects.
Incremental costs directly attributable to an expected issuance of an instrument that will be classified as an equity instrument are recognized as an asset in deferred expenses in the statement of financial position. The costs are deducted from equity upon the initial recognition of the equity instruments, or are amortized as financing expenses in the statement of income when the issuance is no longer expected to take place.
Treasury shares
When share capital recognized as equity is repurchased by the Group, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognized as a deduction from equity. Repurchased shares are classified as a deduction in Share Premium . When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus on the transaction is carried to share premium, whereas a deficit on the transaction is deducted from retained earnings.
D. Fixed Assets
Fixed assets are measured at cost less accumulated depreciation. Depreciation is provided on all property, plant and equipment at rates calculated to write each asset down to its residual value (assumed to be nil), using the straight line method, over its expected useful life as follows:
|
|
Years |
|
Computers and servers |
3 |
|
Office furniture and equipment |
3-17 |
|
Leasehold improvements |
The shorter of the lease term and the useful life |
An asset is depreciated from the date it is ready for use, meaning the date it reaches the location and condition required for it to operate in the manner intended by management.
Depreciation methods, useful lives and residual values are reviewed at the end of each reporting year and adjusted if appropriate.
E. Intangible assets
(1) Software development
Costs that are directly associated with the development of identifiable and unique software products controlled by the Group are recognized as intangible assets when all the criteria in IAS 38 are met.
Development costs are capitalized only when it is probable that future economic benefit will result from the project and the following criteria are met:
• The technical feasibility of the product has been ascertained;
• Adequate technical, financial and other resources are available to complete and sell or use the intangible asset;
• The Group can demonstrate how the intangible asset will generate future economic benefits and the ability to use or sell the intangible asset can be demonstrated;
• It is the intention of management to complete the intangible asset and use it or sell it; and
• The development costs can be measured reliably.
In subsequent periods, these costs are amortized over the useful economic life of the asset.
Where these criteria are not met development costs are charged to the statement of comprehensive income as incurred.
The estimated useful lives of developed software are three years.
Amortization methods, useful lives and residual values are reviewed at the end of each reporting year and adjusted if appropriate.
(2) Acquired software
Acquired software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software licenses. These costs are amortized over their estimated useful lives (3 years) using the straight line method. Costs associated with maintaining software programs are recognized as an expense as incurred.
( 3 ) Goodwill
Goodwill that arises upon the acquisition of subsidiaries is presented as part of intangible assets. For information on measurement of goodwill at initial recognition, see Note 3A(1).
In subsequent periods goodwill is measured at cost less accumulated impairment losses. The Group has identified its entire operation as a single cash generating unit (CGU). According to management assessment, no impairment in respect to goodwill has been recorded.
( 4 ) Other intangible assets
Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortization and accumulated impairment losses.
(5) Amortization
Amortization is a systematic allocation of the amortizable amount of an intangible asset over its useful life. The amortizable amount is the cost of the asset less its accumulated residual value.
Internally generated intangible assets, such as software development costs, are not systematically amortized as long as they are not available for use, i.e. they are not yet on site or in working condition for their intended use. Goodwill is not systematically amortized as well, but is tested for impairment at least once a year.
The Group examines the amortization methods, useful life and accumulated residual values of its intangible assets at least once a year (usually at the end of each reporting period) in order to determine whether events and circumstances continue to support the decision that the intangible asset has an indefinite useful life.
Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of the intangible assets from the date they are available for use, since this method most closely reflects the expected pattern of consumption of the future economic benefits embodied in each asset, such as development costs, are tested for impairment at least once a year until such date as they are available for use.
The estimated useful lives for the current and comparative periods are as follows:
- Trademarks 1.75-5 years
- Software (developed and acquired) 3 years
- Customer relationships 3-5.75 years
- Technology 3.75-5 years
- Distribution channel 3 years
F. Impairment
Non-derivative financial assets
Financial assets, contract assets and lease receivables
The Group recognizes a provision for expected credit losses in respect of:
- Financial assets at amortized cost;
- Lease receivables.
The Group has elected to measure the provision for expected credit losses in respect of financial assets and lease receivables at an amount equal to the full lifetime credit losses of the instrument.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition, and when estimating expected credit losses, the Group considers reasonable and supportable information that is relevant and available. Such information includes quantitative and qualitative information, and an analysis, based on the Group's past experience and informed credit assessment, and it includes forward looking information.
Measurement of expected credit losses
Expected credit losses are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive.
Presentation of provision for expected credit losses in the statement of financial position
Provisions for expected credit losses of financial assets measured at amortized cost and are deducted from the gross carrying amount of the financial assets.
Write-off
The gross carrying amount of a financial asset is written off when the Group does not have reasonable expectations of recovering a financial asset at its entirety or a portion thereof. This is usually the case when the Group determines that the debtor does not have assets or sources of income that may generate sufficient cash flows for paying the amounts being written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group's procedures for recovery of amounts due. Write-off constitutes a de-recognition event.
G. Impairment of non-financial assets
Non-financial assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which an asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
Non-financial assets that were subject to impairment are reviewed for possible reversal of the impairment recognized in respect thereof at each statement of financial position date.
H. Employee benefits
(1) Post-employment benefits
The Group's main post-employment benefit plan is under section 14 to the Severance Pay Law ("Section 14"), which is accounted for as a defined contribution plan. In addition, for certain employees, the Group has an additional immaterial plan that is accounted for as a defined benefit plan. These plans are usually financed by deposits with insurance companies or with funds managed by a trustee.
(a) Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an expense in the statement of comprehensive income in the periods during which related services are rendered by employees.
According to Section 14 the payment of monthly deposits by a company into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to the employees that have entered into agreements with the company pursuant to such Section 14. The Company has entered into agreements with a majority of its employees in order to implement Section 14. Therefore, the payment of monthly deposits by the Company into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to those employees that have entered into such agreements and therefore the Company incurs no additional liability with respect to such employees.
(b) Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group's net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value, and the fair value of any plan assets is deducted. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset).
(2) Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided or upon the actual absence of the employee when the benefit is not accumulated (such as maternity leave).
A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
The employee benefits are classified, for measurement purposes, as short-term benefits or as other long-term benefits depending on when the Group expects the benefits to be wholly settled.
(3) Share-based payment transactions
The grant date fair value of share-based payment awards granted to employees is recognized as a salary expense with a corresponding increase in equity, over the period that an employee becomes unconditionally entitled to an award. The amount recognized as an expense in respect of share-based payment awards that are conditional upon meeting service vesting conditions, is adjusted to reflect the number of awards that are expected to vest.
I. Revenue recognition
IFRS 15 replaces the current guidance regarding recognition of revenues and presents a new model for recognizing revenue from contracts with customers. The model includes five steps for analyzing transactions so as to determine when to recognize revenue and at what amount. Furthermore, IFRS 15 provides new and more extensive disclosure requirements than those that exist under current guidance.
The standard introduces a new five-step model for recognizing revenue from contracts with customers:
(1) Identifying the contract with customer
(2) Identifying distinct performance obligations in the contract.
(3) Determining the transaction price.
(4) Allocating the transaction price to distinct performance obligations
(5) Recognizing revenue when the performance obligations are satisfied.
The Group earns its revenue from providing user acquisition services by using technological tools and developments. The Company's business is based on optimizing real time trading of digital advertising between buyers and sellers.
The revenue is comprised of different pricing schemes such as Cost per Mil Impression (CPM), performance based metrics that include Cost per Click (CPC) and Cost per Action (CPA) options.
Revenue from advertising services is recognized by multiplying an agreed amount per Mil Impression/click/ action/ ad call with the volumes of these units delivered.
The Group acts as the principle in these arrangements and reports revenue earned and costs incurred on a gross basis.
As from 1 January 2018, the Group initially applies IFRS 15
J. Classification of expenses
Cost of revenues
Cost of revenues consists primarily of video advertising costs, traffic acquisition costs, data and hosting and research cost that are directly attributable to revenue generated by the Company.
Research and development
Research and development expenses consist primarily of compensation and related costs for personnel responsible for the research and development of new and existing products and services and amortization of certain intangible assets (see also Note 7). Where required, development expenditures are capitalized in accordance with the Company's standard internal capitalized development policy in accordance with IAS 38 (also see Note 3E). All research costs are expensed when incurred.
Selling and marketing
Selling and marketing expenses consist primarily of compensation and related costs for personnel engaged in customer service, sales, and sales support functions, as well as advertising and promotional expenditures and amortization of certain intangible assets (see also Note 7).
General and administrative
General and administrative expenses consist primarily of compensation and related costs for personnel, and include costs related to the Company's facilities, finance, human resources, information technology, legal organizations and fees for professional services. Professional services are principally comprised of outside legal, and information technology consulting and outsourcing services that are not directly related to other operational expenses.
K. Financing income and expenses
Financing income mainly comprises foreign currency gains and interest income.
Financing expenses comprises of exchange rate differences, interest and bank fees, interest on loans and other expenses.
Foreign currency gains and losses on financial assets and financial liabilities are reported on a net basis as either financing income or financing expenses depending on whether foreign currency movements are in a net gain or net loss position.
L. Income tax expense
Income tax comprises current and deferred tax. Current tax and deferred tax are recognized in the statement of comprehensive income except to the extent that they relate to a business combination.
Current taxes
Current tax is the expected tax payable (or receivable) on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date.
Deferred taxes
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognized for the following temporary differences:
• The initial recognition of goodwill; and
• Differences relating to investments in subsidiaries to the extent it is probable that they will not reverse in the foreseeable future, either by way of selling the investment or by way of distributing taxable dividends in respect of the investment.
The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
A deferred tax asset is recognized for tax benefits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Offset of deferred tax assets and liabilities
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority.
Determining whether an arrangement contains a lease
On the inception date of the lease, the Group determines whether the arrangement is a lease or contains a lease, while examining if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. In its assessment of whether an arrangement conveys the right to control the use of an identified asset, the Group assesses whether it has the following two rights throughout the lease term:
(a) The right to obtain substantially all the economic benefits from use of the identified asset; and
(b) The right to direct the identified asset's use.
For lease contracts that contain non-lease components, such as services or maintenance, that are related to a lease component, the Group elected to account for the contract as a single lease component without separating the components.
O. Leases- Policy applicable as from January 1, 2019
Leased assets and lease liabilities
Contracts that award the Group control over the use of a leased asset for a period of time in exchange for consideration, are accounted for as leases. Upon initial recognition, the Group recognizes a liability at the present value of the balance of future lease payments (these payments do not include certain variable lease payments), and concurrently recognizes a right-of-use asset at the same amount of the lease liability, adjusted for any prepaid or accrued lease payments or provision for impairment, plus initial direct costs incurred in respect of the lease.
Since the interest rate implicit in the Group's leases is not readily determinable, the incremental borrowing rate of the lessee is used. Subsequent to initial recognition, the right-of-use asset is accounted for using the cost model, and depreciated over the shorter of the lease term or useful life of the asset.
The lease term
The lease term is the non-cancellable period of the lease plus periods covered by an extension or termination option if it is reasonably certain that the lessee will or will not exercise the option, respectively.
Variable lease payments
Variable lease payments that depend on an index or a rate, are initially measured using the index or rate existing at the commencement of the lease and are included in the measurement of the lease liability. When the cash flows of future lease payments change as the result of a change in an index or a rate, the balance of the liability is adjusted against the right-of-use asset.
Other variable lease payments that are not included in the measurement of the lease liability are recognized in profit or loss in the period in which the event or condition that triggers payment occurs.
Depreciation of right-of-use asset
After lease commencement, a right-of-use asset is measured on a cost basis less accumulated depreciation and accumulated impairment losses and is adjusted for re-measurements of the lease liability. Depreciation is calculated on a straight-line basis over the useful life or contractual lease period, whichever earlier, as follows:
- Buildings 1-8 years
- Data centers 1-3 years
Reassessment of lease liability
Upon the occurrence of a significant event or a significant change in circumstances that is under the control of the Group and had an effect on the decision whether it is reasonably certain that the Group will exercise an option, which was not included before in the lease term, or will not exercise an option, which was previously included in the lease term, the Group re-measures the lease liability according to the revised leased payments using a new discount rate. The change in the carrying amount of the liability is recognized against the right-of-use asset, or recognized in profit or loss if the carrying amount of the right-of-use asset was reduced to zero.
Lease modifications
When a lease modification increases the scope of the lease by adding a right to use one or more underlying assets, and the consideration for the lease increased by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the contract's circumstances, the Group accounts for the modification as a separate lease.
O. Leases (cont'd)
In all other cases, on the initial date of the lease modification, the Group allocates the consideration in the modified contract to the contract components, determines the revised lease term and measures the lease liability by discounting the revised lease payments using a revised discount rate.
For lease modifications that decrease the scope of the lease, the Group recognizes a decrease in the carrying amount of the right-of-use asset in order to reflect the partial or full cancellation of the lease, and recognizes in profit or loss a profit (or loss) that equals the difference between the decrease in the right-of-use asset and re-measurement of the lease liability.
For other lease modifications, the Group re-measures the lease liability against the right-of-use asset.
Subleases
In leases where the Group subleases the underlying asset, the Group examines whether the sublease is a finance lease or operating lease with respect to the right-of-use received from the head lease. The Group examined the subleases existing on the date of initial application based on the remaining contractual terms at that date.
Policy applicable before January 1, 2019
Finance Lease
Leases, where the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased assets are measured and a liability is recognized at an amount equal to the lower of its fair value and the present value of the minimum lease payments.
Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Minimum lease payments made under finance leases are apportioned between the financing expense and the reduction of the outstanding liability. The financing expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Operating Lease
Leases that do not transfer substantially all the risks and rewards incidental to ownership of an underlying asset are classified as operating leases, and the leased assets are not recognized on the Group's statement of financial position.
Payments made under operating leases, other than conditional lease payments, are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense on a straight-line basis, over the term of the lease.
Note 4 - Income Tax
A. Tax under various laws
The Company and its subsidiaries are assessed for income tax purposes on a separate basis. Each of the subsidiaries is subject to the tax rules prevailing in the country of incorporation.
B. Details regarding the tax environment of the Israeli companies
(1) Corporate tax rate
Taxable income of the Israeli parent is subject to the Israeli corporate tax at the rate of 23%.
(2) Benefits under the Law for the Encouragement of Capital Investments
The Investment Law provides tax benefits for Israeli companies meeting certain requirements and criteria. The Investment Law has undergone certain amendments and reforms in recent years.
The Israeli parliament enacted a reform to the Investment Law, effective January 2011. According to the reform, a flat rate tax applies to companies eligible for the "Preferred Enterprise" status. In order to be eligible for Preferred Enterprise status, a company must meet minimum requirements to establish that it contributes to the country's economic growth and is a competitive factor for the gross domestic product.
On December 22, 2016 the Knesset plenum passed the Economic Efficiency Law (Legislative Amendments for Achieving Budget Objectives in the Years 2017 and 2018) - 2016, by which the Encouragement Law was also amended (hereinafter: "the Amendment"). The Amendment added new tax benefit tracks for a "preferred technological enterprise" and a "special preferred technological enterprise" that awards reduced tax rates to a technological industrial enterprise for the purpose of encouraging activity relating to the development of qualifying intangible assets.
Preferred technological income that meets the conditions required in the law, will be subject to a reduced corporate tax rate of 12%, and if the preferred technological enterprise is located in Development Area A to a tax rate of 7.5%. The Amendment is effective as from January 1, 2017.
The Amendment also provides that no tax will apply to a dividend distributed out of preferred income to a shareholder that is an Israeli resident company. A tax rate of 20% shall apply to a dividend distributed out of preferred income to an individual shareholder or foreign resident, subject to double taxation prevention treaties
On May 16 , 2017 the Knesset Finance Committee approved Encouragement of Capital Investment Regulations (Preferred Technological Income and Capital Gain of Technological Enterprise) - 2017 (hereinafter: "the Regulations"), which provides rules for applying the "preferred technological enterprise" and "special preferred technological enterprise" tax benefit tracks including the Nexus formula that provides the mechanism for allocating the technological income eligible for the benefits.
In June 2016, Taptica appealed for a tax ruling to apply "the preferred enterprise" track, which was obtained on April 2017 and will be apply for the years 2016-2020.
On December 3, 2018, the Company together with Taptica (fully owned subsidiary) submitted a request to the Israeli tax authorities for a tax ruling regarding to restructuring, whereby Taptica will be merged with and into the Company in such a manner that Taptica will transfer to the Company all its assets and liabilities for no consideration and thereafter will be liquidated. On May 8 , 2019 the merger between the companies approved by the Israeli Tax Authority and the effective merge date was determined as December 31, 2018. Following the approval of the restructuring, the tax ruling regarding Taptica owns an industrial enterprise and preferred technological enterprise which was obtained on December 2018 will apply on the merged company for the years 2017-2021 with relative agreed changes.
C. Details regarding the tax environment of the non-Israeli companies
Non Israeli subsidiaries are taxed according to the tax laws in their countries of residence as reported in their statutory financial statement prepared under local accounting regulations.
In May 2019 the Company submitted a request for a tax-exempt transfer of assets between its subsidiaries in accordance with the provisions of Section 104A(a) of the Ordinance, by which the Company requests to carry out a restructuring that will unite the subsidiaries companies of the Group (Taptica Inc. and Tremor Video DSP) under one American holding subsidiary. As at the date of approval of the financial statements, The Company's aforesaid request was approved in March 2020.
D. Composition of income tax expense
|
|
|
|
Year ended 31 December |
|
|
|
|
|
2019 |
2018 |
|
|
|
|
USD thousands |
USD thousands |
|
Current tax expense |
|
|
|
Current year |
4,571 |
5,494 |
|
|
4,571 |
5,494 |
|
Deferred tax expense (income) |
|
|
|
Creation and reversal of temporary differences |
(7,207) |
(954) |
|
Change in tax rate |
- |
475 |
|
|
(7,207) |
(479) |
|
|
|
|
|
Income tax expense (income) |
(2,636) |
5,015 |
E. Reconciliation between the theoretical tax on the pre-tax profit and the tax expense:
|
|
|
|
Year ended 31 December |
|
|
|
|
|
2019 |
2018 |
|
|
|
|
USD thousands |
USD thousands |
|
Profit before taxes on income |
3,588 |
27,169 |
|
Primary tax rate of the Company |
23% |
23% |
|
Tax calculated according to the Company's primary tax rate |
825 |
6,249 |
|
|
|
|
|
Additional tax (tax saving) in respect of: |
|
|
|
Non-deductible expenses net of tax exempt income * |
3,584 |
2,665 |
|
Effect of reduced tax rate on preferred income |
|
|
|
and differences in previous tax assessments |
(1,433) |
(5,452) |
|
Utilization of tax losses from prior years for which deferred taxes |
|
|
|
were not created |
(5,050) |
(27) |
|
Effect on deferred taxes at a rate different from the |
|
|
|
primary tax rate |
(873) |
1,109 |
|
Foreign tax rate differential |
311 |
447 |
|
Other differences |
- |
24 |
|
Income tax expenses |
(2,636) |
5,015 |
*including non- deductible share based compensation expenses
F. Deferred tax assets and liabilities
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:
|
|
|
|
|
|
|
|
Intangible |
Employees |
|
|
|
|
Assets and R&D expenses |
Compensation
|
Other
|
Total
|
|
|
USD thousands |
USD thousands |
USD thousands |
USD thousands |
|
Balance of deferred tax asset |
|
|
|
|
|
(liability) as at 1 January |
|
|
|
|
|
2018 |
(579) |
697 |
624 |
742 |
|
|
|
|
|
|
|
Changes recognized in profit or |
697 |
151 |
106 |
954 |
|
loss |
|
|
|
|
|
Effect of change in tax rate |
(168) |
) 22) |
) 285) |
(475) |
|
Changes recognized in equity |
(24) |
12 |
183 |
171 |
|
|
|
|
|
|
|
Balance of deferred tax asset |
|
|
|
|
|
(liability) as at 31 December |
|
|
|
|
|
2018 |
(74) |
838 |
628 |
1,392 |
|
|
|
|
|
|
|
|
Intangible |
Employees |
|
|
|
|
Assets and R&D expenses |
Compensation
|
Other
|
Total
|
|
|
USD thousands |
USD thousands |
USD thousands |
USD thousands |
|
Balance of deferred tax asset |
(74) |
838 |
628 |
1,392 |
|
(liability) as at 1 January |
|
|
|
|
|
2019 |
|
|
|
|
|
|
(20,720) |
- |
11,825 |
(8,895) |
|
Business combinations |
1,176 |
2,631 |
3,400 |
7,207 |
|
Changes recognized in profit or |
|
|
|
|
|
loss |
- |
- |
- |
- |
|
Effect of change in tax rate |
- |
215 |
- |
215 |
|
Changes recognized in equity |
|
|
|
|
|
|
|
|
|
|
|
Balance of deferred tax asset |
|
|
|
|
|
(liability) as at 31 December |
|
|
|
|
|
2019 |
(19,618) |
3,684 |
15,853 |
(81) |
Note 5 - Fixed Assets, net
|
|
|
Office |
|
|
|
|
Computers |
furniture and |
Leasehold |
|
|
|
And Servers |
equipment |
improvements |
Total |
|
|
USD thousands |
|||
|
Cost |
|
|
|
|
||||||
|
Balance as at 1 January 2018 |
2,531 |
369 |
799 |
3,699 |
||||||
|
|
|
|
|
|
||||||
|
Additions |
1,202 |
236 |
485 |
1,923 |
||||||
|
|
|
|
|
|
||||||
|
Balance as at 31 December 2018 |
3,733 |
605 |
1,284 |
5,622 |
||||||
|
|
|
|
|
|
||||||
|
Exchange rate differences |
- |
- |
2 |
2 |
||||||
|
|
|
|
|
|
||||||
|
Classification due to implementation of IFRS16 see note 6A(2) |
(945) |
- |
- |
(945) |
||||||
|
|
|
|
|
|
||||||
|
Additions |
869 |
16 |
178 |
1,063 |
||||||
|
|
|
|
|
|
||||||
|
Business combinations (See Note 17) |
2,023 |
109 |
271 |
2,403 |
||||||
|
Additions |
|
|
|
|
||||||
|
|
|
|
|
|
||||||
|
Disposals |
(106) |
(6) |
- |
(112) |
||||||
|
|
|
|
|
|
||||||
|
Balance as at 31 December 2019 |
5,574 |
724 |
1,735 |
8,033 |
||||||
|
|
|
|
|
|
||||||
|
Depreciation |
|
|
|
|
||||||
|
Balance as at 1 January 2018 |
932 |
129 |
497 |
1 , 5 5 8 |
||||||
|
|
|
|
|
|
||||||
|
Additions |
980 |
67 |
138 |
1,185 |
||||||
|
|
|
|
|
|
||||||
|
Balance as at 31 December 2018 |
1,912 |
196 |
635 |
2,743 |
||||||
|
|
|
|
|
|
||||||
|
Classification due to implementation of IFRS16 see note 6A(2) |
(527) |
- |
- |
(527) |
||||||
|
|
|
|
|
|
||||||
|
Disposals |
(95) |
(1) |
- |
(96) |
||||||
|
|
|
|
|
|
||||||
|
Additions |
2,149 |
185 |
447 |
2,781 |
||||||
|
|
|
|
|
|
||||||
|
Balance as at 31 December 2019 |
3,439 |
380 |
1,082 |
4,901 |
||||||
|
Carrying amounts |
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
||||
|
As at 1 January 2018 |
|
1,599 |
240 |
302 |
2,141 |
|
||||
|
|
|
|
|
|
|
|
||||
|
As at 31 December 2018 |
|
1,821 |
409 |
649 |
2,879 |
|
||||
|
|
|
|
|
|
|
|
||||
|
As at 31 December 2019 |
|
2,135 |
344 |
653 |
3,132 |
|
||||
Note 6 - Leases
A. Leases in which the Group is the lessee
The Group applies IFRS 16, Leases, as from as from 1 January, 2019. The Group has lease agreements with respect to the following items:
1. Offices;
2. Data center;
(1) Information regarding material lease agreements
(a) The Group leases Offices mainly at USA, Israel and Canada with original lease periods expiring between 2020 and 2027 from several lessors. The Group did not assume renewals in determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement.
A lease liability and right-of-use asset in the amount of USD 21,105 thousand and USD 13,155 thousand, respectively, have been recognized in the statement of financial position as at December 31, 2019 in respect of leases of offices.
(b) The Group leases data center and related network infrastructure with original lease periods expiring between 2020 and 2022. The Group did not assume renewals in determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement
A lease liability and right-of-use asset in the amount of USD 3,162 thousand and USD 3,560 thousand, respectively have been recognized in the statement of financial position as at December 31, 2019 in respect of data centers.
(2) Right-of-use assets - Composition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offices |
Data center |
Total |
|
|
|
USD thousands |
|
||
|
Cost |
|
|
|
|
Balance as at 1 January 2019 (first date of adoption) |
9,33 6 |
1,372 |
10,708 |
|
|
|
|
|
|
Business combinations (See Note 18 ) |
12,992 |
11,924 |
24,916 |
|
|
|
|
|
|
Additions |
391 |
33 |
424 |
|
|
|
|
|
|
Lease modifications |
( 473 ) |
( 6 ,223) |
(6,696) |
|
|
|
|
|
|
Disposals |
(951) |
- |
(951) |
|
|
|
|
|
|
Balance as at 31 December 2019 |
21,295 |
7,106 |
28,401 |
|
|
|
|
|
|
Depreciation and impairment losses |
|
|
|
|
Balance as at 1 January 2019 |
- |
527 |
527 |
|
|
|
|
|
|
Business combinations (See Note 18 ) |
- |
- |
- |
|
|
|
|
|
|
Additions |
5,644 |
5,258 |
10,902 |
|
|
|
|
|
|
Provision for Impairment (See Note 6A(3)) |
2,994 |
145 |
3,139 |
|
|
|
|
|
|
Lease modifications |
(349) |
(2,384) |
(2,733) |
|
|
|
|
|
|
Disposals |
(149) |
- |
(149) |
|
|
|
|
|
|
Balance as at 31 December 2019 |
8,140 |
3,546 |
11,686 |
|
|
|
|
|
|
|
|
|
|
|
Carrying amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 31 December 2019 |
13,155 |
3,560 |
16,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) Impairment loss
As of December 31, 2019 the company has impairment balance due to not in use offices and data centers following the acquisition of Rhythmone in the amount of USD 3,139 thousands, See also Note 18.
(4) Lease liability
Maturity analysis of the Group's lease liabilities
|
|
|
|
|
December 31, |
|
|
|
|
|
2019 |
|
|
|
|
|
USD thousands |
|
Less than one year |
|
9,637 |
|
One to five years |
|
12,088 |
|
More than five years |
|
2,544 |
|
|
|
|
|
Total |
|
24,269 |
|
|
|
|
|
Current maturities of lease liability |
|
9,637 |
|
|
|
|
|
Long-term lease liability |
|
14,632 |
(a) Amounts recognized in profit or loss
|
|
|
|
|
Year ended |
|
|
|
|
|
December 31, |
|
|
|
|
|
2019 |
|
|
|
|
|
USD thousands |
|
Interest expenses on lease liability |
|
(779) |
||
|
Depreciation of right-of-use assets, net |
|
(9,109) |
||
|
Gains (losses) recognized in profit or loss |
|
1,749 |
||
|
|
|
|
||
|
Total |
|
(8,139) |
||
(b) Amounts recognized in the statement of cash flows
|
|
|
|
|
Year ended |
|
|
|
|
|
December 31, |
|
|
|
|
|
2019 |
|
|
|
|
|
USD thousands |
|
Cash outflow for leases |
|
(13,386) |
B. Leases in which the Group is a lessor
(1) Information regarding material lease agreements
The Group subleases offices at USA and Canada for periods expiring in 202 3 .
(2) Finance leases
(a) Amounts recognized in profit or loss
|
|
|
|
|
Offices |
|
|
|
|
|
USD thousands |
|
For the year ended December 31, 2019 |
|
|
|
|
|
Gain (loss) from subleases |
|
|
|
956 |
|
Financing income on the net investment |
|
|
|
|
|
in the lease |
|
|
|
71 |
|
Total |
|
|
|
1,027 |
(b) Net investment in the lease
Presented hereunder is the movement in the net investment in the lease for the year ended December 31, 2019:
|
|
|
|
|
Offices |
||||
|
|
|
|
|
USD thousands |
||||
|
For the year ended December 31, 2019 |
|
|
|
|
|
|||
|
Balance as at 1 January 2019 (first date of adoption) |
|
|
|
|
1,06 4 |
|||
|
Business combinations |
|
|
|
|
3,327 |
|||
|
Additions |
|
|
|
|
1,566 |
|||
|
Disposals |
|
|
|
|
- |
|||
|
Sublease receipts |
|
|
|
|
(1,669) |
|||
|
|
|
|
|
|
|
|||
|
Total |
|
|
|
|
4,28 8 |
|||
(c) Maturity analysis of net investment in finance leases
|
|
|
|
|
December 31, |
|
|
|
|
|
2019 |
|
|
|
|
|
USD thousands |
|
Less than one year |
|
2,36 7 |
|
One to five years |
|
1,921 |
|
More than five years |
|
- |
|
|
|
|
|
Total net investment in the lease as at December 31, 2019 |
|
4,28 8 |
|
|
|
|
Note 7 - Intangible Assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer |
|
Distribution |
Residual |
|
|
|
Software |
Trademarks |
relationships |
Technology |
channel |
Goodwill |
Total |
|
|
USD thousands |
||||||
|
Cost |
|
|
|
|
|
|
|
|
Balance as at |
|
|
|
|
|
|
|
|
1 January 2018 |
6,873 |
8,167 |
7,353 |
27,458 |
1,044 |
32,743 |
83,638 |
|
|
|
|
|
|
|
|
|
|
Exchange rate differences |
4 |
34 |
61 |
- |
- |
242 |
341 |
|
Additions |
1,444 |
- |
- |
- |
- |
- |
1,444 |
|
Disposals |
(134) |
- |
- |
- |
- |
- |
(134) |
|
|
|
|
|
|
|
|
|
|
Balance as at |
|
|
|
|
|
|
|
|
31 December 2018 |
8,187 |
8,201 |
7,414 |
27,458 |
1,044 |
32,985 |
85,289 |
|
|
|
|
|
|
|
|
|
|
Exchange rate differences |
- |
12 |
21 |
- |
- |
85 |
118 |
|
|
|
|
|
|
|
|
|
|
Additions |
5,672 |
- |
- |
- |
- |
- |
5,672 |
|
|
|
|
|
|
|
|
|
|
Business combinations |
|
|
|
|
|
|
|
|
(see Note 18) |
5,378 |
17,470 |
30,284 |
17,629 |
- |
100,633 |
171, 394 |
|
|
|
|
|
|
|
|
|
|
Balance as at |
|
|
|
|
|
|
|
|
31 December 2019 |
19,237 |
25,683 |
37,719 |
45,087 |
1,044 |
133,703 |
262,473 |
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
Balance as at |
|
|
|
|
|
|
|
|
1 January 2018 |
5,060 |
4,751 |
1,221 |
10,234 |
812 |
- |
22,078 |
|
|
|
|
|
|
|
|
|
|
Exchange rate differences |
- |
10 |
18 |
- |
- |
- |
28 |
|
Additions |
854 |
2,212 |
1,357 |
4,968 |
232 |
- |
9,623 |
|
Disposals |
(45) |
- |
- |
- |
- |
- |
(45) |
|
|
|
|
|
|
|
|
|
|
Balance as at |
|
|
|
|
|
|
|
|
31 December 2018 |
5,869 |
6,973 |
2,596 |
15,202 |
1,044 |
- |
31,684 |
|
|
|
|
|
|
|
|
|
|
Exchange rate differences |
- |
13 |
23 |
- |
- |
- |
36 |
|
|
|
|
|
|
|
|
|
|
Additions |
3,363 |
4,472 |
5,238 |
7,395 |
- |
- |
20,468 |
|
|
|
|
|
|
|
|
|
|
Balance as at |
|
|
|
|
|
|
|
|
31 December 2019 |
9,232 |
11,458 |
7,857 |
22,597 |
1,044 |
- |
52,188 |
|
|
|
|
|
|
|
|
|
|
Carrying amounts |
|
|
|
|
|
|
|
|
As at 1 January 2018 |
1,813 |
3,416 |
6,132 |
17,224 |
232 |
32,743 |
61,560 |
|
|
|
|
|
|
|
|
|
|
As at 31 December 2018 |
2,318 |
1,228 |
4,818 |
12,256 |
- |
32,985 |
53,605 |
|
|
|
|
|
|
|
|
|
|
As at 31 December 2019 |
10,005 |
14,225 |
29,862 |
22,490 |
- |
133,703 |
210,285 |
Amortization
The amortization of technology and software is allocated to research and development expenses and amortization of trademarks, distribution channel and customer relationships is allocated to selling and marketing expenses.
Capitalized development costs
Development costs capitalized in the period amounted to USD 4,651 thousand (2018: USD 1,093 thousand) and were classified under software.
Note 8 - Trade and Other Receivables
|
|
|
31 December |
|
|
|
|
2019 |
2018 |
|
|
|
USD thousands |
USD thousands |
|
Trade receivables, net |
95,278 |
64,329 |
|
|
|
|
|
Other receivables : |
|
|
|
Prepaid expenses |
8,395 |
1,328 |
|
Institutions |
4,577 |
5,336 |
|
Pledged deposits |
368 |
326 |
|
|
13,340 |
6,990 |
|
|
|
|
|
|
108,618 |
71,319 |
Note 9 - Trade and Other Payables
|
|
31 December |
||
|
|
|
2019 |
2018 |
|
|
|
USD thousands |
USD thousands |
|
Trade payables |
70,428 |
39,630 |
|
|
|
|
|
Other payables: |
|
|
|
Advances from customers |
7,166 |
1,676 |
|
Wages, salaries and related expenses |
9,109 |
9,620 |
|
Provision for vacation |
612 |
841 |
|
Institutions |
4,273 |
2,492 |
|
Liability for put option on non-controlling interests (see Note 16 (c)) |
2,440 |
- |
|
Others |
3,871 |
291 |
|
|
27,471 |
14,920 |
|
|
|
|
|
|
97,899 |
54,550 |
Note 10 - Cash and Cash Equivalents
|
|
|
31 December |
|
|
|
|
2019 |
2018 |
|
|
|
USD thousands |
USD thousands |
|
Cash |
|
54,486 |
40,941 |
|
Bank deposits |
|
24,561 |
26,132 |
|
Cash and cash equivalents |
|
79,047 |
67,073 |
The Group's exposure to credit, and currency risks are disclosed in Note 15 on financial instruments.
Note 11 - Revenue
|
|
|
Year ended 31 December |
|
|
|
2019 |
2018 |
|
|
|
USD thousands |
USD thousands |
|
|
Branding |
248,500 |
146,052 |
|
Performance |
77,260 |
130,820 |
|
|
|
|
|
|
325,760 |
276,872 |
Note 12 - General and Administrative Expenses
|
|
|
Year ended 31 December |
|
|
|
2019 |
2018 |
|
|
|
USD thousands |
USD thousands |
|
|
Wages, salaries and related expenses |
11,973 |
8,693 |
|
Share base payments |
14,100 |
3,879 |
|
Rent and office maintenance |
232 |
3,763 |
|
Professional expenses |
1,282 |
1,527 |
|
Depreciation and Amortization |
855 |
555 |
|
Depreciation of right of use assets |
4,956 |
- |
|
Doubtful debts |
3,003 |
507 |
|
Acquisition costs |
2,840 |
177 |
|
Other expenses |
1,003 |
746 |
|
|
|
|
|
|
40,244 |
19,847 |
Note 13 - Equity
A. Share capital
|
|
|
Ordinary shares- number of shares |
|
|
|
2019 |
2018 |
|
|
Issued and paid-in share capital as at 31 December |
124,223,182 |
68,522 |
|
|
|
|
|
Authorized share capital |
300,000 |
300,000 |
(1) Rights attached to share
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. All shares rank equally with regard to the Company's residual assets.
(2) Director share allotment
According to Director's employment commitment letter, the Company is committed to issue shares worth of GBP 6,250 each quarter in consideration of the director's services.
In the year ended 31 December 2019 and 2018, the Company issued 8,761 and 4,933 ordinary shares of a par value of NIS 0.01 based on the share price on the date of the issuance, respectively.
The total expenses recognized in the statement of Comprehensive Income in the year ended 31 December 2019 and 2018 with respect to the director share allotment amounted to USD 8 and USD 33 thousand, respectively.
(3) Issuing new public shares
Following the Acquisition of RhythmOne, as described in Note 1, the Company issued 66,736,485 new shares at a quoted price of the Company ' s share as at the business combination date to former RhythmOne shareholders which became admitted to trading on AIM on April 2, 2019.
(4) Own shares acquisition
Following the Acquisition of RhythmOne, as described in Note 1, and as part of the Company's approvals in April 2019 and June 2019 for a share buyback program for a total consideration of USD 25 million, the Company purchased during the year ended December 31, 2019 24,695,283 shares (of which 5,743,731 were purchased from former related parties) for a total consideration of USD 24,735 thousands.
The Ordinary Shares acquired pursuant to the Buyback Program reclassified as dormant shares under the Israeli Companies Law (without any rights attached thereon) and held in treasury.
B. Dividends
Details on dividends (in USD thousand):
|
|
For the year |
For the year |
|
|
ended |
ended |
|
|
31 December 2019 |
31 December, 2018 |
|
|
USD thousands |
USD thousands |
|
Declared and paid |
- |
6,355 |
A dividend in the amount of USD 3,651 thousand (USD 0.054 per ordinary shares) was declared in March 2018, was paid in June 2018.
A dividend in the amount of USD 2,704 thousand (USD 0.0398 per ordinary shares) was declared in September 2018, was paid in November 2018.
Note 14 - Earning Per Share
Basic earnings per share
The calculation of basic earnings per share as at 31 December 2019 and 2018 was based on the profit for the year divided by a weighted average number of ordinary shares outstanding, calculated as follows:
Profit for the year
|
|
|
|
Year ended 31 December |
|
|
|
|
|
2019 |
2018 |
|
|
|
|
USD thousands |
|
|
Profit for the year |
6,224 |
22,154 |
Weighted average number of ordinary shares:
|
|
|
|
Year ended 31 December |
|
|
|
|
|
2019 |
2018 |
|
|
|
|
Shares of NIS 1 |
Shares of NIS 1 |
|
|
|
|
0.01 par value |
0.01 par value |
|
Weighted average number of ordinary shares used to |
|
|
|
calculate basic earnings per share as at 31 December |
111,231,769 |
67,520,554 |
|
|
|
|
|
Basic earnings per share (in USD) |
0.0 560 |
0.3281 |
|
Basic earnings per share (in USD) before amortization |
|
|
|
of purchased intangibles and business combination |
|
|
|
related expenses |
0.2018 |
0. 45 85 |
|
|
|
|
Diluted earnings per share
The calculation of diluted earnings per share as at 31 December 2019 and 2018 was based on profit for the year divided by a weighted average number of shares outstanding after adjustment for the effects of all dilutive potential ordinary shares, calculated as follows:
Weighted average number of ordinary shares (diluted):
|
|
|
Year ended 31 December |
|
|
|
|
2019 |
2018 |
|
|
|
Shares of NIS |
Shares of NIS |
|
|
|
0.01 par value |
0.01 par value |
|
Weighted average number of ordinary shares used to |
|
|
|
|
calculate basic earnings per share |
|
111,231,769 |
67, 250 ,554 |
|
Effect of share options on issue |
|
3,576,114 |
2,446,429 |
|
Weighted average number of ordinary shares used to |
|
|
|
|
calculate diluted earnings per share |
|
114,807,883 |
69,696,983 |
|
|
|
|
|
|
Diluted earnings per share (in USD) |
|
0.0 542 |
0.3179 |
|
Diluted earnings per share (in USD) before amortization |
|
|
|
|
of purchased intangibles and business combination |
|
|
|
|
related expenses |
0.1956 |
0.4442 |
|
Note 15 - Share-Based Payment Arrangements
(1) Expense recognized in the statement of comprehensive income is as follows:
|
|
|
|
Year ended 31 December |
|
|
|
|
|
2019 |
2018 |
|
|
|
|
USD thousands |
|
|
Selling and marketing |
|
|
1 ,25 7 |
2,738 |
|
Research and development |
|
|
452 |
1,420 |
|
General and administrative |
|
|
14,100 |
3,879 |
|
|
|
|
15 ,8 09 |
8,037 |
(2) Share-based compensation plan
The terms and conditions related to the grants of the share options programs are as follows:
· All the share options that were granted are non-marketable.
· All options are to be settled by physical delivery of shares.
· Vesting conditions are based on a service period of between 0.75- 4 years.
On December 4, 2017, the Company's shareholders adopted the Company's 2017 Equity Incentive Plan (the "2017 Plan") to provide for the grant of equity incentive awards to the executive officers and employees of Tremor Video DSP following the acquisition in August 2017, and other U.S.-based employees of the Taptica Group.
Under the 2017 Plan, the Company may grant incentive stock options (ISOs that comply with U.S. tax requirements), nonstatutory stock options, restricted shares, restricted share units (RSUs), performance bonus awards, performance units and performance shared. The maximum number of Ordinary Shares of the Company that may be granted under the 2017 Plan is 7,700,000.
On April 2, 2019 the Company's shareholders adopted the New Tremor International Ltd Management Incentive Scheme to provide for the grant of 11,772,932 equity incentive awards to executive officers. In addition, following the Acquisition of RhythmOne the Company's shareholders adopted RhythmOne Plan to provide for the grant of 1,328,908 equity incentive award to RhythmOne executives and employees.
(3) New grants during the year
During 2019, the Group granted 458,946 share options, and 9,571,276 Restricted Share Units (RSUs) to its executives officers and employees from outstanding awards under 2017 Plan and 2014 Plan.
In addition, as part of the acquisition as described in Note 1, 849,325 RhythmOne's options and 1,058,776 RSU's were Rolled over to 458,946 options and 869,962 of the Company's options and RSU's, respectively, see also Note 3H(3) regarding the accounting treatment.
The total expense recognized in the year ended 31 December 2019 with respect to the options granted to employees, amounted to approximately USD 15,801 thousand.
The grant date fair value of the share options granted was measured based on the Black-Scholes option pricing model.
(4) The number of share options is as follows:
|
|
Weighted average exercise price |
Number of options |
||
|
|
2019 |
2018 |
2019 |
2018 |
|
|
(GBP) |
(Thousands) |
||
|
Outstanding at 1 January |
2.44 |
1.82 |
9,835 |
6,733 |
|
Forfeited during the year |
2.97 |
2.79 |
(2,488) |
(2,161) |
|
Exercised during the year |
0.32 |
0.55 |
(3,509) |
(1,238) |
|
Granted during the year |
0.21 |
2.83 |
10,030 |
6,501 |
|
|
|
|
|
|
|
Outstanding at 31 December |
1.01 |
2.44 |
13,868 |
9,835 |
|
|
|
|
|
|
|
Exercisable at 31 December |
|
|
2,054 |
1,559 |
(5) Information on measurement of fair value of share-based payment plans
The fair value of employees share options is measured using the Black-Scholes formula. Measurement inputs include the share price on the measurement date, the exercise price of the instrument, expected volatility, expected term of the instruments, expected dividends, and the risk-free interest rate (based on government debentures).
The parameters used in the measurement of the fair values at grant date of the equity-settled share-based payment plans were as follows:
|
|
|
|
|
The parameters used to calculate fair value: |
|
|
|
|
2019 |
2018 |
|
|
|
|
|
Grant date fair value in USD |
0-0.56 |
0.83-5.92 |
|
Share price (on grant date) (in GBP) |
1.79 |
3.00-4.46 |
|
Exercise price (in GBP) |
1.56-18.27 |
0-4.37 |
|
Expected volatility (weighted average) |
45% |
42% |
|
Expected life (weighted average) |
0-3.38 |
3.3-3.9 |
|
Expected dividends |
1.35% |
0.7%-1.35% |
|
Risk-free interest rate |
2.3% |
2.26%-2.73% |
Note 16 - Financial Instruments
A. Overview
The Group has exposure to the following risks from its use of financial instruments:
- Credit risk
- Liquidity risk
- Market risk
This note presents quantitative and qualitative information about the Group's exposure to each of the above risks, and the Group's objectives, policies and processes for measuring and managing risk.
B. Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's trade and other receivables.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure.
The maximum exposure to credit risk at the reporting date was as follows:
|
|
|
31 December |
||
|
|
|
|
2019 |
2018 |
|
|
|
|
USD thousands |
USD thousands |
|
Cash and cash equivalents (1) |
|
79 ,047 |
67,073 |
|
Trade receivables, net (2) |
|
95,278 |
64,329 |
|
Other receivables |
|
368 |
326 |
|
long term deposit |
|
965 |
- |
|
Long Term Receivables |
|
367 |
- |
|
|
|
|
|
|
|
|
176,025 |
131,728 |
(1) At 31 December 2019, USD 1,052 thousand are held in NIS, USD 4,004 thousand are held in GBP , USD 2,795 thousand are held in EUR, USD 868 thousand are held in CAD, USD 6,352 thousand are held in JPY, USD 1,037 thousands are held in MXN, USD 643 thousand are held in SGD, USD 118 thousand are held in KRW, USD 348 thousand are held in other currencies and the remainder held in USD.
(2) At 31 December 2019, the Group included provision to doubtful debts in the amount of USD 22,376 thousand (31 December 2018: USD 2,822 thousand) in respect of collective impairment provision and specific debtors that their collectability is in doubt.
C. Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity is to ensure, as far as possible, that it has sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.
As of December 31, 2019 and December 31, 2018, the Group's contractual obligation of financial liability is in respect of leases, trade and other payables in the amount of USD 83,936 thousand and USD 40,320 thousand, respectively. The contractual maturity of this financial liability is less than one year and in its carrying amount.
The Company is also committed to comply with certain financial covenants as determined in the financing agreement.
In addition, in the framework of the acquisition of Adinnovation INC on July 17th, 2017, a mutual option was granted to the Company to acquire the remaining 43% of the shares. As of 31 December, 2019, the amount of the liability inherent in the exercise of the option is USD 2,440 thousand and can be exercise from the third year and for a period of six months.
The Company has a call option to purchase the remaining 43% of the issued share capital of ADI for a price of 8x net profit and for a period of six months commencing three years after closing. Thereafter, ADI ' s minority shareholders have a put option for a period of three months to sell at a price of 7x net profit. As a result of the aforesaid, the Company recognized the acquisition of full control (100%) over ADI and recorded liability inherent in exercise of the option according to its discounted value. The amount of the liability as at the acquisition date is estimated at USD 8,496 thousand and was estimated based on ADI's current business results and forecasts of ADI for the third year capitalized with annual discount rate of 2.9%. The Company elected to recognized changes in the value of the liability on every reporting date in the equity. In 2019 and 2018 the Company recorded a revaluation to decrease the liability in the amount of USD 1,501 thousand and 4,678 thousand, respectively.
D. Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, the CPI, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.
Linkage and foreign currency risks
Currency risk
The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional currency of the Group, the US dollar (USD). The principal currencies in which these transactions are denominated are NIS, Euro, GBP, CAD, SGD, KRW, MXN and JPY.
At any point in time, the Group aims to match the amounts of its assets and liabilities in the same currency in order to hedge the exposure to changes in currency.
In respect of other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.
E. Fair value
The Company's financial instruments consist mainly of cash and cash equivalents, bank deposits, trade and other receivables, trade and other payables and contingent consideration. The carrying amounts of these financial instruments, except for the contingent consideration, approximate their fair value because of the short maturity of these investments. The contingent consideration is classified as level 3 under IFRS 13. Such amounts have been recorded initially and subsequently at their fair value (see Note 17).
The table hereunder presents reconciliation from the beginning balance to the ending balance of contingent consideration carried at fair value level 3 of the fair value hierarchy.
|
|
|
|
|
Financial instruments level 3 |
|
Balance as at December 31, 2017 |
|
|
1,300 |
|
Settlement of contingent consideration |
|
|
(1,218) |
|
Recognized in profit and loss |
|
|
( 82 ) |
|
Balance as at December 31, 2018 |
|
|
- |
|
|
|
|
|
Note 17 - Related Parties
A. Compensation and benefits to key management personnel
Executive officers also participate in the Company's share option programs. For further information see Note 14 regarding share-based payments.
Compensation and benefits to key management personnel (including directors) that are employed by the Company and its subsidiaries:
|
|
|
Year ended 31 December |
||
|
|
|
|
2019 |
2018 |
|
|
|
|
USD thousands |
USD thousands |
|
Share-based payments |
|
|
12,607 |
3,540 |
|
Other compensation and benefits |
|
|
3,948 |
3,989 |
|
|
|
|
|
|
|
|
|
|
16,555 |
7,529 |
Note 18 - Subsidiaries
A. Details in respect of subsidiaries
Presented hereunder is a list of the Group's subsidiary:
|
|
|
Principal |
The Group's ownership interest in |
|
|
|
|
location of the |
the subsidiary for the year ended |
|
|
|
|
Company's |
December 31 |
|
|
Name of company |
|
activity |
2019 |
2018 |
|
Taptica Ltd |
ISR |
100% |
100% |
|
Taptica INC |
USA |
100% |
100% |
|
Tremor Video DSP |
USA |
100% |
100% |
|
Tremor Video PTE Ltd |
SGP |
100% |
100% |
|
Adinnovation INC |
Japan |
57% |
57% |
|
Taptica Japan |
Japan |
100% |
100% |
|
Taptica UK |
United Kingdom |
100% |
100% |
|
Taptica Korea |
Korea |
100% |
100% |
|
Taptica CN |
China |
100% |
100% |
|
RhythmOne PLC |
UK |
100% |
- |
|
YuMe Inc |
USA |
100% |
- |
|
Perk.com Inc |
USA |
100% |
- |
|
R1Demand LLC |
USA |
100% |
- |
|
RhythmOne LLC |
USA |
100% |
- |
B. Acquisition of subsidiaries and business combinations
(1) Acquisition of RhythmOne
On April 1, 2019, the Company completed Acquisition Transaction (hereinafter- "Acquisition") with RhythmOne Plc (hereinafter- "RhythmOne"), a company incorporated under the laws of England and Wales, whereby the Company acquired the entire issued ordinary shares of RhythmOne and each RhythmOne shareholder received 28 new shares of the Company (as such new 66,736,485 shares of the Company were issued , see also note 13A(3)) for every 33 RhythmOne shares held, so that following the completion of the Acquisition, the Company ' s current shareholders held 50.1% and, RhythmOne Shareholders held 49.9% of the merged Group. In addition, 849,325 options and 1,058,776 restricted shares units over RhythmOne share awarded were rolled over to 4 5 8,946 the Company ' s options and to 869,962 the Company ' s restricted units. In order to determine the portion of the replacement award that is part of the Acquisition consideration and the portion that is remuneration for post- combination service, the Company measures both the replacement awards granted by Tremor and RhythmOne awards as of the acquisition date in accordance with IFRS2. The portion of the replacement award attributable to Acquisition consideration is the fair-value of RhythmOne award multiplied by the ratio of the portion of the vesting period completed to the greater of the total vesting period or the original vesting period of RhythmOne award (hereinafter- "Replacement Award").
The consideration of the Acquisition amounted to USD 176.4 million (including consideration allocated to issuance of ordinary shares and Replacement Award).
The purchase price was allocated to the acquired tangible assets, intangible assets and liabilities on the basis of their fair value at the acquisition date. Presented hereunder are the assets and liabilities that were allocated to RhythmOne at the acquisition date:
|
|
|
|
|
|
USD millions |
|
Current assets |
|
|
|
106.9 |
|
Non current assets (1) |
|
|
|
187.6 |
|
Current liabilities |
|
|
|
(100.2) |
|
Non current liabilities |
|
|
|
(17.9) |
|
|
|
|
|
176.4 |
(1) Comprised as follow (included within the Non- current assets):
|
|
|
|
Fair value as at March 31, 2019 USD millions |
|
|
|
|
|
|
Purchased and capitalized Intangible assets |
|
|
5.4 |
|
Brand and domain name |
|
|
17.5 |
|
Technology |
|
|
17.6 |
|
Customer relations |
|
|
30.3 |
|
Residual goodwill |
|
|
100.6 |
|
|
|
|
171.4 |
|
|
|
|
|
|
Deferred tax liabilities |
|
|
(20.4) |
The aggregate cash flow derived for the Group as a result of the RhythmOne acquisition in 2019 :
|
|
|
|
|
USD millions |
|||
|
|
|
|
|
|
|||
|
Purchase price in ordinary shares |
|
|
|
175.4 |
|||
|
Purchase price according to Replacement Award |
|
|
|
1 |
|||
|
Total purchase price - Non cash |
|
|
|
176.4 |
|||
|
|
|
|
|
|
|||
|
Less- Cash and cash equivalents of the RhythmOne |
|
|
|
28.1 |
|||
|
Add - acquisition costs* |
|
|
|
4.4 |
|||
|
Acquisition of subsidiary - Cash |
|
|
|
23.7 |
|||
|
|
|
|
|
152. 7 |
|||
* An amount of USD 130 thousand was paid to a related party due to his efforts related to the Acquisition of RhythmOne.
Note 19 - Operating Segments
The Group has a single reportable segment as a provider of marketing services.
Geographical information
The Company is domiciled in Israel and it produces its income primarily in USA, Israel, China, Germany, Japan, India and UK.
In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers.
|
|
|
Year ended 31 December |
|
|
|
|
2019 |
2018 |
|
|
|
USD thousands |
USD thousands |
|
|
|
|
|
|
|
|
|
|
|
America |
|
261,534 |
182,067 |
|
Asia |
|
33,052 |
72,061 |
|
Europe |
|
25,504 |
18,867 |
|
Israel |
|
5,446 |
3,483 |
|
Others |
|
224 |
394 |
|
Consolidated |
|
325,760 |
276,872 |
Note 20 - Contingent Liability
(1) On June 11, 2019 the Company was informed that Uber Technologies, Inc. filed a complaint in the Superior Court of the State of California (U.S.), County of San Francisco, against the Company. The complaint alleges fraud, negligence and unfair competition. In October 2014, Taptica, alongside a number of other adtech vendors, was retained by Fetch Media Ltd. ("Fetch") to promote Uber's mobile app (the "Uber Campaign"). There was no direct engagement between Uber and the Company or any of its subsidiaries. Overall, thousands of campaigns ran with Fetch directly liaising with Taptica on a daily basis. As is standard in the Company's business, at the end of each month, reconciliation reports were sent by the Company to Fetch and the final invoiced amounts were approved by Fetch. The revenue associated with the Uber Campaign directly relating to the Company does not represent a material portion of Taptica's revenue.
On August 23, 2019, Taptica filed a demurrer relating to all causes of action asserted in the Complaint. On September 18, 2019, the Court issued an order transferring the case to the complex division of the Superior Court of California, County of San Francisco, temporarily staying discovery and assigning the matter for all purposes to Judge Teri L. Jackson. The defendants' demurrers were taken off calendar in connection therewith, for possible re-setting at a future date. On October 8, 2019, following a peremptory challenge to Judge Jackson, the case was set for reassignment to a different judge. On October 11, 2019, the case was reassigned to Judge Anne-Christine Massullo. After the defendants' demurrers were fully briefed, oral argument was heard on December 11, 2019, and continued to
January 7, 2020. On January 9, 2020, Judge Massullo issued an order sustaining in part and overruling in part Taptica's demurrer, with leave to amend. In particular, Judge Massullo sustained Taptica's demurrer with respect to the fraudulent concealment and unfair competition claims, but overruled the demurrer with respect to negligence. Uber filed its Amended Complaint on January 29, 2020, asserting the same three claims as in its original Complaint. Taptica demurred to all three claims on March 3, 2020. A hearing on Taptica's demurrer is currently scheduled on May 27, 2020. The discovery stay has been partially lifted relating to the negligence claims. The Company reiterates that it considers the claims to be without merit and, as such, will continue to aggressively defend against these claims. The Company believes that the likelihood of a material loss is remote but at this point it is too early to reasonably estimate potential loss any financial impact to the Company resulting from this matter.
(2) RhythmOne litigation
(a) Edenbrook Capital LLC ("Edenbrook") sent a letter to RhythmOne asserting several allegations, including breach of fiduciary duties and conversion (detention of property). Edenbrook alleged that the shareholders of YuMe that chose not to tender their shares in the merger with RhythmOne were discriminated against, in that the tendering shareholders received consideration in a more expedient manner than those who did not tender. The Company entered into a settlement agreement with Edenbrook and on December 31, 2019, the claims were dismissed with prejudice.
(b) In January 2018, AlmondNet, Inc. and its affiliates (Datonics LLC and Intent IQ) contacted RhythmOne asserting that RhythmOne's online advertising system infringes eleven U.S. Patents owned by the AlmondNet Group. RhythmOne's General Counsel informed that AlmondNet offered to execute a patent license agreement for $2,000,000, payable over a two-year period. As of the date of this report, a claim was never filed and RhythmOne is currently in a commercial agreement with AlmondNet's affiliate. The Company believes that the likelihood of a material loss is remote but at this point is unable to reasonably estimate any potential loss and financial impact to the Company resulting from this matter.
Note 21 - Subsequent Events
On January 4, 2020, the Company entered into an agreement (the "Purchase Agreement") with News Corp UK & Ireland Limited (the "UK Seller") and News Preferred Holdings, Inc. (the "US Seller, and collectively with the UK Seller, the "Sellers") to purchase the entire issued share capital of Unruly Holdings Limited ("Unruly UK") and Unruly Media Inc. ("Unruly US" and collectively with Unruly UK, "Unruly") from the Sellers.
Pursuant to the Purchase Agreement, the Company (i) allotted to UK Seller 7,960,111 new Ordinary Shares of the Company in exchange for the sale to the Company of a GBP 12.0 million loan from Unruly Group Limited (as subsidiary of UK Target)(as borrower) to UK Seller (as lender); (ii) paid GBP 1 to UK Seller in consideration for the sale of the entire issued share capital of Unruly UK; and (iii) allotted to US Seller 565,212 new Ordinary Shares of the Company and paid US Seller US$1 in consideration for the sale of the entire issued share capital of Unruly US.
The aggregate 8,525,323 new Ordinary Shares of the Company allotted to UK Seller and US Seller, as purchase price (as detailed above), represented approximately 6.91% of the Company's issued voting share capital at such time. The Sellers agreed not to sell, transfer or otherwise dispose of such Company Ordinary Shares for an 18-month period, subject to customary exceptions. As part of the transaction, the Sellers also agreed to contribute cash towards the cost of integrating Unruly with the Company.
In connection with the acquisition, Tremor Video, Inc., a subsidiary of the Company ("Tremor Video"), entered into a global partnership with News Corp that will equip Tremor Video with the exclusive right to sell outstream video on various News Corp titles in the UK, US and Australia, and Tremor Video has committed to an ad spend of £30 million with News Corp over a three-year period.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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