Interim Results

RNS Number : 6434Z

Taptica International Ltd

04 September 2018

 

4 September 2018

Taptica International Ltd

("Taptica" or the "Company")

Interim Results

Taptica (AIM: TAP), a global leader in advertising technologies for performance-based mobile marketing and brand advertising, announces its interim results for the six months ended 30 June 2018.

Sustained execution on strategy	·    Significant revenue growth driven by expanded international presence and successful acquisitions ·    Increasing operational efficiency across all business units ·    Raised $30 million of equity to reduce the level of debt under the Company's existing debt facility, which has better positioned the Company to capitalise on M&A opportunities ·    The Company has been presented with acquisition opportunities of a larger magnitude than initially expected: Taptica remains in constructive conversations with potential targets and any acquisitions will be funded through its existing resources
Financial Highlights Significant growth and remained highly cash generative with strong balance sheet	·    Revenue increased by 119.4% to $144.0 million (H1 2017: $65.6 million) ·    Gross profit increased by 126.4% to $58.5 million (H1 2017: $25.8 million), with improvement in gross margin to 40.6% (H1 2017: 39.4%) ·    Adjusted EBITDA* of $21.6 million (H1 2017: $13.1 million) ·    Net cash inflow from operating activities of $21.5 million (H1 2017: $13.7 million) ·    Interim dividend of $0.0398 per share (interim dividend 2017: nil) ·    Cash and bank deposits as at 30 June 2018 were $57.7 million (31 December 2017: $27.0 million) ·    Net cash as at 30 June 2018 of $42.1 million (31 December 2017: net debt of $4.0 million) *Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortisation and share-based payment expenses.
Operational Highlights Strengthened foundations of performance-based marketing and brand advertising businesses	·    Performance-based marketing (50.1% of total revenue): § Strong growth in core mobile business more-than offset the anticipated decline in display activity § Increased contribution from Asia-Pacific, particularly Japan and China § Expanding into new segments, especially ecommerce and video-on-demand ·    Brand advertising (49.9% of total revenue): § Established key partnerships to enhance the Tremor Video DSP offer § New household-name brands added as customers, such as GlaxoSmithKline and Whole Foods § Increase in operational efficiency

Hagai Tal, Chief Executive Officer of Taptica, said: "Following the major acquisition of Tremor Video DSP in the second half of last year, our main focus for H1 2018 was improving the financial performance of the Tremor unit. We added household brands to our list of Tier 1 clients at Tremor and established key partnerships. These results also demonstrate good growth in our performance-based business unit reflecting the successful execution on our strategy to expand into new geographies.

"Looking ahead, we entered the second half with increased momentum in both the Tremor Video DSP and performance-based businesses, which continue to execute on their strategies of expanding their reach and winning new customers. We expect sustained improvement in margins through increased operational efficiencies, economies of scale and technology enhancements. As a result, we expect EBITDA for full year 2018 to be ahead of market expectations."

For further details:

Taptica Hagai Tal, Chief Executive Officer                                 finnCap (Nomad and Joint Broker) Jonny Franklin-Adams, James Thompson Berenberg (Joint Broker) Chris Bowman, Mark Whitmore Luther Pendragon (Financial PR Adviser) Harry Chathli, Claire Norbury

[phone] [phone] [phone] [phone]

Hagai Tal, Chief Executive Officer, and Yaniv Carmi, Chief Financial Officer, will be hosting a presentation to analysts at 9.00am BST today at the offices of Luther Pendragon, 48 Gracechurch Street, London, EC3V 0EJ.

About Taptica

Taptica International Ltd is a global leader in advertising technologies that operates in more than 70 countries. It has two revenue streams: performance-based marketing, provided by its Taptica business, and brand advertising, provided by its Tremor Video DSP business.

The Taptica business is an end-to-end mobile technology advertising platform that helps the world's top brands reach their most valuable users with the widest range of traffic sources available today. Its proprietary technology leverages big data and, combined with state-of-the-art machine learning, enables quality media targeting at scale. It works with more than 600 advertisers including Amazon, Disney, Twitter, OpenTable, Expedia and Zynga.

Tremor Video DSP is the leading programmatic video platform, matching advertisers with audiences -wherever they may be. Delivering custom video experiences across all screens, Tremor Video DSP helps advertisers tell captivating brand stories to create meaningful, personalised moments with prospective customers. Tremor Video DSP works with the top agencies and advertisers in the US.

Taptica International Ltd is headquartered in Israel with offices in San Francisco, New York, Tokyo (Adinnovation), Beijing, Seoul and London, and is traded on the London Stock Exchange (AIM: TAP).

Operational Review  

The sales momentum of 2017 was sustained into 2018 and both revenue streams - performance-based marketing, provided by the Company's Taptica business (which includes Adinnovation), and brand advertising, provided by its Tremor Video DSP business - have continued to grow with both units adding new Tier 1 customers in the reporting period. In particular, the growth in the Taptica performance-based business was driven by the contribution from the Asia-Pacific offices. In Tremor Video DSP, excluding the impact of seasonality, there was increase in run rate in the six-month period compared with the second half of 2017, and the Company continued to implement operational and cost efficiencies.

Revenue ($'000s)	H1 2018	H1 2017	Change
Mobile apps	68,754	55,617	+24%
Legacy display and video	3,394	10,025	-66%
Branding*	71,880	-	-
Total	144,028	65,642	+119%

* The comparative period was prior to the acquisition of the Tremor Video DSP brand advertising business

Performance-based marketing

Revenue generated by the performance-based marketing business increased by 9.9% over the first half of 2017 to $72.1 million. This reflects strong growth in the core mobile business, which, including social, increased in revenue by 23.6%.

By geography, the performance-based marketing growth was driven by the significant contribution to revenue from the Company's expanding international presence, particularly in Japan where Taptica operates through its majority-owned subsidiary, Adinnovation Inc. ("Adinnovation"), which was acquired in 2017.

During the period, the Adinnovation sales team that offers Taptica's services was expanded, which contributed to the growth in revenue in this geography. In addition, Adinnovation's agency business increased its media buying from Taptica. In Japan, the gaming segment continued to be the primary revenue generator, but the Company is receiving growing demand from the ecommerce and video-on-demand segments, which are increasingly becoming significant contributors to the Company's growth in this region. The Company also worked on implementing new management practices with an increased focus on efficiency, which is improving the operations and efficiency of the Adinnovation unit.

The Company generated higher revenue in China due to the addition of a number of new customers as well as a significant contribution from the continued growth in revenue from one of China's largest ecommerce companies that Taptica commenced working with in the second half of 2017. Taptica is experiencing particular demand in China from the ecommerce segment with an increasing number of companies in that region seeking to use Taptica's services to expand globally.

There was significant growth in revenue in the UK, where Taptica opened an office in 2017. The increase in revenue was primarily due to an increase in business with one of Europe's largest advertising agencies that is headquartered in the UK as well as through the Company's UK office expanding its focus to target business in Europe. 

The Company is experiencing a diversification of the segments serviced by the performance-based marketing business, with particular growth during the period in the ecommerce and video-on-demand verticals as noted above.

Brand advertising

The Tremor Video DSP business generated $71.9 million for the first half of 2018. This reflects an increased run-rate (excluding the impact of seasonality) of 14.8% since the Company acquired the unit in August 2017 due to an increase in average spend per advertiser. This includes adding new household-name brand customers during the period, such as GlaxoSmithKline, Guess, Procter & Gamble and Whole Foods.

Tremor Video DSP established several key partnerships during the first half of the year to significantly enhance its offering, including:

·     Dstillery, a leading applied data science company that provides predictive marketing intelligence, together delivering an exclusive audience targeting solution;

·     CUEBIQ, a leading location intelligence and measurement company, to exclusively offer the industry's first geo-behavioural targeting solution on connected TV; and

·     Grapeshot, a leading provider of contextual targeting and custom brand safety solutions, allowing advertisers to reach audiences that consume the most relevant content in-the-moment and prevents ads from being delivered in undesirable or irrelevant environments.

The Company also continued to work closely with the Tremor Video DSP team to implement operational and cost efficiencies and has been able to achieve further improvements in gross margin in that unit and a decrease in operating expenditure (excluding salaries).

Financial Review

Revenue for the six months ended 30 June 2018 increased by 119.4% to $144.0 million compared with $65.6 million for the first half of 2017. Performance-based marketing, which is provided by the Taptica business, accounted for 50.1% of total revenue and brand advertising, which is provided by the Tremor Video DSP business, contributed 49.9%. The growth in total revenue reflects the contribution from Tremor Video DSP, which was acquired in the second half of 2017, and a 9.9% growth in revenue in the performance-based marketing business.

Gross profit increased by 128.4% to $58.5 million (H1 2017: $25.8 million), primarily representing the growth in revenue, but also a slight increase in gross margin to 40.6% (H1 2017: 39.4%).

Cost of sales as a proportion of revenue was slightly lower overall as a decrease in the proportion for the Taptica business was largely offset by the contribution from the Tremor Video DSP business, due to the higher cost of sales associated with its business model, as well as Adinnovation.

Operating costs increased primarily due to the addition of costs from the Company's acquisitions. In particular, Tremor Video DSP made a significant contribution to the increase in R&D expenses to $10.1 million (H1 2017: $3.1 million) as it is a business that sustains a high level of R&D, while the Company also invested in R&D to support the growing scale of its Taptica technology platform and expansion in its offering. In addition to the contribution from the acquisitions, the Company also increased its investment in sales & marketing to enhance brand recognition, expand the global performance-based marketing customer base and invest in the expansion of global Taptica offices. Similarly, general & administrative expenses increased due to investment into growing the global operations, which was done with a high level of efficiency.

Operating profit for the period was $13.9 million (H1 2017: $10.3 million). Adjusted EBITDA for the period was $21.6 million compared with $13.1 million for the first half of 2017, which is comprised as follows:

	H1 2018 $'000s	H1 2017 $'000s
Operating profit	13,904	10,344
Depreciation & Amortisation	5,404	2,078
Share-based payments	3,835	306
Other expenses	19	341
Extraordinary income	(1,598)	-
Adjusted EBITDA	21,564	13,069

The Company received extraordinary income of $1.60 million relating to the finalisation of a services agreement that was entered into as part of the acquisition of Tremor Video DSP.

The Company continued to be cash generative with net cash provided by operating activities of $21.5 million (H1 2017: $13.7 million).

As at 30 June 2018, cash and bank deposits were $57.7 million (31 December 2017: $27.0 million) after having raised $30.0 million in equity and repaying $15.3 million of the Company loans, $10.7 million in tax expenses and $2.9 million in dividend payments. Period-end net cash was $42.1 million compared with net debt of $4.0 million as at 31 December 2017.

Dividend

The Company maintains its policy of distributing 25% of net profits in dividend payments. As such, the Board has resolved to declare an interim dividend of $0.0398 per share, with an ex dividend date of 20 September 2018, a record date of 21 September 2018 and a payment date of 20 November 2018 (interim dividend for 2017: nil).

Outlook

In the second half of 2018, the Company continues to build on the successes achieved in the first half as it makes further progress with Tier 1 advertisers supported by strong industry trends as consumers increasingly access the internet on smartphones and video consumption continues to grow.

In its performance-based marketing business, the sales momentum of the first half of 2018 has been sustained into the second half of 2018 through the expansion of its international client base, primarily in the Asia-Pacific region. The international offices are expected to make a greater contribution to revenue in the second half compared with H1 2018.

Tremor Video DSP's performance continues to improve as it gains new Tier 1 customers and secures partnerships, and improves the margins from its campaigns by applying machine learning practices in order to perfect its audience matching capabilities.

As a result, the Board is confident of delivering significant year-on-year growth with EBITDA ahead of market expectations.

In January 2018, the Company raised $30 million of equity in order to reduce the level of debt under the Company's existing debt facility, which has better positioned the Company to capitalise on M&A opportunities. This has caught the attention of international companies and Taptica has been presented with acquisition opportunities of a larger magnitude than initially expected. The Company sees this as another opportunity to create a step change in its size as well as reach, and remains in constructive conversations with a number of acquisition targets. The Board hopes to update the market further in the coming months. Any acquisitions made will be primarily funded through the Company's existing resources.

Condensed Consolidated Interim Statements of Financial Position as at

		30 June		31 December
		2018	2017	2017
		(Unaudited)		(Audited)
		USD thousands		USD thousands

Assets
Cash and cash equivalents		57,734	32,574	26,985
Trade receivables, net		64,817	20,993	78,554
Other receivables		5,106	1,111	3,831
Total current assets		127,657	54,678	109,370
Fixed assets, net		2,096	486	2,141
Intangible assets, net		57,540	31,596	61,560
Deferred tax assets		2,798	338	2,329
Total non-current assets		62,434	32,420	66,030
Total assets		190,091	87,098	175,400
Liabilities
Credit and current maturities of loans		5,870	-	5,930
Trade payables		42,553	20,405	46,232
Other payables		14,905	7,996	22,053
Total current liabilities		63,328	28,401	74,215
Employee benefits		946	184	976
Long-term loans		9,706	-	25,085
Deferred tax liabilities		1,304	1,251	1,587
Liability for put option on non-controlling interests		8,901	-	8,619
Total non-current liabilities		20,857	1,435	36,267
Total liabilities		84,185	29,836	110,482
Equity
Share capital		196	175	180
Share premium		63,056	29,987	32,886
Capital reserves		5,054	1,448	1,276
Retained earnings		37,600	25,652	30,576
Total equity		105,906	57,262	64,918
Total liabilities and equity		190,091	87,098	175,400

Date of approval of the financial statements: 3 September 2018

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

Condensed Consolidated Interim Statements of Comprehensive Income

		Six months ended 30 June		Year ended
				31 December
		2018	2017	2017
		(Unaudited)		(Audited)
		USD thousands		USD thousands

Revenues	144,027	65,642	210,925
Cost of sales	(85,526)	(39,804)	130,350
Gross profit	58,501	25,838	80,575
Research and development expenses	10,053	3,148	16,995
Selling and marketing expenses	24,054	8,868	31,460
General and administrative expenses	10,490	3,478	14,493
	44,597	15,494	62,948
Profit from operations	13,904	10,344	17,627
Profit from operations before amortization of purchased
intangibles and business combination related expenses*	18,330	12,288	30,609
Financing income	774	46	257
Financing expenses	(445)	(44)	(564)
Financing income (expenses), net	329	2	(307)
Profit before taxes on income	14,233	10,346	17,320
Taxes on income	(3,431)	(1,634)	(3,561)
Profit for the period	10,802	8,712	13,759
Profit for the year before amortization of purchased intangibles
and business combination related expenses (net of tax)**	15,087	10,225	25,015
Other comprehensive income items:
Foreign currency translation differences for foreign operation	56	-	(1)
Total other comprehensive income for the year	56	-	(1)
Total comprehensive income for the period	10,858	8,712	13,758
Earnings per share
Basic earnings per share (in USD)	0.1612	0.1440	0.2249
Basic earnings per share (in USD) before amortization
of purchased Intangibles and business combination
related expenses (net of tax)**	0.2251	0.1690	0.4088
Diluted earnings per share (in USD)	0.1553	0.1360	0.2161
Diluted earnings per share (in USD) before amortization
of purchased Intangibles and business combination
related expenses (net of tax)**	0.2170	0.1596	0.3929

*              Amounting to USD 4,426 thousand (31 December 2017: USD 12,982 thousand, 30 June 2017: USD 1,944 thousand) of amortization of purchased intangibles acquired in business combination and related acquisition expenses.

**           Amounting to USD 4,285 thousand (31 December 2017: USD 11,256 thousand, 30 June 2017: USD 1,513 thousand) of amortization of purchased intangibles acquired in business combination and related acquisition expenses.

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

Condensed Consolidated Interim Statements of Changes in Shareholders' Equity

	Share	Share	Capital	Retained
	capital	premium	Reserves (**)	earnings	Total
	US$ thousands

For the six months ended 30 June 2018
(unaudited)
Balance as at 1 January 2018	180	32,886	1,276	30,576	64,918
Total comprehensive income for the period
Profit for the period	-	-	-	10,802	10,802
Other comprehensive income	-	-	56	-	56
Total comprehensive income for the period	-	-	56	10,802	10,858
Transactions with owners, recognized
directly in equity
Revaluation of liability for put option on
non-controlling interests	-	-	-	(127)	(127)
Issuance of shares (net of issuance cost)	15	29,707	-	-	29,722
Share based payments	-	-	3,835	-	3,835
Exercise of share options	1	463	(113)	-	351
Dividend to owners	-	-	-	(3,651)	(3,651)
Balance as at 30 June 2018	196	63,056	5,054	37,600	105,906

For the six months ended 30 June 2017
(unaudited)
Balance as at 1 January 2017	175	29,759	1,238	19,552	50,724
Total comprehensive income for the period
Profit for the period	-	-	-	8,712	8,712
Total comprehensive income for the period	-	-	-	8,712	8,712
Transactions with owners, recognized
directly in equity
Share based payments	* -	8	298	-	306
Exercise of share options	* -	220	(88)	-	132
Dividend to owners	-	-	-	(2,612)	(2,612)
Balance as at 30 June 2017	175	29,987	1,448	25,652	57,262

For the year ended 31 December 2017
(Audited)
Balance as at 1 January 2017	175	29,759	1,238	19,552	50,724
Total comprehensive income for the year
Profit for the year	-	-	-	13,759	13,759
Other comprehensive income	-	-	(1)	-	(1)
Total comprehensive income for the year	-	-	(1)	13,759	13,758
Transactions with owners, recognized
directly in equity
Revaluation of liability for put option
on non-controlling interests	-	-	-	(123)	(123)
Share-based payments	-	24	860	-	884
Exercise of share options	5	3,103	(821)	-	2,287
Dividends to owners	-	-	-	(2,612)	(2,612)
Balance as at 31 December 2017	180	32,886	1,276	30,576	64,918

(*)   Less than 1 thousand USD

(**) Includes reserves for share-based payments and a commitment to issue shares under business combination and other comprehensive income.

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

Condensed Consolidated Interim Statements of Cash Flows

		Six months ended 30 June		Year ended
				31 December
		2018	2017	2017
		(Unaudited)		(Audited)
		USD thousands		USD thousands

Cash flows from operating activities
Profit for the period	10,802	8,712	13,759
Adjustments for:
Depreciation and amortization	5,404	2,078	13,499
Net financing (income) expense	(329)	(18)	349
Share-based payments	3,835	306	884
Income tax expense	3,431	1,634	3,561
Change in trade and other receivables	16,564	7,469	2,745
Change in trade and other payables	(7,025)	(2,050)	647
Change in employee benefits	131	170	533
Income taxes received	-	82	83
Income taxes paid	(11,097)	(4,728)	(5,094)
Interest received	178	39	58
Interest paid	(388)		(267)
Net cash provided by operating activities	21,506	13,694	30,757
Cash flows from investing activities
Increase in pledged deposits	(755)	(29)	(72)
Payment of earn-out	(1,218)	-	-
Acquisition of property, plant and equipment	(567)	(126)	(233)
Acquisition and capitalization of intangible assets	(679)	(555)	(1,471)
Proceeds from sale of intangible assets	118	-	-
Acquisition of subsidiaries, net of cash acquired	-	-	(53,010)
Net cash provided by investing activities	(3,101)	(710)	(54,786)
Cash flows from financing activities
Issuance of shares	29,539	-	-
Loan received from shareholders	-	-	10,000
Repayment of loan from shareholders	-	-	(10,000)
Repayment of loans	(15,328)	-	(174)
Proceeds from exercise of share options	351	132	2,287
Loans received from bank	-	-	30,000
Dividends paid	(2,921)	(2,073)	(2,612)
Net cash provided by (used in) financing activities	11,641	(1,941)	29,501
Net increase in cash and cash equivalents	30,046	11,043	5,472
Cash and cash equivalents as at the
beginning of the period	26,985	21,471	21,471
Effect of exchange rate fluctuations on
cash and cash equivalents	703	60	42
Cash and cash equivalents as at the end of the period	57,734	32,574	26,985

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

Notes to the Condensed Consolidated Interim Financial Statements as at 30 June 2018

Note 1 - General

A.        Reporting entity

Taptica International Ltd. (the "Company" or "Taptica International") formerly named Marimedia Ltd. was incorporated in Israel under the laws of the state of Israel on 20 March 2007, listed on AIM Market of the London Stock Exchange. The address of the registered office is 121 Hahashmonaim Street Tel-Aviv, Israel.

Taptica International (AIM: TAP) is a global end-to-end performance-based mobile marketing and brand advertising platform that helps the world's top brands reach their most valuable users with the widest range of traffic sources available today, including social. Taptica International's proprietary technology leverages big data, and combined with state-of-the-art machine learning, enables quality media targeting at scale. Taptica International works with leading brands and companies in a variety of domains, all over the world. The Company is headquartered in Tel Aviv with offices in San Francisco, New York, Beijing, Seoul, London, Tokyo, Jakarta, Berlin and New Delhi.

On 6 June 2017, the Israeli tax authority was approved the restructuring whereby Taptica Social Ltd. (hereinafter-"Taptica Social", fully owned subsidiary, Israeli-based company) will be merged with and into Taptica Ltd. (hereinafter-"Taptica", fully owned subsidiary, Israeli-based company) in such a manner that Taptica Social will transfer to Taptica all its assets and liabilities for no consideration and thereafter will be liquidated. The effective merge date was determined as 31 December 2016.

On 17 July 2017, Taptica Japan (fully owned subsidiary) purchased 57% of Adinnovation Inc. (hereinafter - "ADI") share capital for a total consideration of up to USD 5.7 million.

On 7 August 2017, Taptica entered into an assets purchase agreement (APA) with US-based company Tremor Video Inc.'s (hereinafter - "Tremor") to purchase their demand-side advertising platform for a total consideration of USD 50 million with a positive net working capital balance of USD 22.5 million.

B.        Definitions

In these financial statements -

(1)        The Company - Taptica International Ltd.

(2)        The Group -     Taptica 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

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and do not include all of the information required for full annual financial statements. They should be read in conjunction with the financial statements as at and for the year ended 31 December, 2017 (hereinafter - "the annual financial statements").

These condensed consolidated interim financial statements were authorized for issue by the Company's board of directors on 3 September 2018.

B.        Use of estimates and judgments

The preparation of financial statements in conformity with IFRS requires management 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 significant judgments made by management in applying the Group's accounting policies and the principal assumptions used in the estimation of uncertainty were the same as those that applied to the annual financial statements.

Note 3 - Significant Accounting Policies

Except as described below, the accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its annual financial statements.

Presented hereunder is a description of the changes in accounting policies applied in these condensed consolidated interim financial statements and their effect:

A.        Initial application of new standards, amendments to standards and interpretations

As from 1 January 2018 the Group applies the new standards and amendments to standards described below:

(1)        IFRS 9 (2014), Financial Instruments

As from the first quarter of 2018 the Group applies IFRS 9 (2014), Financial Instruments (in this item: "the standard" or "IFRS 9"), which replaces IAS 39, Financial Instruments: Recognition and Measurement (in this item "IAS 39"). Furthermore, as from that date the Group applies the amendment to IFRS 9, Financial Instruments: Prepayment Features with "Negative Compensation". The Group has chosen to apply the standard and the amendment to the standard as from 1 January 2018 (in this item: "date of initial application") without amendment of the comparative data. The effect of applying IFRS 9 (2014), on the financial statements for the period ended 30 June 2018, is immaterial.

Note 3 - Significant Accounting Policies (cont'd)

A.        Initial application of new standards, amendments to standards and interpretations (cont'd)

(1)        IFRS 9 (2014), Financial Instruments (cont'd)

Classification and measurement of financial assets and financial liabilities

Initial recognition and measurement

The Group initially recognizes trade receivables and debt instruments issued on the date that they are created. All other financial assets and financial liabilities are recognized initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. Generally, a financial asset or financial liability are initially measured at fair value plus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issuance of the financial asset or financial liability. 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.

Financial assets - classification and subsequent measurement

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.

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 on specified dates to cash flows representing solely payments of principal and interest on the principal amount outstanding.

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.

Financial assets - subsequent measurement and gains and losses

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.

Financial liabilities - classification, subsequent measurement and gains and losses

Financial liabilities are classified as measured at amortized cost or fair value through profit or loss. A financial liability is measured at fair value through profit or loss if it is classified as held for trading, is a derivative instrument or is designated for measurement as such at initial recognition. Financial liabilities at fair value through profit or loss are measured at fair value, with the net gains and losses, including any interest expenses, being recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expenses and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.

Note 3 - Significant Accounting Policies (cont'd)

A.        Initial application of new standards, amendments to standards and interpretations (cont'd)

Derecognition of financial liabilities

Financial liabilities are derecognized when the contractual obligation of the Group expires or is discharged or cancelled. Furthermore, a substantial modification of the terms of an existing financial liability, or an exchange between an existing borrower and existing lender of debt instruments with substantially different terms, are accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability at fair value.

Impairment

Financial assets, contract assets and lease receivables

The Group recognizes a provision for expected credit losses in respect of financial assets at amortized cost.

The Group measures the provision for expected credit losses at an amount equal to the full lifetime expected credit losses, other than the provisions hereunder that are measured at an amount equal to the 12-month expected credit losses:

-           Debt instruments that are determined to have low credit risk at the reporting date; and

-           Other debts instruments and deposits, for which credit risk has not increased significantly since initial recognition.

The Group has elected to measure the provision for expected credit losses in respect of 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 with no undue cost or effort. 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.

The Group considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations to the Group in full, with no recourse by the Group to actions such as realizing security (if any is held).

Lifetime expected credit losses are expected credit losses that result from all possible default events over the expected life of the financial asset.

12-month expected credit losses are the expected credit losses that result from possible default events within the 12 months after the reporting date.

The maximum period considered when assessing expected credit losses is the maximum contractual period over which the Group is exposed to credit risk.

Note 3 - Significant Accounting Policies (cont'd)

A.        Initial application of new standards, amendments to standards and interpretations (cont'd)

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.

Credit-impaired financial assets

At each reporting date, the Group assesses whether financial assets carried at amortized cost are credit-impaired. A financial asset is 'credit-impaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Presentation of impairment

Provisions for expected credit losses of financial assets measured at amortized cost are deducted from the gross carrying amount of the financial assets.

Impairment losses related to trade and other receivables, are presented separately in the statement of profit or loss and other comprehensive income. Impairment losses on other financial assets are presented under financing expenses.

(2)        IFRS 15, Revenue from Contracts with Customers

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 that 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.

As regards the breakdown of revenues from contracts with customers into groups that describe how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors, the Group has revenues from several areas of activity as follows:

			30 June 2018
			Unaudited
			USD thousands

Revenues
Branding			71,880
Performance			72,147
			144,027

As from 1 January 2018, the Group initially applies IFRS 15. The effect of applying IFRS 15 on the financial statements for the period ended 30 June 2018, is immaterial.

Note 3 - Significant Accounting Policies (cont'd)

B.        New standard and interpretation not yet adopted

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 emphasizes the need to provide disclosures of the judgments and assumptions made by the entity regarding uncertain tax positions.

IFRIC 23 is effective for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted.

The Group has not yet commenced examining the effects of IFRIC 23 on the financial statements.

IFRS 16, Leases

The standard replaces International Accounting Standard 17 - Leases (IAS 17) and its related interpretations. The standard's instructions annul the existing requirement from lessees to classify leases as operating or finance leases. Instead of this, for lessees, the new standard presents a unified model for the accounting treatment of all leases according to which the lessee has to recognize an asset and liability in respect of the lease in its financial statements. Similarly, the standard determines new and expanded disclosure requirements from those required at present.

The standard will become effective for annual periods as of 1 January 2019, with the possibility of early adoption, so long as the company has also early adopted IFRS 15 - Revenue from contracts with customers. The standard includes a number of alternatives for the implementation of transitional provisions, so that companies can choose one of the following alternatives at the implementation date: full retrospective implementation or implementation from the effective date while adjusting the balance of retained earnings at that date.

The Group is in the advanced stages of examining the effects of IFRS 16 on the financial statements, including the early adoption on the financial statements for the year ended 31 December 2018.

Note 4 - Share-Based Payment

A.        New grants during the period

During the six months period ended June 30, 2018, the Group granted 3,756 thousand share options, 1,380 thousand Performance Share Units (PSUs) and 1,365 thousand Restricted Share Units (RSUs) to its executives officers and employees from outstanding awards under 2017 Plan and 2014 Plan (see also Note 13 to the Company's financial statement for 31 December 2017).

B.        The total expense recognized in the condensed consolidated interim statement of Comprehensive Income in the six-month period ended 30 June 2018 with respect to the options granted to employees, amounted to approximately USD 3,818 thousand.

The grant date fair value of the share options granted was measured based on the Black-Scholes option pricing model.

Note 4 - Share-Based Payment (cont'd)

C.        The number of share options (in thousands) is as follows:

			Weighted
			average exercise	Number of
			price	options
			GBP	(Unaudited)

Outstanding at 1 January 2018			1.82	6,733
Exercised during the period			0.71	(366)
Granted during the period			3.14	6,501
Forfeited during the period			2.37	(1,228)
Outstanding at 30 June 2018			2.54	11,640

Note 5 - Capital and Reserves

A.        Share capital (in thousands of shares of NIS 0.01 par value)

				30 June 2018
				(Unaudited)

Issued and paid-in ordinary share capital			67,700
Authorized share capital			300,000

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.

B.        Issuing new shares

On 22 January 2018, the Company completed the issuing of 4,850,000 new ordinary shares NIS 0.01 par value at a price of 450 pence per ordinary share for a total consideration of US$30 million (US$29.2 net of issuance costs). The issued shares represent approximately 7.7% of the Company's current issued ordinary share capital.

C.        Dividends

Details on dividends (in USD thousand):

				For the six
				months ended
				30 June 2018
				(Audited)

Declared

3,651

A dividend in the amount of USD 3,651 thousand (USD 0.054 per ordinary share) was declared in April 2018. An amount of USD 2,921 thousand was paid in June 2018.

Note 6 - Income Tax

On 28 December 2016, Taptica Social together with Taptica appealed for a tax ruling for a restructuring, as described in Note 1A, whereby Taptica Social will be merged with and into Taptica in such a manner that Taptica Social will transfer to Taptica all its assets and liabilities for no consideration and thereafter will be liquidated. Accordingly, on 6 June 2017 the merger between the companies was approved by the Israeli Tax Authority and the effective merge date was determined as 31 December 2016. As a result of the merger, the ruling previously obtained by Taptica regarding the preferred income will require re-validation from the Israeli tax authority. In addition, as a part of the re-validation which is required, Taptica also intends to request an amendment to include the acquisition and absorption of Tremor's operation in the rulings mentioned above and request that the Law for the Encouragement of Capital Investments will apply to this purchased activity as well. The Company believes that its current tax position with that respect is probable of being obtained.

Note 7 - Subsidiaries

A.        Business combination from a prior period that was measured at provisional amounts

Adinnovation INC

As described in the Company's financial statement for 31 December 2017 Note 16B(1), on 17 July, 2017 the Company completed the acquisition of a majority shareholdings in Adinnovation Inc. (ADI) a leader in Japan's mobile advertising industry.

The financial statements of the Company for the year ended 31 December 2017 included provisional amounts in respect of the subsidiary's intangible assets. Upon completion of the independent valuation of the business combination the amounts reported remain the same.

In addition, in March 2018 the Company paid the earn-out payment for ADI acquisition in the amount of USD 1.2 million.

Tremor Video DSP, Inc.

As described in the Company's financial statement for 31 December 2017 Note 16B(2), on 7 August 2017, the Company acquired Demand-Side Platform activity (Tremor Video DSP, Inc.).

The financial statements of the Company for the year ended 31 December 2017 included provisional amounts in respect of the subsidiary's intangible assets. Upon completion of the independent valuation of the business combination the amounts reported remain the same.

In addition, in March 2018, the Company repaid USD 15 million out of the loan balance that was taken for the purpose of financing Tremor Video DSP Video, Inc. acquisition.

 

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