Final results for the year ended 31 December 2014

RNS Number : 7601I

XLMedia PLC

30 March 2015

 

For immediate release

30 March 2015

XLMedia PLC

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

Final results for the year ended 31 December 2014

Strong 2014 results delivered on strategy, positioned for next phase of growth

XLMedia (AIM: XLM), a leading provider of digital performance marketing services, is pleased to announce its final results for the year ended 31 December 2014.

Financial highlights

•	Revenues increased 47% to $50.7 million (2013: $34.5 million)
•	Revenues include 30% organic growth as well as additional $6 million from EDM
•	Gross profit increased 35% to $27.6 million (2013: $20.5 million)
•	Adjusted EBITDA1 increased 28% to $17.0 million (2013: $13.3 million)
•	Profit before tax increased 14% to $13.2 million (2013: $11.7 million)
•	Net cash from operating activities increased 42% to $16.9 million (2013: $11.9 million)
•	Cash and short term investments of $44.1 million (2013: $15.9 million)
•	Maintained progressive dividend policy with payment of 1.576 cent per share and total 2014 dividend payment of 3.156 c per share

Business highlights

•	A year of significant strategic progress for the Group
	○	Successful IPO on AIM in March
	○	Key strategic targets of organic and acquisitive growth achieved
•	Acquisitive progress during 2014
	○	Publishing - acquired a UK sports betting information website, a Danish focused network of information website and bolt on acquisitions of websites and domains targeted at the North American markets
	○	Media - acquired EDM, a leading social and mobile gaming marketing company
	○	By 31 December 2014 XLMedia had completed the planned integration of acquired businesses into our operations, and the acquisitions are performing as expected or above expectations
•	Increase of presence in regulated markets including the U.S and the U.K through a combination of acquisitions and organic growth
•	Expansion into new product verticals with the addition of social gaming which has extended the Groups' customer base and further diversified our marketing channels
•	Invested in talent, management systems and infrastructure to create a platform capable of supporting the next phase of growth

Ory Weihs, Chief Executive Officer of XLMedia, commented:

"We are very pleased to report our final 2014 results which exceeded expectations. The last 12 months have been truly ground-breaking for the Group with our successful IPO in March 2014, and the completion of a number of strategically important acquisitions alongside a strong organic growth performance. 

"In addition, and by no means less important, we have strengthened our management teams, infrastructure and systems and recruited more employees to the Group. I believe we are well positioned to successfully execute our ambitious growth plans and to deliver another positive year of growth."

Current Trading and Outlook

The Group has made an excellent start to 2015, underpinned by new product verticals and strong customer traction, and continues to trade in line with market expectations. The Board believes that the outlook for 2015 remains positive with growth set to continue.

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

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

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

http://www.xlmedia.com/media/

For further information, contact:

 

XLMedia plc Ory Weihs www.xlmedia.com	Tel: [phone]
Vigo Communications Jeremy Garcia / Fiona Henson www.vigocomms.com	Tel: [phone]
Cenkos Securities plc (Nomad and Joint Broker) Ivonne Cantu / Callum Davidson www.cenkos.com	Tel: [phone]
Liberum (Joint Broker) Neil Patel www.liberum.com	Tel: [phone]

Operational Review

Introduction

2014 has been a truly transformational year for the Group in which we've expanded our operational footprint and delivered growth with revenue up 47% and Gross Profit up 35% compared with FY 2013, underpinned by a combination of the positive impact from acquisitions and strong levels of organic growth across segments.

As a result of our strategic progress, we have significantly increased our presence in regulated markets including the UK and the US whilst expanding into the high growth social gaming market which is already yielding positive results for the Group. 

The demand for performance based marketing services remains strong and we feel confident in our ability to execute our growth plans.  Following our strong 2014 performance we are pleased to announce a final dividend of 1.576 cent per share. This totals full year 2014 dividends of 3.156 cent per share, an increase of 14% (2013: 2.768).

Business Summary

During 2014 we delivered strong growth, enjoying the substantial market opportunities that exist for performance based marketing services. We continued to diversify our revenue base as we expanded both the Group's operational footprint and successfully targeted new market verticals.  The Group is pleased to report the following progress:

·   Regions ²

We currently generate approximately 21% of our revenues from the U.S, mainly through EDM customers (FY 2014: 11% and FY 2013: 1%). Additionally, we strengthened our position in the UK market with a UK sports betting informational website acquisition, and made bolt on acquisitions and increased our marketing efforts in other regions. We grew revenues in our core Scandinavian markets by 30%, to $28.2 million (2013: $21.7 million). We have also further diversified the regional revenues and current revenue run rate for the Scandinavian market has reduced to approximately 51% of our revenues (FY 2014: 63% and FY 2013: 79%).

·   Verticals and customers ³

We entered new verticals such as social gaming and financial services, which has enabled us to diversify our revenues and extend our customer base. Currently our largest customer represents just 11% of the Group's revenues (FY 2014: 15%, 2013: 25%), with the majority of our customers at 5% or below. The acquisition of EDM added a strong US customer base, mainly social gaming developers and studios.

·   Marketing channels

As an online performance marketing company we have expanded our marketing methods to reach more online and mobile traffic to drive our growth. The acquisition of EDM boosted our social and mobile activity, and we expect these channels to become more and more significant going forward.

·   Building our infrastructure

We have built an infrastructure that will support our rapid growth. In 2014 we invested $1.65 million (2013: $0.6million) in our in-house developed technologies, in addition to our ongoing R&D expenses of $1.0 million (2013: $0.9 million). We have also doubled the size of our R&D team. We plan to continue this trend and increase our efforts further in 2015 focusing investment on our Business Intelligence ('BI') systems, tracking, mobile enhancements, content management tools and other enhancements to further drive efficiency and analysis to support strong operating margins. We also increased headcount across all other departments in 2014, bringing total Group employees to 200 at 31 December 2014.

·   Acquisitions

The online marketing industry is a fragmented market and we believe there are opportunities to acquire more businesses that will complement our core capabilities. We continue to consider and engage with prospective targets which we evaluate based on carefully selected criteria. Acquisitions remain a core part of our growth strategy, having delivered considerable value from the ones completed in 2014.

Our markets

We see strong growth in our core markets and expect these trends to continue in the short and medium terms. This growth is underpinned by the following dynamics:

·   Mobile and tablet growth - Mobile advertising is expected to grow by an average of 38% from 2014 to 2017; Mobile is the main driver of global adspend and is expected to account for 51% of all new advertising during 2014 to 2017, growing by $42 billion⁴.

·   Social games are also expected to benefit from the strong growth of mobile devices use, with expected CAGR in the US of 24%⁵ between 2012 and 2016. This strong growth is driven by the tremendous demand in the mobile and smartphone markets and the free availability of many of these games.

·   Mobile users have also become a significant part of the online gambling industry, with an anticipated 44% share of the global interactive gambling market by 2018⁶.

·   Internet advertising consistently grows, with CAGR for US market of 18% over the past 10 years to a total of $45.8 billion⁷ in 2014. The growth comprises 12% CAGR for non-mobile revenues and 123% CAGR for mobile advertising during 2010 to 2013.

We see strong demand for marketing services in our markets, and believe the above mentioned trends will continue to drive these markets to further growth.

 

Business Segments review

($'000)	Publishing	Media	Partner Network	Total
2014
Revenues	23,965	20,632	6,123	50,720
% of revenues	47%	41%	12%	100%
Direct profit	18,345	8,548	685	27,578
Profit margin	77%	41%	11%	54%
2013
Revenues	18,840	10,071	5,592	34,503
% of revenues	55%	29%	16%	100%
Direct profit	14,234	5,583	632	20,449
Profit margin	76%	55%	11%	59%
Revenue growth	27%	105%	9%	47%

·   Publishing

Publishing revenues grew 27% to $24.0 million (2013: $18.8). The growth was mainly organic, with some additions from new assets acquired during the second half of 2014.

We see strong demand in our core Scandinavian markets, as well as in newer markets such as the UK and other European countries.

In November 2014 we launched "Palcon", our proprietary content management system, which enables improved day to day operation of our network of over 2,000 specialist content websites, as well as enhanced mobile and social features in our websites. We believe our well established operation allows us to scale our business and we continue to develop our in-house systems.

During 2014 we invested $11.5 million in new websites and domains and we plan to continue buying and developing more assets to further drive our growth.

·   Media

Media revenues grew 105% to $20.6 million (2013: $10.1 million). The growth included the acquisition of EDM which contributed $6.0 million to 2014 revenues. Excluding EDM, Media revenues grew 45% compared to last year, enjoying the strong demand for digital advertising and growth of these services as mentioned above.

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

EDM specialises in social and mobile advertising specifically targeted at 'user acquisition' for social gaming applications. EDM's principal geographical market is the US, in addition to other English and German speaking markets. EDM provides marketing services primarily to game developers in social and mobile platforms, primarily for a performance based fee. The acquisition of EDM enhanced the Group's presence in the US, adding new customers and complementary social and mobile capabilities. With the strong demand in these markets, and the performance of EDM since acquisition, the Board believes social gaming will be a strong driver of the Group's growth in the coming years.

New media activities are more mass media oriented and are intended to reach a large audience by mass communication. Such activities have usually lower margins but can reach high volumes rapidly. As already outlined in 2014, we expect a further decrease in the media margins, in line with industry trends, but expect this trend to be compensated through higher volumes generated from these activities.

·   Partner Network

Partner network revenues grew 9% to $6.1 million (2013: $5.6 million). Our partner network remains an important part of our business, allowing us flexibility to provide marketing services in new markets we do not operate in through publishing and media.

Financial Review

($'000)	2014	2013	Change %
Revenues	50,720	34,503	47%
Gross Profit	27,578	20,449	35%
Operating expenses	12,979	8,447	54%
Operating income	14,599	12,002	22%
Adjusted EBITDA	16,982	13,275	28%

We had a record year in 2014, with strong growth in both revenues and adjusted EBITDA. Revenues grew 47% to $50.7 million (2013: $34.5 million), and adjusted EBITDA grew 28% to $17.0 million (2013: $13.3 million). We saw strong growth in both key business segments, publishing and media, as shown in our financial statements:

Gross profit increased to $27.6 million or 54% gross margin (2013: $20.5 million, 59% gross margin). Gross profit in percentage terms has decreased due to the change in revenue mix, as expected. The increase in gross profit was a result of revenue growth.

We have seen a change in our mix of revenues over the period, which is even more pronounced since the acquisition of EDM. In 2014, publishing revenues contributed 47% of the Group's revenues compared to 55% in 2013, while media revenues in 2014 were 41% in 2014 compared to 29% in 2013.

Current revenue run rate includes 48% of media revenues and 40% of publishing revenues. As this trend in revenue mix continues, and as we continue to grow our media business, the Group's profit margins will reflect this shift and will decrease in percentage but overall profit will grow.

Operating expenses grew 54% to $13.0 million (2013: $8.5 million) reflecting our investment in infrastructure, as well as becoming a public company in March 2014, which added additional general and administration costs to our cost base.

Adjusted EBITDA grew 28% to $17.0 million (2013: $13.3 million) as a result of revenue growth.

Finance expenses for 2014 were $1.0 million (2013: $0.5 million), offset by $0.2 million of finance income (2013: $0.1 million). Finance expenses include mainly exchange rates differences. The group's functional currency is the USD. The Group is exposed to changes in the EUR and ILS against the USD. 

Cash flow from operating activities grew 42% to $16.9 million (2013: $11.9 million), reflecting the cash generative nature of our business. During 2014 we concluded our IPO raising $48.9 million (net of issue costs). We used some of these proceeds for EDM acquisition ($10.0 million) and for website acquisitions ($11.5 million). As of 31 December 2014 we had cash, cash equivalents and short term investments of $44.1 million.

With our cash balance and strong balance sheet of 76% equity to total assets ratio the Board remains comfortable with the Group's growth plans and believes the Group is well positioned to execute its plans.

During 2014 we paid dividends of $8.2 million according to our dividend policy of distributing at least 50% of net profit. The Board declared a final dividend of 1.576 cent per share, payable on 8 May 2015 to shareholders on the register at 10 April 2015. The ex-dividend date is 9 April 2015.

Outlook

We continue to develop our business to further capitalise on the substantial market opportunities that exist for performance based marketing services. Our growth strategy includes expansion into new markets, adding more channels and verticals. We continue to invest in technology, offering a 'best of breed' service to our clients. While we maintain our strong organic growth we continue to evaluate acquisition opportunities.

The Board remains confident that through a combination of XLMedia's market leading position in performance based marketing, our proprietary technology platforms and broad customer base, we will continue to generate further value for our shareholders.

Footnotes:

1 - Earnings Before Interest, Taxes, Depreciation and Amortisation and excluding share based payments, IPO expenses and expenses related to EDM acquisition agreement

2 - Revenues per region refer to identified revenues, see also note 16 d to our consolidated financial statements.

3 - See also note 16 c to the consolidated financial statements.

4 - ZenithOptimedia

5 - Technavio

6 - H2GC

7 - IAB

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

			As of 31 December
				2014		2013
				USD in thousands
Assets
Current assets:
Cash and cash equivalents				27,351		15,455
Short-term investments				16,714		428
Trade receivables				11,548		4,498
Other receivables				1,895		2,121
Financial derivatives				264		-
				57,772		22,502
Non-current assets:
Long-term investments				333		340
Other receivables				456		552
Property and equipment				864		738
Goodwill				19,586		2,416
Domains and websites				16,728		5,495
Other intangible assets				4,014		1,358
				41,981		10,899
				99,753		33,401

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

			As of 31 December
				2014		2013
				USD in thousands
Liabilities and equity
Current liabilities:
Trade payables				9,073		1,536
Contingent consideration payable				3,396		2,867
Other liabilities and accounts payable				7,764		2,251
				20,233		6,654
Non-current liabilities:
Contingent consideration payable				3,233		-
Deferred taxes				332		-
Other liabilities				42		227
				3,607		227
Equity attributable to equity holders of the Company:
Share capital				*)		*)
Share premium				62,271		14,311
Capital reserve from share-based transactions				1,784		479
Capital reserve from transaction with non-controlling interests				(506)		106
Retained earnings				12,072		10,494
				75,621		25,390
Non-controlling interests				292		1,130
Total equity				75,913		26,520
				99,753		33,401

*) Lower than USD 1 thousand.

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

				Year ended 31 December
				2014		2013
				USD in thousands (except per share data)
Revenues				50,720		34,503
Cost of revenues				23,142		14,054
Gross profit				27,578		20,449
Research and development expenses				1,008		907
Selling and marketing expenses				2,239		1,785
General and administrative expenses				9,732		5,755
				12,979		8,447
Operating income before expenses in connection with IPO				14,599		12,002
Expenses  in connection with IPO				361		-
Operating income after expenses in connection with IPO				14,238		12,002
Finance expenses				(1,001)		(496)
Finance income				231		123
Income before other income (expenses)				13,468		11,629
Other income (expenses), net				(229)		32
				13,239		11,661
Profit before taxes on income
Taxes on income				1,329		552
Net income and other comprehensive income				11,910		11,109
Attributable to:
Equity holders of the Company				9,821		8,838
Non-controlling interests				2,089		2,271
				11,910		11,109
Net earnings per share attributable to equity holders of the Company:
Basic net earnings per share (in USD)				0.06		0.09
Diluted net earnings per share (in USD)				0.05		0.09

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year ended 31 December
		2014		2013
		USD in thousands
Cash flows from operating activities:
Net income		11,910		11,109
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to the profit or loss items:
Depreciation and amortisation		1,296		794
Finance expense, net		25		255
Finance income from financial derivatives		(264)		-
Loss (gain) from sale of assets		9		(32)
Cost of share-based payment		1,042		479
Taxes on income		1,329		552
Exchange differences on balances of cash and cash equivalents		482		-
		3,919		2,048
Changes in asset and liability items:
Decrease (increase) in trade receivables		994		(1,546)
Increase  in other receivables		(608)		(183)
Decrease in related parties		142		93
Increase (decrease) in trade payables		(256)		682
Increase in other accounts payable		782		357
Increase in other long-term liabilities		18		-
		1,072		(597)
Cash paid and received during the period for:
Interest paid		-		(136)
Interest received		46		13
Taxes paid		(421)		(547)
Taxes received		417		-
		42		(670)
Net cash from operating activities		16,943		11,890

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

			Year ended 31 December
			2014			2013
			USD in thousands
Cash flows from investing activities:
Purchase of property and equipment			(350)			(482)
Acquisition of initially consolidated company (a)			(9,950)			-
Decrease in other financial assets, net, acquired in business combination			-			457
Acquisition of  domains, websites and other intangible assets			(11,528)			(936)
Proceeds and collection of receivable from sale of assets			328			50
Short- term and long-term investments, net			(16,315)			(607)
Net cash from investing activities			(37,815)			(1,518)
Cash flows from financing activities:
Issue of share capital (net of issue costs)			48,917			14,311
Dividend paid to equity holders			(8,243)			(1,800)
Acquisition of non-controlling interests			(1,490)			-
Dividend paid to non-controlling interests			(2,287)			(2,055)
Repayment of liabilities to related parties			(3,512)			(4,381)
Prepaid expenses for share capital  issuance			-			(707)
Sale of shares to non-controlling interests			-			31
Exercise of options			12			-
Financing by non-controlling interests			57			10
Dividend to equity holders as result of the acquisition of Subsidiary			-			(2,888)
Repayment of long-term and short-term liabilities			(204)			-
Net cash from financing activities			33,250			2,521
Exchange differences on balances of cash and cash equivalents			(482)			-
Increase  in cash and cash equivalents			11,896			12,893
Cash and cash equivalents at the beginning of the year			15,455			2,562
Cash and cash equivalents at the end of the year			27,351			15,455
(a)	Acquisition of initially consolidated company (Note 5(d):
	Assets and liabilities at date of acquisition:
	Working capital (excluding cash and cash equivalents)		(2,057)			-
	Long-term investment		26			-
	Property and equipment		69			-
	Intangible assets		1,689			-
	Goodwill		17,170			-
	Deferred taxes		(402)			-
	Contingent consideration payable		(6,521)			-
	Non-current liabilities		(24)			-
			9,950			-

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

			Year ended 31 December
			2014		2013
			USD in thousands
(b)  Significant non-cash transactions:
Dividend payable to equity holders as result of the acquisition of Subsidiary			-		512
Dividend payable to non-controlling interests			56		237
Receivable from sale of assets			-		826
Payables  for acquisitions of domains and websites			1,712		-

 

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