First Quarter 2018 Financial Results

31 May 2018

Matomy Media Group | First Quarter 2018 Financial Results

TEL AVIV, May 31, 2018 -- Matomy Media Group Ltd. (LSE: MTMY, TASE: MTMY.TA), A global leader in data-driven programmatic advertising platforms, today announced financial results for the first quarter ended March 31, 2018.

This is the first time that Matomy is reporting quarterly results, reflecting the new focus announced in 2017, therefore comparative figures are not included but will be reported in 2019 reports.

Liam Galin, Matomy's President and CEO said, "I embarked on a journey with a clear focus on Matomy's two core activities, Team Internet and Mobfox, where we have both technological and business advantages. Having spent the past months conducting an in-depth analysis of Matomy's assets and performance, I have identified the key strengths and weaknesses of both our core and non-core assets, and taken decisive actions to shut down cash bleeding activities. This will enable us to move forward with laser-sharp focus on building long-term sustainable value for all stakeholders, taking the required actions to efficiently amend identified weaknesses and enhancing technology and market leadership in our core activities."

Harel Beit-On, Non-executive Chairman of Matomy commented, "The restructuring that began in 2017 has been substantially enhanced by the appointment of the new President and CEO, Liam Galin in January, 2018. Mr. Galin is an avid believer, with a proven track record, in defining and executing focused business strategies. During this quarter, we successfully completed our debt issuance with significant oversubscription and strong investor demand validating the confidence of investors in Matomy's potential and strategic focus. The Company's accelerated implementation of the new strategic focus, together with Mr. Galin's leadership, position Matomy for a stronger 2018."

Operating Highlights

· Group revenues of $37.6 million. 

· Group core activities are seasonal, with ad spending lowest in Q1, growing significantly in Q3, and peaking in Q4, in line with the distribution of ad spend within the programmatic space.

· Matomy's core activities, programmatic mobile in-app (Mobfox), and domain monetisation (Team Internet) recorded a combined revenue of $31.8 million.

o Team Internet showed strong results in Q1 2018 including revenues of $22.8 million.

o Following the completion of the Second Exit Sale, the Company's holding of Team Internet is 90%, and with an agreement to acquire the final 10% of Team Internet before the completion of 2018, bringing the holding to 100%.

o Mobfox revenues reached $9.0 million in Q1 2018.

· Matomy's non-core activities, email marketing (Whitedelivery) and video advertising (Optimatic and Video from Matomy) recorded a combined revenue of $5.8 million

o Group Adjusted EBIDTA of -$0.7 million included over $1.7M in bad debt following the recent insolvency of key video clients.

· In February 2018, the Company raised 103 million NIS (approx. $30 million) in convertible bonds.

· Matomy is taking aggressive action to reduce costs, especially in non-core activities, bringing down operating losses and the rate of cash burn which are planned to be completed by the end of Q3 2018.

OPERATING REVIEW - Segment Results for the First Quarter 2018

The following table demonstrates Matomy's revenues by core and non-core activity for the three-month period ended 31 March 2018.

Due to the strategic changes, our financial results are now being reported under new segments. Our new reportable segments consist of: (a) Domain monetization (Team Internet) (b) Mobile in-app advertising (Mobfox together with myDSP), ((a) and (b) together form the core activities) and (c) Non-core activities, which includes email marketing (Whitedelivery) and video advertising (Optimatic and Video from Matomy).

Matomy Media Group Consolidated Results Q1 2018 (non-GAAP):

* Direct Media Costs

Direct Media Costs are the direct costs associated with the purchase of digital media. These costs include: payments for digital media based on the revenues Matomy generates from its customers on a revenue‑sharing basis; payments for digital media on a non‑revenue‑sharing basis (CPC or CPM); and serving fees for third‑party platforms.

**Adjusted Gross Profit / Margin

Adjusted gross profit is a non‑GAAP financial measure that Matomy defines as revenues less Direct Media Costs.

Matomy believes that adjusted gross profit is a meaningful measure of operating performance because it is frequently used for internal management purposes, indicates the performance of Matomy's solutions in balancing the goals of delivering results to its customers whilst meeting margin objectives, and facilitates a more complete understanding of factors and trends affecting Matomy's underlying revenues performance.

***Direct Adjusted EBIDTA

Direct Adjusted EBITDA is a non‑GAAP financial measure that Matomy defines as Adjusted EBITDA directly attributable to a specific business less the applicable Corporate Allocations assigned to such activity.

***\* Total Corporate Allocations

Total Corporate Allocations is a non‑GAAP financial measure that Matomy defines as indirect costs which are allocated across the various business units. consisting mainly of: (i) cost of corporate headquarters, including labor costs and related overheads; and (ii) costs associated with being a publicly traded company, such as directors' compensation and expenses, costs relating to investor relations, shareholder meetings and reports to shareholders, directors' and officers' insurance and other executive costs, legal and other professional fees, and listing fees.

*****Adjusted EBITDA

Adjusted EBITDA is a non‑GAAP financial measure that Matomy defines as net income before taxes on income, financial expenses (income), net, equity losses of affiliated companies, net, depreciation and amortisation, share‑based compensation expenses (cash and non-cash) and exceptional items (as described below). Adjusted EBITDA is a key measure Matomy uses to understand and evaluate its core operating performance and trends, to prepare and approve its annual budget, to develop short‑ and long‑term operating plans and to determine bonus payments to management. In particular, Matomy believes that by excluding share‑based compensation expenses, adjusted EBITDA provides a useful measure for period‑to‑period comparisons of Matomy's core business.

Team Internet (Domain Monetisation)

Team Internet's revenues reached $22.8 million with Direct Adjusted EBIDTA of $4.6 million in the three-month period ending 31 March 2018. Matomy's share in Team Internet grew from 80% to 90% in the first quarter of 2018, and will reach 100% by the end of the year.

Mobfox (Mobile In-App)

Mobfox (mobile in-app) revenues reached $9 million in the three-month period ended 31 March 2018. Mobile advertising spending is seasonal, with ad spending lowest in Q1, growing significantly in Q3, and peaking in Q4.

Mobfox consists of several platforms including the Mobfox supply-side platform which has maintained its growth and performed according to expectations. Revenues have been driven in part by the introduction of unique features for application developers and publishers such as audience analytics and lookalike user acquisition. Mobfox's myDSP demand-side platform, however, underperformed relative to its forecasts.

Noncore: Email and Video

Email and video revenues reached $5.8 million in the three-month period ending 31 March 2018. Matomy's email channel's revenues have steadily improved over this quarter and continue to demonstrate a positive trend.

Matomy's video advertising channel continues to be negatively affected by changes across the entire video industry that have reduced the amount and price of available video advertising inventory together with much stricter quality requirements from video advertisers. These changes caused significant losses in Matomy's video activity, including bad debts of approximately $1.7 million from partners facing insolvency. During the second quarter, Matomy took steps to significantly streamline costs of this activity.

Going Concern 

The Directors confirm that, after making an assessment, they have reasonable expectation that the Group has adequate resources to meet its obligations for the foreseeable future.

For more information about the bonds and information about the Principal Risk Factors affecting the Group's results and financial position, please refer to the Company's annual report available on the Company's investor website at investors.matomy.com.

Forward-Looking Statements

Certain statements in this interim results report are forward looking. Although the company believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will be fulfilled. Because these statements contain risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

By order of the Board:

Liam Galin, President and Chief Executive Officer

Keren Farag Krygier, Chief Financial Officer

Conference Call Information:

Matomy will host an analyst conference call at 1:00pm BST / 3:00pm IST May 31, 2018 to discuss these results. Matomy President & CEO Liam Galin, and CFO Keren Farag Krygier will host the call. Those who wish to join the call may register online at https://bit.ly/2L6j9wn.

About Matomy Media Group Ltd.

Matomy Media Group Ltd. (LSE: MTMY, TASE: MTMY.TA) is a global media company with a portfolio of superior data-driven platforms empowering advertising and media partners to meet their evolving growth-driven goals. Matomy's programmatic platforms include Team Internet and the MobFox SSP. Founded in 2007 with headquarters in Tel Aviv and seven offices around the world, Matomy is dual-listed on the London and Tel Aviv Stock Exchanges.

A copy of this announcement will be available on the Matomy website: http://investors.matomy.com/rns.aspx.

Contacts

Matomy Investor Relations

Pamela Becker, VP Global Marketing, [email protected], +972-74-7161971

Matomy Public Relations: 

Justine Rosin, [email protected], UK: +44 20 3769 5656 | USA: +1 (917) 724-2176 

Iris Lubitch, [email protected], IL: 972542528007

For more information:

Website: http://investors.matomy.com LinkedIn: www.linkedin.com/company/matomy-media-group 

Twitter: @MatomyGroup

Facebook: www.facebook.com/MatomyMediaGroup

MATOMY MEDIA GROUP LTD. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF 31 MARCH 2018

U.S. DOLLARS IN THOUSANDS

UNAUDITED

INDEX

- - - - - - - - - - - - - - - - - - -

The Board of Directors

Matomy Media Group Ltd.

We have reviewed the condensed consolidated financial statements of Matomy Media Group Ltd. and its subsidiaries (collectively "the Company"), which comprise the consolidated balance sheet as of 31 March 2018, and the related consolidated statement of operations, changes in shareholder's equity and cash flows for the three-month period ended 31 March 2018.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of the interim financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control sufficient to provide a reasonable basis for the preparation and fair presentation of interim financial statements in conformity with U.S. generally accepted accounting principles.

Auditor's Responsibility

Our responsibility is to conduct our review in accordance with auditing standards generally accepted in the United States applicable to reviews of interim financial statements. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, the objective of which is the expression of an opinion regarding the financial statements. Accordingly, we do not express such an opinion.

Basis for Modification of Conclusion

The financial statements do not include comparison figures for the three-month period ended 31 March 2017, as required by U.S generally accepted accounting principles.

Conclusion

Based on our review, with the exception of the matter described in the preceding paragraph, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for it to be in conformity with U.S. generally accepted accounting principles.

U.S. dollars in thousands

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

U.S. dollars in thousands

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

U.S. dollars in thousands except share and per share data

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

US dollars in thousands, except share data

*) Represents an amount lower than $ 1.

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

US dollars in thousands

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

US dollars in thousands

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

US dollars in thousands (except share and per share data)

NOTE 1:- GENERAL

Matomy Media Group Ltd together with its subsidiaries (collectively - "the Company") offers and provides a portfolio of proprietary programmatic data-driven platforms focusing on two core activities of domain monetization and mobile digital advertising to advertisers, advertising agencies, Apps developers, domain owners through access to digital media, via a vast chain of direct and indirect media partners, such as websites, mobile apps and video. With this large and diversified network of digital media source relationships, the Company reduces potential dependency on any one digital media source and can thereby give its customers broad reach, liquidity and choice. The focus on two core activities of domain monetization and mobile digital advertising is a result of the strategic focus plan adopted by the Company in 2017, shifting the key business focus away from its non-core business to these two core activities.

The Company through its proprietary programmatic technological platforms provides its customers with access to a wide range of digital media channels, and enables customized performance and programmatic solutions supported by big data analytics, optimization technology, business intelligence, programmatic media buying and Real-Time-Bidding (RTB) on mobile and web, empowering advertising and media partners to meet their digital goals, which include user acquisition and revenue results for both advertisers and media partners. The Company also provides a media management platform (SSP) and demand management platform (DSP) offering publishers or advertisers end to end solutions.

Matomy Media Group Ltd. was incorporated in 2006. The Company's markets are located primarily in the United States and Europe. The Company's shares are traded in the "London Stock Exchange and also on the Tel Aviv Stock Exchange.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

a. Unaudited interim financial statements

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("US GAAP") for interim financial information. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results for the three-month period ended 31 March 2018 are not necessarily indicative of the results that may be expected for the year ended 31 December 2018.

In the preparation of the interim consolidated financial information, except as described in note 2e, it applied the significant accounting policies, on a consistent basis to the annual financial statements of the Company as of 31 December 2017.

The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's financial statements ("the Annual Report") for the year ended 31 December 2017.

US dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

b. Use of estimates:

The preparation of the consolidated financial information in conformity with US GAAP requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions it uses are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial information, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

On an ongoing basis, the Company's management evaluates estimates, including those related to accounts receivable, fair values of financial instruments, fair values and useful lives of intangible assets, fair values of stock-based awards, deferred taxes and income tax uncertainties and contingent liabilities. Such estimates are based on historical experience and on various other assumptions that it believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

c. Internally developed software:

The Company capitalizes certain internal software development costs, consisting of direct labor associated with creating the internally developed software. Software development projects generally include three stages: the preliminary project stage (all costs expensed as incurred), the application development stage (costs are capitalized) and the post implementation/operation stage (all costs expensed as incurred).

The costs capitalized in the application development stage primarily include the costs of designing the application, coding and testing of the system. Capitalized costs are amortized using the straight line method over the estimated useful life of the software, generally 3 years, once it is ready for its intended use. The Company believes the straight line recognition method best approximates the manner in which the expected benefit will be derived. During the three month ended 31 March 2018, the Company capitalized software development costs of $ 733. Amortization expense for the related capitalized internally developed software in the three month ended 31 March 2018 totalled $ 1,090, and is included in cost of revenues in the accompanying consolidated statements of operations. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

Capitalized internally developed software of $ 6,398 and $ 6,755 are included in property and equipment in the consolidated balance sheets as of 31 March 2018 and 31 December 2017, respectively.

US dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

d. Fair value of financial instruments

The carrying amounts of financial instruments carried at cost, including cash and cash equivalents, short-term deposits, accounts receivable, prepaid expenses and other assets, accounts payable, accrued expenses and other liabilities approximate their fair value due to the short-term maturities of such instruments.

The Company follows the provisions of ASC 820 which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

In determining a fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an asset or liability, based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect assumptions that market participants would use in pricing an asset or liability, based on the best information available under given circumstances.

The hierarchy is broken down into three levels, based on the observability of inputs and assumptions, as follows:

· Level 1 - Observable inputs obtained from independent sources, such as quoted prices for identical assets and liabilities in active markets.

· Level 2 - Other inputs that are directly or indirectly observable in the market place.

· Level 3 - Unobservable inputs which are supported by little or no market activity.

The following table present liabilities measured at fair value on a recurring basis as of 31 March 2018:

US dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The following table summarizes the changes in the Company's liabilities measured at fair value using significant unobservable inputs (Level 3), during the three months ended 31 March 2018:

The fair value of the liability to non-controlling interests was estimated using the discounted cash flows method. The expected payment is determined by forecasting the EBITDA and net earnings amounts (as defined in the agreement). The estimated fair value of the liability will increase (decrease) if the EBITDA were higher (lower).

e. Accounting Pronouncements adopted in 2018

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). Topic 606 supersedes the revenue recognition requirements in Topic 605 "Revenue Recognition" (Topic 605). The Company adopted the new standard effective January 1, 2018 using the modified retrospective method. The new standard had immaterial impact on the Company's unaudited condensed consolidated financial statements.

NOTE 3:- BANK LOANS AND CREDIT LINE

In relation to the bank loans, bonds and credit lines, the Company is required to comply with certain covenants, as defined in the loan and bond agreements and its amendments. As of 31 March 2018, the Company was not in full compliance with the financial covenants of its bank loan, but obtained the bank's waiver in respect of the non-compliance.

US dollars in thousands (except share and per share data)

NOTE 4:- CONVERTIBLE BOND

In February 2018, the Company completed a public offering in Israel of Convertible Bonds (the "Bonds"). Through the issuance of the Bond, the Company raised a total gross consideration of ILS 103 million (approximately $29,930) issuing a total of 101,000 units of Bonds, which bear a coupon of 5.5% per annum, payable semi-annually on June 30 and December 31 of each of the years 2018 to 2021 (inclusive). The interest is prepaid on a semi-annually basis. Prepaid interest totalled to $ 406 is included in other receivables and prepaid expenses in the balance sheet as of 31 March 2018. Transaction costs amounted to $1,588 and were expensed as incurred. The principal of the Bonds, denominated in ILS, will be repaid in two equal annual instalments commencing on December 2020. The Bonds will be convertible into ordinary shares of the Company, at the discretion of the holders, up to ten (10) days prior to the final redemption date (ie December 21, 2021). The conversion price is subject to adjustment in the event that the Company effects a share split or reverse share split, rights offering or a distribution of bonus shares or a cash dividend. The Company may redeem the Bonds upon delisting of the Bonds from the TASE, subject to certain conditions.

The Company elected to apply the fair value option in accordance with ASC 825, "Financial Instruments", to the convertible bond and therefore all unrealized gains and losses are recognized in earnings. As of 31 March 2018, the fair value of the convertible bond, based on its quoted price at the TASE was $29,403.

The changes of the convertible bond in the three months ended 31 March 2018 were as follows:

As of 31 March 2018, the Company satisfies all of the financial covenants associated with the Bonds.

As of 31 March 2018, the aggregate principal annual payments of the bonds are as follows:

US dollars in thousands (except share and per share data)

NOTE 5:- EQUITY

a. Options issued to employees and directors:

A summary of the activity in options granted to employees and directors is as follows:

As of 31 March 2018, the total compensation cost related to options granted to employees and directors, not yet recognized amounted to $ 781.

The weighted average grant date fair values of options granted for the three months ended 31 March, 2018 was $ 0.41.

b. Restricted Share Units ("RSU") issued to employees and directors:

US dollars in thousands (except share and per share data)

As of 31 March 2018, the total compensation cost related to RSUs granted to employees, not yet recognized amounted to $ 453.

US dollars in thousands (except share and per share data)

NOTE 6:- REPORTABLE SEGMENTS

a. General

Following the implemention of the strategic plan in late 2017, the Company is focusing on its two core activities Team internet and Mobfox. In 2018, the Company's chief operating decision maker ("CODM") started to review and make decisions about resources based on three reporting segments consisting of Team internet, Mobfox and the remaining non-core activities which reflect the companies updated business activity and its focus strategic. Accordingly, for management purposes, the Company is organised into operating segments based on the products and services and has operating segments as follows:

§ Mobile Advertising ("Mobfox")- Mobfox is a data-driven, supply-side platform (SSP) and exchange for mobile in-app advertising. Connected to developers and publishers, along with quality demand sources, Mobfox offers comprehensive support for all major mobile ad formats. Mobfox also offers media buying services on its myDSP demand-side platform (DSP).

§ Domain Monetization - Team Internet serves the domain monetisation market and includes two brands which work seamlessly together to provide a complete offering. Parking Crew is a domain parking platform which integrates with many third-party applications. Tonic, the second platform, is a traffic marketplace that allows users to monetize traffic and target audiences with a variety of ad types.

§ Non-core Activities - Matomy's non-core activities include email marketing under the Whitedelivery brand and video advertising services under the Video from Matomy and Optimatic Media Inc. ("Optimatic") brands.

b. Segments information:

US dollars in thousands (except share and per share data)

NOTE 6:- REPORTABLE SEGMENTS (Cont.)

b. Segments information:

(1) Reconciling items are primarily related to depreciation and amortization costs for the three months ended March 31, 2018, as well as corporate administrative costs and other miscellaneous items that are not allocated to individual segments.

c. Geographical information:

Revenues by geography are classified based on the location where the consumer completed the action that generated the relevant revenues.

1. Revenues from external customers:

US dollars in thousands (except share and per share data)

NOTE 6:- REPORTABLE SEGMENTS (Cont.)

2. Property and equipment, net:

d. In the three months ended 31 March 2018, one customer contributed 55% of the Company's revenues, while no other customer contributed more than 10%.

- - - - - - - - - - - - - - - - - - -

F:\W2000\w2000\12191\M\18\E$3-MATOMY-WITH NOTES.docx