TIDMMTMY
RNS Number : 3993A
Matomy Media Group Ltd
24 March 2017
24 March 2017
Matomy Media Group | 2016 Final Results
Final results for the year ended 31 December 2016
Matomy Media Group Ltd., a world-leading media company,
announces its final results for the year ended 31 December
2016.
Matomy continues to expand and strengthen its leading mobile,
video and programmatic offerings
Non-GAAP Financial Highlights(1)
Overview of 2016 2015 Change
results
($ millions)
================= ====== ====== =======
Revenue 276.6 271.0 2.1%
----------------- ------ ------ -------
Adjusted gross
profit 78.3 76.5 2.4%
----------------- ------ ------ -------
Adjusted gross
margin 28.3% 28.2% 0.3%
----------------- ------ ------ -------
Adjusted EBITDA 17.1 25.7 (34)%
----------------- ------ ------ -------
Adjusted net
income (loss) (6.3) 2.3 (374)%
----------------- ------ ------ -------
GAAP Financial Highlights
Overview of 2016 2015 GAAP Change
results GAAP GAAP
($ millions,
except EPS)
======================== ======== ========== =======
Revenue 276.6 271.0 2.1%
------------------------ -------- ---------- -------
Gross profit 56.9 62.3 (8.7)%
------------------------ -------- ---------- -------
Operating income
/ (loss) (1.3) 12.1 (111)%
------------------------ -------- ---------- -------
Pre-tax income
/ (loss) (3.3) 9.9 (134)%
------------------------ -------- ---------- -------
Net income
/ (loss) (8.1) 7.2 (212)%
------------------------ -------- ---------- -------
Net income
/ (loss) attributable
to Matomy (11.7) 6.6 (277)%
------------------------ -------- ---------- -------
Earnings /
(loss) per
share $(0.13) $0.07 (286)%
------------------------ -------- ---------- -------
___________
(1) Non-GAAP related definitions
Adjusted gross profit
Adjusted gross profit is a non--GAAP financial measure that
Matomy defines as revenues less direct media costs, which 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.
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.
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
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.
Adjusted net income
Adjusted net income is a non--GAAP financial measure that Matomy
defines as net income before share based compensation expenses and
any exceptional items.
** The 2016 and 2015 results include amortisation charges of
$6.2 million and $1.9 million, respectively, attributable to the
major acquisitions made by Matomy since the start of 2015. Without
the effect of these adjustments, the non-GAAP results would have
been as follows:
($ millions) 2016 2015 Change
================== ====== ===== =======
Gross profit 60.9 63.8 (4.6)%
------------------ ------ ----- -------
Operating profit 4.9 14.0 (65)%
------------------ ------ ----- -------
Pre-tax profit 2.9 11.8 (76)%
------------------ ------ ----- -------
Net income
/ (loss) (3.4) 8.2 (143)%
------------------ ------ ----- -------
Business and operating highlights
A year of transition marked by investment in data-driven
technologies, with continued focus around superior proprietary
Video, Mobile and other Programmatic solutions
-- In 2016, Matomy made a major shift. After conducting
successful acquisitions - Mobfox and Team Internet (both in 2014)
and Optimatic in late 2015 - the company decided to enhance its
product development budget to accelerate the transformation into a
leading data-driven, programmatic media company focusing on Mobile
and Video.
-- In 2016, revenues generated from mobile in app activity
(Mobfox) increased approximately 104% to $36.6 million (2015: $17.9
million).
-- Matomy took decisive action over the past 18 months to shift
activity from desktop display advertising, and toward Video, Mobile
and Native-based advertising, which generate higher quality and
more sustainable long-term revenues with enhanced user engagement.
This supports the company's ability to replace, in a controlled
fashion, the continued industry-wide decline in revenues from
desktop display activity. As a result, the company recognizes the
following benefits:
o In 2016, revenues generated from aggregate programmatic
advertising activity across all media channels increased 30% and
accounted for approximately 79% of Matomy's 2016 revenues. (2015:
60%)
-- To support growth and leadership around Mobile, the company
took the following important steps:
o Matomy launched myDSP, a data-driven, mobile self-serve demand
side platform (DSP), thereby empowering media buyers to optimize
their advertising spending, while enhancing the development of the
company's central data management platform (DMP).
o Matomy introduced mtmy, a full-service data-driven advertising
agency, providing cross-channel optimization with focus on social,
search and programmatic.
o Matomy established offices in China and South Korea in April
2016 to access the fast-growing APAC market. In 2016, revenues
generated from activity in Asia increased 56% to $17.9 million
(2015: $11.5 million).
-- In 2016, revenues generated from video activity increased 55%
to $111.9 million (2015: $72.3 million).
-- Matomy continued to benefit from the strong industry trend
for programmatic advertising spend in the second half of the year.
As a result, H2 represented 54% of Matomy's full year revenue and
65% of its adjusted EBITDA (H1 2016: 46% revenue, 35% adjusted
EBITDA).
-- In 2016, revenues generated from domain monetisation
increased 17% to $63.3 million (2015: $54.3 million.
-- In 2016, Research and development expenses increased by $4.7
million, or 60%, to $12.6 million (FY2015: $7.9 million). This
reflects both the consolidation of Optimatic for a full year, which
added $1.4 million to R&D expenses, and additional investment
in programmatic proprietary technologies.
-- In 2016, Sales and marketing expenses increased by $4.4
million, or 17%, to $30.6 million (FY2015: $26.2 million).
-- In 2016, general and administrative expenses decreased by
$1.2 million, or 9.9%, to $14.9 million (FY2015: $16.1
million).
-- Despite the increased investment and transition detailed
above, Matomy succeeded in increasing full-year revenue by 2.1% to
$276.6 million (2015: $271.0 million).
Ofer Druker, Chief Executive Officer of Matomy, said:
"The best companies evolve with their industry. We spent the
past year bolstering our proprietary technology and data-driven
capabilities to strengthen our leading marketing technology
platforms. In 2016, Matomy underwent a transition with the goal of
maximizing today's technologies in preparation for tomorrow's
opportunities.
"A primary initiative we began in July of 2016 was our strategic
plan to increase investment in research and development. By
enhancing our proprietary technology enabling programmatic mobile
and video advertising, Matomy built on the successful acquisitions
of Mobfox and Optimatic with additional capabilities added to our
existing leading marketing technology platforms.
"Our ongoing investment in our regional sales and marketing
capabilities builds on our successful strategy we began in 2015.
Within the past 18 months, Matomy has significantly increased the
number of staff, the pace of sales and partnership opportunities
with U.S. based companies. Likewise, in both China and South Korea,
Matomy added considerably to our existing market presence in these
regions.
"In 2016, Matomy aligned both people and resources behind our
business units supporting programmatic mobile and video
advertising. These actions have already begun to deliver new
opportunities for Matomy.
"Combined with our focus on serving the needs of advertisers and
publishers in the areas of programmatic mobile and video
advertising, demonstrable progress on these key initiatives
positions Matomy for a strong year ahead. We look forward to
building on these successes in 2017 and generating the growth based
on our proprietary technological platforms."
Enquiries:
Matomy Media Group
Lipaz Kloper, Head of Investor Relations
lipaz.k@matomy.com
+972 773606161
A copy of this announcement will be available on the Matomy
website, www.Matomy.com, today from 7.00am GMT.
Matomy will host an analyst conference call at 14:00 BST / 10:00
EDT Monday 27 March 2017 to discuss these results. For more
information visit on http://investors.matomy.com/rns.aspx
CHAIRMAN'S and CHIEF EXECUTIVE OFFICER'S STATEMENT
Introduction
As the advertising industry continues to mature, so too must
Matomy. To do so, we made the strategic decision to invest in order
to improve. We expanded our mobile, video and programmatic
offerings, strengthened our data-driven capabilities and widened
our reach in the Asian-Pacific market. Matomy is now positioned to
leverage advanced technology in a global market in order to drive
our current and future revenue. We look forward to seeing the
return on our investments in 2017.
In 2016, Matomy invested in two primary areas to be a partner of
choice and set the company on a successful path for the future.
First, Matomy invested in development by adding proprietary
technology supporting programmatic mobile and video advertising
capabilities. This enabled us to move ahead of our competition by
introducing two new services - myDSP and mtmy - that complement our
existing portfolio while strengthening core programmatic
capabilities. Secondly, the company significantly strengthened its
footprint in the Asian-Pacific market adding capabilities to
locations in both China and South Korea.
While the media and advertising industry continue to evolve,
Matomy is well positioned to succeed in this environment. Our
technological differentiation continues to attract top-tier
advertisers and publishers, and Matomy will continue to invest in
people and capabilities in areas that represent the largest
advertising market opportunities.
2016 operating performance
2016 saw Matomy continue its successful transition in the
direction of programmatic mobile and video advertising.
Anticipating the evolution of advertising towards mobile and video
and away from desktop display, Matomy delivered several key
initiatives to cement our leadership position serving the needs of
advertisers and publishers and positioning the company for a strong
2017. For 2016, we reported a 2% increase in revenue to $276.6
million on a GAAP basis (FY2015: $271.0 million), driven primarily
by our identified strategic growth areas of mobile, video and
domain monetisation. Adjusted EBITDA decreased by 34%, primarily
due to additional investments in research and development
activities, mainly on Mobfox and Optimatic, as well as to
strengthen Matomy's sales force in light of the new technologies,
shifting geographical focus and investment around our APAC
expansion.
Geographically, Matomy is seeing the strongest growth in the US,
which is Matomy's largest market, with revenue in that region
increasing 10.1% ($16.4 million) to $180.0 million (FY2015: $163.6
million). This was driven by our increased focus on the US market,
due to the ongoing industry-wide shift towards real-time bidding
and programmatic advertising, as well as increased video advertiser
demand.
Revenues from Asia climbed 56% ($6.4 million) to $17.9 million
for the year ended 31 December 2016 as we initiated our expansion
into Asia. The first stage indicates very encouraging preliminary
results. This is a market that we believe holds great promise and
we are continuing to direct resources toward further increasing our
presence there in the near future.
Matomy's video activity continued to contribute the largest
portion of the group's overall global revenue, at 40%.
The Mobile in app (Mobfox) segment experienced the largest
percentage revenue growth in 2016, rising 104% to $36.6 million
(2015: $17.9 million). This increase was primarily driven by
enhanced technological developments and the successful launch of
new features.
The group's domain monetisation also saw significant growth,
increasing by $9 million, or 17%, to $63.6 million. This increase
was partially driven by publisher growth and the acquisition of the
NameDrive domain parking business, as well as the introduction of
new ad types to Tonic (formerly called DNTX), our DSP, SSP and
self-service ad network for desktop and mobile traffic sources.
2017 Priorities
Our key priorities for 2017 are as follows:
-- Continue to focus business and development efforts around
programmatic mobile and video advertising capabilities.
-- Invest in developing direct and indirect data capabilities to
support our offering through Mobfox and Optimatic.
-- Continue to strengthen our presence in the North American advertising market.
-- Following the successful entry into China and South Korea,
accelerate APAC expansion strategy with a focus on mobile
activity.
-- Advance with our Strategic Review, as announced on 18 October 2016.
Outlook
The Company is entering 2017 with its mobile, programmatic,
video and domain monetization offerings, based on its own
proprietary technologies, continuing to grow and increase. The
business continues to diversify geographically, in particular
following the initial successful entry and continued expansion into
APAC. These actions reflect the strategic decision of the company
to shift focus away from the declining display segment and focus on
its core growth areas of mobile and video programmatic-based
activities. As a result, the Board remains confident that its
actions will lead to continued growth and improved business focus
for full year 2017.
Trading for the beginning of 2017 has been encouraging, and the
Company currently anticipates an improved trading outcome compared
with its previous expectations.
Harel Beit-On Ofer Druker
Non-executive Chairman Chief Executive Officer
OPERATIONAL REVIEW*
Revenues by Media Channel
The following table sets out Matomy's revenues by media channel
for the years ended 31 December 2016 and 2015.
Year ended 31 December
----------------------- ------------------------- ------
($ millions) 2016 2015
----------------------- ------------ ----------- ------
Mobile in-app(1) 36.6 17.9 104%
----------------------- ------------ ----------- ------
Video 111.9 72.3 55%
----------------------- ------------ ----------- ------
Domain monetisation 63.3 54.3 17%
----------------------- ------------ ----------- ------
Email 27.5 34.4 (20)%
----------------------- ------------ ----------- ------
Web display 25.4 61.1 (58)%
----------------------- ------------ ----------- ------
Mobile web display(1) 3.2 8.5 (62)%
----------------------- ------------ ----------- ------
Social 4.7 12.8 (63)%
----------------------- ------------ ----------- ------
Other(2) 4.0 9.7 (58)%
======================= ============ =========== ======
Total 276.6 271.0
----------------------- ------------ ----------- ------
(1) Mobile media channel revenues relate solely to revenues
generated from mobile web and in-app activities as opposed to
aggregate mobile traffic which refers to traffic from mobile
devices across all media channels. Aggregate mobile traffic across
all media channels contributed approximately 40% of Matomy's
revenues in 2016 (FY2015: 30%).
(2) Primarily comprised of revenues from the search and virtual currency media channels.
*based on consolidated GAAP financial data
Mobile in-app
Mobile in-app media channel revenues increased by $18.7 million,
or 104%, to $36.6 million for the year ended 31 December 2016
(FY2015: $17.9 million). This increase was driven primarily by
Matomy's successful recruitment and on-boarding of new direct
supply and demand partners to Mobfox (Matomy's mobile SSP) and the
development and introduction of technological improvements,
infrastructure and features such as self-learning automated
optimisation of media sources, inventory allocation and bandwidth
management.
Video
Video media channel revenues increased by $39.6 million, or 55%,
to $111.9 million for the year ended 31 December 2016 (FY2015:
$72.3 million). This reflects in part the first full year of
revenues from Optimatic )recently measured by ComScore as the 4(th)
largest video SSP in the US(, combined with technological
improvements to Matomy's video advertising capabilities and
supported by strongly increased advertiser demand.
Domain monetisation
Domain monetisation media channel revenues increased by $9.0
million, or 17%, to $63.3 million for the year ended 31 December
2016 (FY2015: $54.3 million), due to continuing investment in
research and development, ensuring sustainable competitive
advantage, focus on mobile users and fully automated self-service
platforms for advertisers and publishers supporting three different
profitable and attractive businesses: ParkingCrew, monetization
services to website owners; TONIC, a DSP, SSP and self-service ad
network for desktop and mobile traffic sources and a domain
registration engine.
Email
Email media channel revenues decreased by $6.9 million, or 20%,
to $27.5 million for the year ended 31 December 2016 (FY2015: $34.4
million). The decrease was driven mainly by a strategic decision to
focus on running email budget campaigns on Matomy's proprietary
platforms, which generate higher and more sustainable revenues on
account of a decrease in the email affiliate activity, even at the
price of reduced volumes.
Web display
Web display media channel revenues decreased by $35.7 million,
or 58%, to $25.4 million for the year ended 31 December 2016
(FY2015: $61.1 million). The web display media channel continues to
be affected by changes in the digital advertising ecosystem and the
shift towards mobile and video based advertising.
Mobile web display
In line with the industry trend, and the continued erosion of
web display activity in all formats, mobile web display media
channel revenues decreased by $5.3 million, or 62%, to $3.2 million
(FY2015: $8.5 million).
Social
Social media channel revenues decreased by $8.1 million, or 63%,
to $4.7 million for the year ended 31 December 2016 (FY2015: $12.8
million). This decrease is mainly attributable to increased
Facebook regulation, a shift to an agency model, according to which
the fees are recognised on a net basis (not including media costs),
which was less customary in 2015. However, without the effect of
net reporting of revenues, Matomy would have recorded an additional
$10.5 million revenues in 2016 and $3.3 million revenues in
2015.
Other media channels
Other media channel revenues decreased by $5.7 million, or 58%,
to $4.0 million for the year ended 31 December 2016 (FY2015: $9.7
million). This decrease reflects Matomy's focus on its growth
engines, such as mobile in-app and video, and decreasing focus on
less strategic activities such as virtual currency and search.
Revenues by Geography
The following table sets out Matomy's revenues by geographical
region for the years ended 31 December 2016 and 2015.
Year ended 31 December
-------------- ------------------------- -------
($ millions) 2016 2015 Change
-------------- ------------ ----------- -------
USA 180.0 163.6 10.1%
-------------- ------------ ----------- -------
Europe 44.1 54.5 (19)%
-------------- ------------ ----------- -------
Asia 17.9 11.5 56%
-------------- ------------ ----------- -------
Other 34.6 41.4 (17)%
============== ============ =========== =======
Total 276.6 271.0
-------------- ------------ ----------- -------
USA
Revenue from the US market increased by $16.4 million, or 10.1%,
to $180.0 million for the year ended 31 December 2016 (FY2015:
$163.6 million), representing 65% of global revenues, up from 60%
in 2015. This increase reflects our increased focus and investment
in the US market due to the ongoing industry-wide shift towards
real-time bidding and programmatic advertising, as well as
increased video and mobile advertiser demand.
Europe
European revenues decreased by $10.4 million, or 19%, to $44.3
million for the year ended 31 December 2016 (FY2015: $54.5
million), mainly due to challenging conditions and the Company's
shift of focus towards higher quality activities in the US and
Asia.
Asia
Asia revenues increased by $6.4 million, or 56%, to $17.9
million for the year ended 31 December 2016 (FY2015: $11.5 million)
due to Matomy's increased focus and investments in the Far East
market, especially around mobile advertising, and the establishment
of Matomy's Chinese and Korean offices during the second quarter of
2016. These offices have made a substantial contribution to
Matomy's offering and attractiveness to China- and Korea-based app
developers, enabling them to better distribute and monetise their
applications and media inventory.
FINANCIAL REVIEW
Revenue
Revenues in 2016 increased by $5.6 million, or 2.1%, to $276.6
million (FY2015: $271.0 million). Several factors contributed to
this growth, with a continued shift in the revenue mix towards
Matomy's growth engines of programmatic video and mobile,
reflecting an effective growth of 23% in revenues from media
channels other than overall web display activity. These revenues
are considered more sustainable and higher quality. Revenues also
reflected the 2015 acquisitions which were consolidated for their
first full year.
Cost of revenues
$ millions, except as otherwise indicated 2016 2015
------------------------------------------------------------------------------------------------------ ------ ------
Direct media
costs.................................................................................... 198.3 194.5
Other cost of revenues............................................................................. 21.5 14.2
------ ------
Cost of revenues................................................................................... 219.8 208.7
====== ======
Gross margin (%)..................................................................................... 20.6% 23.0%
====== ======
Adjusted gross margin (non-GAAP) (%) 28.3% 28.2%
====== ======
Cost of revenues increased by $11.1 million, or 5.3%, to $219.8
million (79% of total revenues) for the year ended 31 December 2016
from $208.7 million (77% of total revenues) the year prior.
Matomy's cost of revenues primarily consists of direct media
costs, and therefore the majority of the increase in cost of
revenues in 2016 was driven by revenue growth, with adjusted gross
margin remaining stable.
Cost of revenues also reflected an increase in allocated costs,
in particular amortisation of technology assets from the 2015
acquisitions, which added $2.5 million to cost of revenues in 2016,
and around $4.9 million increase in server costs due to the
consolidation of Optimatic for a full year (adding $2.8 million)
and constant increase in the traffic on Mobfox's servers. All of
the above led to a decrease in gross margin.
Operating expenses
$ millions 2016 2015
------------------------------------------------------------------------------------------------ ----- -----
Research and development................................................................. 12.6 7.9
Sales and marketing........................................................................... 30.6 26.2
General and administrative.................................................................. 14.9 16.1
----- -----
Total operating expenses............................................................... 58.1 50.2
Total operating expenses as a percentage of revenues.......................... 21% 19%
===== =====
Operating expenses increased by $7.9 million or 16%, to $58.1
million for the year ended 31 December 2016 (FY2015: $50.2
million). Operating expenses as a percentage of revenues increased
2% to 21% for 2016 (FY2015: 19%) resulting in an operating margin
of (0.5%) (2015: 4.5%).
Operating expenses increased primarily as a result of the
strategic investment plan announced in July 2016, which authorised
$3.3 million of additional expenditure to be invested in research
and development activities, as well as to strengthen Matomy's sales
force in light of the new technologies and shifting geographical
focus.
Research and development expenses increased by $4.7 million, or
60%, to $12.6 million (FY2015: $7.9 million). This reflects both
the consolidation of Optimatic for a full year, which added $1.4
million to R&D expenses, and additional investment in
programmatic proprietary technologies leading to increased R&D
headcount in 2016 compared to 2015, as Matomy becomes a more
technologically focused company.
Sales and marketing expenses increased by $4.4 million, or 17%,
to $30.6 million (FY2015: $26.2 million).
This increase includes the effect of customer relationship
amortisation costs, which increased by $1.1 million in 2016
compared to 2015, due to the first full year of amortisation of the
2015 acquisitions. In addition, Matomy invested considerable
resources in both sales and marketing, under the strategic
investment plan referred to above, in particular in establishing
and strengthening Matomy's presence in Asian markets through its
Chinese and Korean offices.
General and administrative expenses decreased by $1.2 million,
or 9.9%, to $14.9 million (FY2015: $16.1 million). While $2.2
million expenses were added by the 2015 acquisitions, these were
offset by continued efficiencies as well as adjustments to future
liabilities in the sum of approximately $0.8 million, which
impacted on G&A expenses.
Financial expenses
Financial expenses, net, decreased by $0.1 million to $2.1
million for the year ended 31 December 2016 (FY2015: $2.2 million).
Financial expenses related to adjustments to accretion of earnout
payments increased year on year by $0.6 million, while expenses
from foreign exchange rate fluctuations, net of hedging
transactions, decreased by $0.8 million due to more stable exchange
rates during 2016.
Taxes on income
Taxes on income increased by $2.0 million to $4.7 million for
the year ended 31 December 2016 (FY2015: $2.7 million).
Matomy is subject to corporate tax on its income, principally in
Israel, the United States and Germany, as well as other
jurisdictions in which Matomy has operations. Matomy's effective
corporate tax rate was -140% (minus 140 percent) in the year ended
31 December 2016, and 27% in the year ended 31 December 2015.
Matomy's effective corporate tax rate was lower in 2016 compared
to 2015 primarily due to valuation allowance totalling $4.2 million
recorded on carry forward losses in both the parent company and few
of its subsidiaries.
The Israeli statutory corporate tax rate was 25% in 2016 and
26.5% in 2015. Excluding the effect of the valuation allowance,
Matomy's effective corporate tax rate on its taxable profits is
higher than the Israeli statutory corporate tax rate because most
earnings were generated under US and German jurisdictions with
higher prevailing tax rates.
In 2016, Matomy's US operations had taxable income resulting in
a liability for both federal and state tax.
Team Internet is subject to German corporate and trade taxes.
The effective tax rate of Team Internet on a standalone basis was
31% in 2016 (32% in 2015).
Amortisation of intangible assets
Amortisation expenses amounted to $15.2 million for the year
ended 31 December 2016, an increase of $3.8 million from
amortisation expenses of $11.4 million for the year ended 31
December 2015. This increase was primarily due to the first full
year of amortisation of the intangible assets acquired during
2015.
Net income / (loss)
Net income / (loss) decreased by $15.3 million to a $8.1 million
net loss for the year ended 31 December 2016 (FY2015: $7.2 million
net income), primarily due to the significantly increased
amortisation costs, share-based compensation expenses and tax
effects as described above.
Net income / (loss) attributable to Matomy Media Group
shareholders was $3.6 million lower than group net income / (loss)
(FY2015: $0.6 million lower). This difference was primarily due to
improved performance and revenues of Team Internet, resulting in an
increased redeemable non-controlling interest on account of the put
options of the minority shareholder.
Revaluation of redeemable non-controlling interests
As of 31 December 2016, Matomy's $37.5 million in redeemable
non--controlling interests consisted of:
-- $36.8 million relating to Team Internet;
-- $0.6 million relating to Matomy Social; and
-- $0.1 million relating to Avenlo.
Of the above amount, $13.8 million relating to Team Internet is
presented in current liabilities on account of the consideration
for the put option which is due to be paid during the first half of
2017.
Redeemable non-controlling interests are classified as mezzanine
equity, separate from permanent equity, on the consolidated balance
sheets and measured at each reporting period at the higher of their
redemption amount or the non-controlling interest book value.
Exceptional items
Matomy views the following items, which were recorded in profit
and loss, as exceptional as they are material to the financial
statements and non-recurring and therefore were excluded from
non-GAAP measures.
-- One-time adjustments to M&A related earnout liabilities
-- Impairments to intangible assets
-- Transaction costs associated with M&A activity in 2015
Liquidity and cash flows
The following table sets out selected cash flow information for
Matomy for the years ended 31 December 2016 and 2015.
Year ended 31 December
-------------------------
$ millions 2016 2015
----------------------------------------------------------------------- ----------- ------------
Net cash provided by (used in) operating activities........... (0.2) 18.7
Net cash used in investing activities................................ (6.9) (29.5)
Net cash provided by (used in) financing activities........... 1.5 (9.9)
Effect of exchange rate differences on cash................... -* -*
----------- ------------
Increase (decrease) in cash and cash equivalents............ (5.6) (20.7)
Cash and cash equivalents at beginning of period............. 27.3 48.0
Cash and cash equivalents at end of period..................... 21.7 27.3
=========== ============
*. Represents amounts less than $0.1 million.
(A) Net cash used in / provided by operating activities
Matomy's net cash used in / provided by operating activities
decreased by $18.9 million to a $0.2 million outflow for the year
ended 31 December 2015 (FY2015: $18.7 million inflow).
In 2016, net cash provided by operating activities consisted of
a net loss of $8.1 million and $9.6 million relating to net changes
in working capital, offset by $17.5 million relating to non--cash
expenses. Non--cash expenses were primarily depreciation and
amortisation of $16.5 million, significantly higher than prior
years due to amortisation related to the 2015 acquisitions,
stock--based compensation expense of $1.9 million, less decreases
in deferred tax assets of $1.0 million.
For the year ended 31 December 2015, Matomy's net cash provided
by operating activities consisted of $7.2 million in net income and
$11.3 million relating to non--cash expenses, and $0.2 million
relating to net changes in working capital. Non--cash expenses were
primarily depreciation and amortisation of $12.6 million,
significantly higher than prior years due to amortisation related
to the 2014 and 2015 acquisitions, stock--based compensation
expense of $0.9 million, less decreases in deferred taxes of $2.2
million.
Net changes in working capital in 2016 were mainly driven by a
decrease of $3.3 million in trade receivables, offset by the
effects of increases in assets including domains held for sale
($4.2 million) and other receivables ($1.7 million), as well as
decreases in liabilities including trade payables ($5.2 million).
The remaining amount consisted of smaller movements in various
other assets and liabilities.
The decrease in trade receivables was primarily due to the
erosion of revenues generated from display activity and the
transition to mobile and video programmatic based revenues, which
are generally more sustainable higher quality revenues, resulting
in a decrease in the trade receivables of around $3.8 million in
comparison to the same period in 2015, partially offset by the
successful penetration into APAC, which has extended payment
approvals processes compared to the other geographies where Matomy
operates.
The increase in domains held for sale reflects the growth of the
domain monetisation activity and as a result an increased
investment in the purchase of domains.
The decrease in trade payables was primarily driven by a change
in the payment terms of some publishers, mainly in connection with
video activity, which was made in order to help maintain Matomy's
leading position and ensure that it stays competitive and
attractive to publishers.
(B) Net cash used in investing activities
Net cash used in investing activities decreased by $22.6 million
to $6.9 million for the year ended 31 December 2016 (FY2015: $29.5
million). In 2016, net cash used in investing activities primarily
included a $5.1 million capitalised investment in R&D and $1.6
million investment in property and equipment.
For the year ended 31 December 2015, net cash used in investing
activities included a $17.9 million investment in Optimatic, a $5.6
million investment in Avenlo, $2.7 million paid to acquire an
advertiser list, and a $3.3 million investment in property and
equipment including capitalised R&D costs.
(C) Net cash provided by / used in financing activities
Net cash provided by / used in financing activities increased by
$11.4 million to a $1.5 million inflow for the year ended 31
December 2016 (FY2015: $9.9 million outflow).
In 2016, net cash provided by / used in financing activities
related primarily to a $2.0 million net increase in outstanding
term loans and overdrafts and $2.4 million of proceeds from option
exercises during the year, less $3.0 million total payments to
non-controlling interests and earnout payments.
For the year ended 31 December 2015, net cash provided by / used
in financing activities related primarily to a $5.3 million net
decrease in outstanding term loans, $5.8 million total payments to
non-controlling interests and earnout payments, less $1.2 million
of proceeds from option exercises during the year.
As of 31 December 2016, Matomy had $13.5 million in term loans.
Of those, $6.9 million are due within one year.
NOTES TO FINANCIAL STATEMENTS
Goodwill
Goodwill represents the excess of the purchase price in a
business combination over the fair value of the net tangible and
intangible assets acquired.
Matomy's goodwill was created mainly through the 2013, 2014 and
2015 acquisitions.
Matomy has two reporting units and performs an annual impairment
test during the fourth quarter of each fiscal year, or more
frequently if indicators of potential impairment exist, to
determine whether the net book value of each reporting unit exceeds
its estimated fair value. During the years ended 31 December 2015
and 2016, no impairment losses were identified.
Segments
Our chief operating decision-maker is our Chief Executive
Officer. On a monthly basis, the CEO reviews revenue and adjusted
EBITDA at Group level, as well as revenue at the level of media
channels, for the purposes of allocating resources and evaluating
financial performance.
As a result, Matomy operates in a single reportable segment as a
provider of marketing services.
Acquisitions
On 13 November 2015, Matomy completed the acquisition of 100% of
the issued and outstanding shares of Optimatic Media Inc.
('Optimatic') for a total consideration of $33.6 million, as
estimated at closing (including contingent consideration).
Optimatic is a leading programmatic technological video platform
company that enables top-tier publishers to manage their inventory
programmatically and a full suite of digital video Supply Side
Platform capabilities. Optimatic developed a unique proprietary
video platform and is considered a leader in the video space.
On 15 April 2015, Matomy completed the acquisition of 70% of the
issued and outstanding shares of a newly formed company, Avenlo
Media Group Inc. ('Avenlo') that has purchased the principal
business activity and operations of Maven Marketing Group Inc., for
a total consideration of $22.9 million, as estimated at closing
(including contingent consideration). On 8 March 2016, Matomy
signed an amendment to the purchase agreement, revising the total
consideration to $10.8 million as estimated at that date (including
contingent consideration). Avenlo is a performance email marketing
and ad targeting company, incorporated in Canada.
The payment to the minority shareholder in Team Internet was
made after the balance sheet date, following the exercise by the
minority shareholder in Team Internet of the first of three options
it holds, resulting in Matomy acquiring an additional 10% of the
issued and outstanding shares of Team Internet AG ('Team Internet')
for a consideration of $10.4 million.
Earnings (loss) per share
Matomy's basic earnings (loss) per share decreased by $0.20, or
286%, to a loss per share of $0.13 for the year ended 31 December
2016 (FY2015: $0.07 EPS). This change was influenced primarily by
the decrease in after-tax profit, for the reasons noted above. In
addition, there was a 2% increase in the weighted average number of
outstanding shares mainly due to exercise of share-based incentives
in 2016.
Treasury shares
As of 31 December 2016, Matomy has a total of 10,970,111
treasury shares, of which, 1,211,237 shares are held by Team
Internet. Team Internet's minority shareholder is entitled to 80%
share from gains derived from these shares, which is classified as
a redeemable non-controlling interest.
Financial Obligations and Covenants
Matomy's financial obligations and commitments as at 31 December
2016 were as follows:
Due within 1
$ million year Due >1 year Total
----------------------------------------------------------- ------------- ------------ ------
Bank loans............................................ 6.9 6.6 13.5
Operating lease obligations..................... 2.4 5.5 7.9
Total.................................................... 9.3 12.1 21.4
In June 2014, Matomy entered into a $21.6 million term loan
agreement with an Israeli bank. In relation to this loan, Matomy is
required to comply with certain covenants, as defined in the loan
agreement and its amendments. As of 31 December 2016, Matomy was in
full compliance with the financial covenants.
Matomy also has access to a line of credit from the same bank
for total borrowings of up to $13.0 million of which $6 million is
secured. As of 31 December 2016, it had utilised $2.4 million of
the line of credit. This line of credit is unsecured and available
to the Company based on meeting certain account receivable
conditions.
The line of credit and loans are secured by way of: (i) a fixed
charge over Matomy's unpaid equity; (ii) a floating charge over
certain of its assets of Matomy and (iii) mutual guarantees between
the Israeli companies in the group.
In September 2016, Matomy entered into a $4.0 million term loan
agreement with a U.S. bank. As security, Matomy US and its
subsidiary have granted a first priority lien on and security
interest in all of the assets of Matomy US, and provided cross
guaranties. Matomy US and its subsidiary are required to comply
with certain covenants, as defined in the term loan and line of
credit agreement and its amendments. As of 31 December 2016, the
Company was in full compliance with the financial covenants.
Matomy's subsidiary Team Internet has entered into two further
loan agreements with German banks, for $1.3 million and $3.0
million respectively.
Financial reporting
This financial information has been prepared under US GAAP
principles and in accordance with Matomy's accounting policies.
There have been no material changes to Matomy's accounting policies
during the year ended 31 December 2016.
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.
Principal risks
The Directors assess and monitor the key risks of the business
on an ongoing basis. The principal risks and uncertainties that
could have a material effect on the Group's performance as set out
in detail in the section entitled 'Risk Factors' of the Group's IPO
prospectus (the 'Prospectus') dated 9 July 2014 and updated from
time to time. These include, inter alia, the following:
-- Certain internet and technology companies may intentionally
or unintentionally adversely affect Matomy's operations, mainly due
to announced or unannounced changes and restrictions by such
companies.
-- The delivery of digital ads and the recording of the
performance of digital ads are subject to complex regulations,
legal requirements and industry standards, including with respect
to fraud, transparency, privacy and data protection, viewability
and overall ad quality.
-- Matomy's ability to achieve strategic objectives depends on
how we react to competitive forces. Matomy faces competition in
each of our businesses. Matomy seeks to differentiate its products
and services, however many of them are competing with some of the
most prevalent digital platforms. Accordingly, failure to achieve
these objectives could result in a material adverse effect on
Matomy's earnings, cash flows and financial condition.
-- Certain elements of Matomy's business may depend on its
ability to collect and use data to deliver and optimize the
delivery of digital advertisements, and to disclose data relating
to the performance of advertisements. Any limitations imposed on
Matomy's right and ability to collect, use or disclose this data
could diminish the value of its operations.
-- The digital advertising industry is highly competitive and
fragmented and currently experiencing consolidation, resulting in
increasing competition.
-- Matomy is dependent on relationships with certain third
parties with significant market positions.
-- Matomy manages its businesses to deliver strong cash flows to
fund operations for profitable growth, however Matomy is exposed to
liquidity risks and failure to generate the required level of cash
could have a material adverse effect on Matomy's funding level of
future liabilities, and could also increase balance sheet
liabilities.
-- Matomy relies on the continued compatibility of the Matomy
Performance Platform with third-party operating systems, software
and content distribution channels, as well as newly-acquired
systems. Part of Matomy's solutions rely on third-party open source
software components, and failure to comply with the terms of the
underlying open source software licenses could restrict Matomy's
ability to use these developments.
-- Matomy may be subject to third-party claims brought against
it. Matomy operates in various jurisdictions and is subject to
government regulations concerning its employees, including
wage-hour laws and taxes.
-- A key part of Matomy's growth strategy relates to
acquisitions and the ability to effectively integrate and manage
them.
-- Matomy is an Israeli-domiciled company having its shares
admitted to trading on the High Growth Segment of the London Stock
Exchange plc's Main Market and on the Tel Aviv Stock Exchange. As
such the rights and obligations of shareholders are governed by
Israeli law and differ in some respects from English law and share
trading is subject to certain settlement mechanics between the UK
and Israel.
-- Changes in tax laws affecting us and other market
participants could have a material adverse effect on Matomy's
business.
-- Matomy's technology development efforts may be inefficient or
ineffective, which may impair our ability to attract buyers and
sellers.
Forward-looking statements
Certain statements in this full-year report are forward looking.
Although the Group 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.
Directors' responsibility
The Directors confirm that to the best of their knowledge the
condensed set of final audited financial statements, which has been
prepared in accordance with US GAAP principles, gives a true and
fair view of the assets, liabilities, financial position and profit
of the undertakings included in the consolidation as a whole as
required by DTR 4.1.
Ofer Druker Sagi Niri
Chief Executive Officer Chief Operating Officer
Reconciliation of GAAP measures to non-GAAP measures
The following table presents a reconciliation of adjusted gross
profit to gross profit and to revenues, the most directly
comparable financial measures calculated in accordance with US
GAAP, for the periods indicated:
Year ended 31 December
-------------------------------------------------------------------------- -------------------------
$ million 2016 2015
-------------------------------------------------------------------------- ------------ -----------
Revenues ............................................................. 276.6 271.0
Direct media costs................................................. (198.3) (194.5)
------------ -----------
Adjusted gross profit.......................................... 78.3 76.5
Adjusted gross margin (%) 28.3% 28.2%
Other cost of revenues........................................... (21.4) (14.4)
------------ -----------
Gross profit............................................................ 56.9 62.1
============ ===========
The following table presents a reconciliation of adjusted EBITDA
to net income, the most directly comparable financial measure
calculated in accordance with US GAAP, for the periods
indicated:
Year ended 31 December
-------------------------
$ million 2016 2015
---------------------------------------------------------------------------------- ------------- ----------
Net income...................................................................... (8.1) 7.2
Taxes on income.............................................................. 4.7 2.7
Financial expenses (income), net....................................... 2.1 2.2
Equity (gains)/ losses of affiliated companies, net............... 0.1 -
Depreciation and amortisation........................................... 16.5 12.6
Share--based compensation expenses................................. 1.9 0.8
Exceptional items (0.1) 0.2
------------- ----------
Adjusted EBITDA........................................................ 17.1 25.7
============= ==========
The following table presents a reconciliation of adjusted net
income (loss) to net income, the most directly comparable financial
measure calculated in accordance with US GAAP, for the periods
indicated:
Year ended 31 December
-------------------------
$ million 2016 2015
----------------------------------------------------------------------------------- ------------- ----------
Net income....................................................................... (8.1) 7.2
Exceptional items (0.1) 0.2
Share--based compensation expenses.................................. 1.9 0.8
------------- ----------
Adjusted net income (loss) ........................................... (6.3) 8.2
============= ==========
MATOMY MEDIA GROUP LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF 31 DECEMBER 2016
IN US DOLLARS IN THOUSANDS
INDEX
Page
-------
Report of Independent Auditors 2
Consolidated Balance Sheets 3 - 4
Consolidated Statements of Income (Operations) 5
Consolidated Statements of Changes in Shareholders
Equity 6
Consolidated Statements of Cash Flows 7 - 8
Notes to Consolidated Financial Statements 9 - 43
- - - - - - - - - - - - - - - - - - -
The Board of Directors Matomy Media Group Ltd.
Re: Report of Independent
Auditors
----------------------
We have audited the accompanying consolidated financial
statements of Matomy Media Group Ltd. ("the Company") and its
subsidiaries, which comprise the consolidated balance sheets as of
31 December 2016 and 2015, and the related consolidated statements
of income (operations), changes in shareholders` equity and cash
flows for the years then ended, and the related notes to the
consolidated financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair
presentation of these financial statements in conformity with U.S.
generally accepted accounting principles; this includes the design,
implementation, and maintenance of internal control relevant to the
preparation and fair presentation of financial statements that are
free of material misstatement, whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in
accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
entity's preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal control.
Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated
financial position of the Company and its subsidiaries at 31
December 2016 and 2015 and the consolidated results of their
operations and their cash flows for the years then ended in
conformity with U.S. generally accepted accounting principles.
Tel Aviv, Israel KOST FORER GABBAY
& KASIERER
24 March 2017 A Member of Ernst
& Young Global
CONSOLIDATED BALANCE SHEETS
US dollars in thousands
31 December
----------------------
2016 2015
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 21,671 $ 27,271
Trade receivables, net 54,900 58,168
Domains held for sale 9,965 5,814
Other receivables and prepaid expenses 5,502 3,838
--------- ---------
Total current assets 92,038 95,091
--------- ---------
LONG-TERM ASSETS:
Property and equipment, net 9,032 4,861
Deferred tax assets - 3,609
Investment in affiliated companies 1,957 2,017
Other intangible assets, net 36,577 50,342
Goodwill 97,015 96,643
Other assets 398 317
Total long-term assets 144,979 157,789
--------- ---------
Total assets $ 237,017 $ 252,880
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED BALANCE SHEETS
US dollars in thousands
31 December
----------------------
2016 2015
--------- ---------
CURRENT LIABILITIES:
Redeemable non-controlling interest $ 13,776 $ -
Short-term bank credit and current maturities of bank
loans 8,960 6,382
Trade payables 43,982 49,165
Contingent payment obligation related to acquisitions 7,166 6,123
Employees and payroll accrual 4,386 3,870
Accrued expenses and other liabilities 5,531 7,823
Total current liabilities 83,801 73,363
--------- ---------
LONG-TERM LIABILITIES:
Deferred tax liabilities 11,148 15,597
Contingent payment obligation related to acquisitions 10,192 11,968
Bank loans, net of current maturities 6,661 7,357
Other liabilities 821 1,030
Total long-term liabilities 28,822 35,952
--------- ---------
REDEEMABLE NON-CONTROLLING INTEREST 23,691 35,365
--------- ---------
EQUITY:
Matomy Media Group Ltd. shareholders' equity:
Ordinary shares 247 240
Additional paid-in capital 101,066 96,837
Accumulated other comprehensive loss (3,174) (3,174)
Retained earnings 8,795 20,528
Treasury shares (6,231) (6,231)
--------- ---------
Total equity 100,703 108,200
--------- ---------
Total liabilities and equity $ 237,017 $ 252,880
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
24 March 2017
-------------------- --------------- ---------------
Date of approval
of the Ofer Druker Sagi Niri
financial statements Chief Executive Chief Financial
Officer Officer
CONSOLIDATED STATEMENTS OF INCOME (OPERATIONS)
US dollars in thousands except earnings per share data
Year ended
31 December
-----------------------
2016 2015
---------- ---------
Revenues $ 276,631 $ 270,976
Cost of revenues 219,781 208,696
---------- ---------
Gross profit 56,850 62,280
---------- ---------
Operating expenses
Research and development 12,624 7,871
Selling and marketing 30,630 26,210
General and administrative 14,882 16,083
Total operating expenses 58,136 50,164
---------- ---------
Operating (loss) income (1,286) 12,116
Financial expenses, net 2,057 2,179
---------- ---------
Income (loss) before taxes on income (3,343) 9,937
Taxes on income 4,689 2,681
---------- ---------
Income (loss) before equity losses
of affiliated companies (8,032) 7,256
Equity losses of affiliated companies 73 24
---------- ---------
Net (loss) income (8,105) 7,232
Revaluation of redeemable non-controlling
interest (3,141) (76)
Net income attributable to redeemable
non-controlling interests (487) (545)
Net loss attributable to other non-controlling
interests - 2
---------- ---------
Net (loss) income attributable to
Matomy Media Group Ltd. $ (11,733) $ 6,613
========== =========
Basic and diluted (loss) earnings
per ordinary share $ (0.13) $ 0.07
========== =========
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
US dollars in thousands, except share data
Ordinary shares
------------------ ---------- ------------- -------- --------- ------------- --------------- ---------
Total Matomy
Accumulated Media Group
Additional other Ltd.
paid-in comprehensive Retained Treasury shareholders' Non-controlling Total
Number Amount capital loss earnings shares equity interests equity
---------- ------ ---------- ------------- -------- --------- ------------- --------------- ---------
Balance as of 1
January
2015 90,290,596 $ 236 $ 93,977 $ (3,165) $ 13,915 $ (6,231) $ 98,732 $ 711 $ 99,443
Stock-based
compensation - - 850 - - - 850 - 850
Exercise of
options 1,293,124 3 1,193 - - - 1,196 - 1,196
Issuance of
shares for
Avenlo's
acquisition 298,670 1 871 - - - 872 - 872
Change in
parent's
ownership
interest in
subsidiary - - (54) - - - (54) (709) (763)
Other
comprehensive
income - - - (9) - - (9) - (9)
Net income - - - - 6,613 - 6,613 (2) 6,611
---------- ------ ---------- ------------- -------- --------- ------------- --------------- ---------
Balance as of
31 December
2015 91,882,390 240 96,837 (3,174) 20,528 (6,231) 108,200 - 108,200
Stock-based
compensation - - 1,854 - - - 1,854 - 1,854
Exercise of
options and
vesting of
restricted
share units 2,694,068 7 2,375 - - - 2,382 - 2,382
Net loss - - - - (11,733) - (11,733) - (11,733)
---------- ------ ---------- ------------- -------- --------- ------------- --------------- ---------
Balance as of
31 December
2016 94,576,458 $ 247 $ 101,066 $ (3,174) $ 8,795 $ (6,231) $ 100,703 $ - $ 100,703
========== ====== ========== ============= ======== ========= ============= =============== =========
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
US dollars in thousands
Year ended
31 December
---------------------
2016 2015
--------- ----------
Cash flows from operating activities:
Net (loss) income $ (8,105) $ 7,232
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortisation 16,511 12,621
Stock-based compensation 1,854 850
Impairment of intangible assets 396 -
Deferred tax, net (1,039) (2,226)
Change in accrued interest and effect
of foreign exchange differences
on long term loans (266) (83)
Equity losses of affiliated companies,
net 73 24
Decrease in trade receivables 3,268 4,985
Increase in domains held for sale (4,151) (3,786)
Increase (decrease) in other receivables
and prepaid expenses (1,664) 794
Decrease (increase) in other assets (82) 11
Decrease in trade payables (5,183) (1,552)
Decrease in fair value of contingent
payment obligation related to acquisitions (821) -
Accretion of contingent payment
obligation related to acquisitions 712 122
Increase in employees and payroll
accrual 516 619
Increase (decrease) in accrued expenses
and other liabilities (2,243) (883)
Other 55 (4)
Net cash provided by (used in) operating
activities (169) 18,724
--------- ----------
Cash flows from investing activities:
Purchase of property and equipment (1,653) (1,055)
Capitalization of research and development
costs (5,106) (2,195)
Acquisition of technology and database (158) (164)
Acquisition of advertiser list - (2,666)
Acquisition of Avenlo Media Group - (5,570)
Acquisition of Optimatic Media,
net of cash acquired - (17,896)
Repayment of loan from affiliate - 88
Bank deposits - (58)
Net cash used in investing activities $ (6,917) $ (29,516)
========= ==========
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
US dollars in thousands
Year ended
31 December
------------------
2016 2015
-------- --------
Cash flows from financing activities:
Short-term bank credit, net $ 2,093 $ -
Receipt of bank loans 7,021 1,330
Repayment of bank loans (6,966) (6,625)
Expenses related to IPO - (139)
Additional payments related to previous acquisitions (624) (1,611)
Acquisition of redeemable and non-redeemable non-controlling
interest (565) (1,328)
Dividend paid to redeemable non-controlling interest (1,863) (2,741)
Exercise of options 2,382 1,196
Net cash provided by (used in) financing activities 1,478 (9,918)
-------- --------
Effect of exchange rate differences on cash 8 (7)
-------- --------
Decrease in cash and cash equivalents (5,600) (20,717)
Cash and cash equivalents at beginning of period 27,271 47,988
-------- --------
Cash and cash equivalents at end of period $ 21,671 $ 27,271
======== ========
Supplemental disclosure of cash flow activities
Cash paid during the year for:
Income taxes, net $ 6,336 $ 5,162
======= =======
Interest paid $ 642 $ 667
======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
US dollars in thousands
NOTE 1:- GENERAL
a. Matomy Media Group Ltd together with its subsidiaries
(collectively - "the Company") provides digital performance-based
marketing services to customers which include primarily
advertisers, advertising agencies, Apps developers, domain owners
and other businesses around the world that promote or sell products
and/or services to consumers through digital media, such as
websites, mobile apps, video and social media networks. The Company
offers its customers a solution for reaching and acquiring their
target digital consumer audience across devices. Matomy Media Group
Ltd. was incorporated in 2006. The Company's markets are located
primarily in the United States and Europe.
The Company's technological platforms provide its customers with
access to a wide range of digital media channels, and enable to
combine internal media capabilities, data analytics and advanced
optimization technologies to ensure meeting the standards and
requirements set by its customers. These capabilities also support
improved targeting, user acquisition and revenue results for both
advertisers and media partners.
The Company manages and optimises its customers' digital
marketing campaigns and its media partners` inventory through
proprietary technological platforms, maximising their accessibility
to their target audience. These technologies also support and
provide data analytics capabilities, business intelligence,
programmatic media buying and Real-Time-Bidding (RTB) on mobile,
video and web. The Company also provides a media management
platform (SSP) and offers publishers end to end solution with
hundreds of global demand partners.
The Company currently operates across several media channels,
including mobile, video, domain monetisation and email. The domain
monetisation activity is held in Team Internet, a 70% owned
subsidiary, located in Germany (see Note 8).
Since July 2014 the Company is traded in the "London Stock
Exchange". On 16 February 2016, the Company's shares commenced
trading also on the Tel Aviv Stock Exchange ("TASE") in accordance
with the Company's TASE Dual Listing Application pursuant to the
Israeli Dual-Listing Law.
b. The Company adopted a contingency plan, which was approved by
the Board, to be effected, in whole or in part, at its discretion,
to provide alternative sources of liquidity to allow the Company to
meet its cash obligations, all to the extent required. The Company
and the Board believes that its existing capital resources and
other future measures that may implemented, if so required, will be
adequate to satisfy its expected liquidity requirements, including
its available credit lines and loans obtained subsequent to 31
December 2016 (see note 17), in the foreseeable future.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United Sates ("US GAAP"). The significant accounting policies are
applied in the preparation of the consolidated financial statements
on a consistent basis, as follows:
a. Principles of consolidation:
The consolidated financial statements include the accounts of
Matomy Media Group Ltd and its subsidiaries. Intercompany
transactions and balances have been eliminated upon
consolidation.
Changes in the parent's ownership interest in a subsidiary with
no change of control are treated as equity transactions, with any
difference between the amount of consideration paid and the change
in the carrying amount of the non-controlling interest recognised
in equity.
Redeemable non-controlling interests are classified as mezzanine
equity, separate from permanent equity, on the consolidated balance
sheets and measured at each reporting period at the higher of their
redemption amount or the non-controlling interest book value, in
accordance with the requirements of Accounting Standards
Codification ("ASC") 810 "Consolidation" and ASC 480-10-S99-3A,
"Distinguishing Liabilities from Equity".
b. Use of estimates:
The preparation of the consolidated financial statements in
conformity with US GAAP requires management to make estimates,
judgments and assumptions. The Company's management believes that
the estimates, judgments and assumptions used 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 statements,
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, intangible assets and goodwill,
fair values of stock-based awards, deferred taxes and income tax
uncertainties, and contingent liabilities, among others. Such
estimates are based on historical experience and on various other
assumptions that are believed to be reasonable, the results of
which form the basis for making judgments about the carrying values
of assets and liabilities.
c. Financial statements in US dollars:
The US dollar is the currency of the primary economic
environment in which Matomy Media Group and most of its
subsidiaries operate.
A substantial portion of the revenues and expenses of the
Company are generated in US dollars. In addition, financing
activities including equity transactions and cash investments are
made in US dollars, as well as the Company's forecasted budget,
which is prepared in US dollars. Thus, the functional and reporting
currency of the Company is the US dollar.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Accordingly, monetary accounts maintained in currencies other
than the US dollar are remeasured into US dollars in accordance
with ASC 830, "Foreign Currency Matters". All transaction gains and
losses of the remeasured monetary balance sheet items are reflected
in the statements of income as financial income or expenses, as
appropriate.
d. Cash and cash equivalents:
Cash equivalents are short-term highly liquid investments that
are readily convertible into cash with original maturities of three
months or less at acquisition.
e. Accounts receivable and allowance for doubtful accounts:
Accounts receivable are stated at realisable value, net of an
allowance for doubtful accounts. The Company evaluates specific
accounts where information indicates the Company's customers may
have an inability to meet financial obligations. Allowance for
doubtful accounts as of 31 December 2016 and 2015 were $ 1,704 and
$ 3,191, respectively.
During the years ended 31 December 2016 and 2015 bad debt
expenses were $ 1,794 and $ 1,384, respectively, and the write offs
of balances included in allowances for doubtful accounts amounted
of $ 2,806 and $ 790 in the years ended 31 December 2016 and 2015,
respectively. During 2016 recoveries amounted to $ 475 of amounts
previously included allowance for doubtful accounts.
f. Domains held for sale:
As part of its operating business, the Company holds domains
portfolios available for sale, with an indefinite life. The domains
portfolio is used to generate revenues. The domains are stated at
cost, are not amortized and are subject to an annual impairment
test. At the end of each reporting period domains write-down is
measured as the difference between the cost of the domain and
market based upon assumptions of revenue multiplier, and is charged
to the cost of sales. During the year ended 31 December 2016 and
2015 no write-downs were recorded. Due to the fact that domains
portfolio are highly tradeable and there is a general high level of
demand and interest from prospective domains portfolio purchasers
the domains portfolios are classified as a short term asset.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
g. Property and equipment, net:
Property and equipment are stated at cost, net of accumulated
depreciation and amortisation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets,
at the following annual rates:
%
-------------------
Computers and software 33
Office furniture and
equipment 6-10
Electronic equipment 10-15
Capitalized research
and development costs 33
Leasehold improvements Over the shorter
of related lease
period or the life
of the improvement
h. Other intangible assets, net:
Other intangible assets are stated at cost, net of accumulated
amortisation.
Other intangible assets consist of technology, customer
relationships, database and trade name. Customer relationships and
trade name are amortised over their estimated useful lives in
proportion to the economic benefits realised. This accounting
policy results in accelerated amortisation of such customer
arrangements and trade name. Technology and database are amortised
over their estimated useful lives on a straight-line basis.
Amortisation is calculated using the following annual rates:
Weighted
average %
----------
Technology 23
Customer relationships 19
Database 10
Trade name 20
For impairment of intangible assets, see also note 2k.
i. Goodwill:
Goodwill represents the excess of the purchase price in a
business combination over the fair value of the identifiable net
tangible and intangible assets acquired. Under ASC 350, goodwill is
not amortised, but rather is subject to an annual impairment
test.
Following the acquisition of Team Internet, the Company operates
in one operating segment, comprised of two reporting units - Matomy
and Domain Monetisation. The Company performs an annual impairment
test during the fourth quarter of each fiscal year, or more
frequently if indicators of potential impairment exist, to
determine whether the net book value of a reporting unit exceeds
its estimated fair value.
The Company did not recognise any impairment charges related to
goodwill during 2016 and 2015.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
j. Business combinations:
The Company accounts for business combinations in accordance
with ASC 805, "Business Combinations" which requires allocating the
purchase price of acquired companies to the identifiable tangible
and intangible assets acquired and liabilities assumed and any
non-controlling interest at fair value as of the acquisition date.
ASC 805 also requires the estimation of fair value of potential
contingent consideration at the acquisition date and restructuring
and acquisition-related costs to be expensed as incurred.
k. Impairment of long-lived assets:
The Company's long-lived assets are reviewed for impairment in
accordance with ASC 360, "Property, Plant, and Equipment" and ASC
350, "Intangibles - Goodwill and other", whenever events or changes
in circumstances indicate that the carrying amount of an asset may
not be recoverable. In assessing the recoverability of long-lived
assets, the Company makes judgments regarding whether impairment
indicators exist based on legal factors, market conditions and
operating performances of assets or asset groups. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to the future undiscounted cash flows
expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognised is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets.
For the year ended 31 December 2016, the Company recognized
impairment of technology acquired in Avenlo acquisition, in the
amount of $ 396, which is included in general and administrative
expenses on the statements of income (operations). See also note
5c.
For the year ended 31 December 2015, no impairment loss was
recorded.
l. Investments in affiliated companies:
Investments in companies in which the Company holds less than
20%, and does not have the ability to exercise significant
influence over their operating and financial policies, are stated
at cost. Investments in companies in which the Company holds more
than 20% (and less than 50%) or has the ability to exercise
significant influence over their operating and financial policies
are measured using the equity method.
The Company's investments in affiliated companies are reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of the investment may not be recoverable.
For the years ended 31 December 2016 and 2015, no impairment losses
were recorded.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
m. Severance pay:
Effective September 2007, the Company's agreements with
employees in Israel are generally in accordance with section 14 of
the Severance Pay Law - 1963 which provide that the Company's
contributions to severance pay fund shall cover its entire
severance obligation with respect to period of employment
subsequent to September 2007. Upon termination, the release of the
contributed amounts from the fund to the employee shall relieve the
Company from any further severance obligation and no additional
payments shall be made by the Company to the employee. As a result,
the related obligation and amounts deposited on behalf of such
obligation are not stated on the balance sheet, as the Company is
legally released from severance obligation to employees once the
amounts have been deposited, and the Company has no further legal
ownership on the amounts deposited.
Severance expenses during the years ended 31 December 2016 and
2015 were $ 1,311 and $ 1,406, respectively.
n. Employee benefit plan:
The Company's U.S. operations maintain a retirement plan (the
"U.S. Plan") that qualifies as a deferred salary arrangement under
Section 401(k) of the Internal Revenue Code. Participants in the
U.S. Plan may elect to defer a portion of their pre-tax earnings,
up to the Internal Revenue Service annual contribution limit. The
Company matches 25% of each participant's contributions, up to 6%
of employee deferral. There is also a vesting period for the
employer match which is based on the employee date of hire and
years of service. Contributions to the U.S. Plan are recorded
during the year contributed as an expense in the consolidated
statement of income (operations).
Total employer 401(k) contributions for the years ended 31
December 2016 and 2015 were $ 54 and $ 0, respectively.
o. Revenue recognition:
The Company provides smart marketing services through customized
performance and programmatic solutions supported by internal media
capabilities, big data analytics, and optimization technology,
Matomy empowers advertising and media partners to meet their
evolving growth-driven goals across several media channels,
including mobile, video, domain monetisation and email, for
multiple industry verticals, such as games and entertainment,
healthcare and pharmaceuticals, finance and education, and on a
wide variety of devices and operating systems.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company generates a large part of its revenues when its
customers' ad campaigns achieve certain predefined measurable and
validated results on a per-action basis such as
cost-per-acquisition ("CPA"), cost-per-sale ("CPS"), cost-per-lead
("CPL"), cost-per-download ("CPD"), cost-per-view ("CPV"),
cost-per-install ("CPI") and pay per call ("PPC"). The Company also
generates revenues based on a metric that predefines a certain
amount of ad views based on a cost per thousand advertising
impressions ("CPM").
The Company recognises revenue when all four of the following
criteria are met: persuasive evidence of an arrangement exists;
service has been provided; customer fees are fixed or determinable;
and collection is reasonably assured. Revenue arrangements are
evidenced by executed terms and conditions as part of an insertion
order, with an advertiser or an advertising agency.
The Company evaluates whether its revenues should be presented
on a gross basis, which is the amount that a customer pays for the
service, or on a net basis, which is the customer payment less
amounts the Company pays to suppliers. In making that evaluation,
the Company considers indicators such as whether the Company is the
primary obligor in the arrangement and assumes risks and rewards as
a principal or an agent, including the credit risk, whether the
Company has latitude in establishing prices and selects its
suppliers and whether it changes the products or performs part of
the service.
The Company records deferred revenues for unearned amounts
received from customers for services that were not recognised as
revenues. Deferred revenues amounted to $ 1,737 and $ 2,878 at 31
December 2016 and 2015, respectively, and are included within
accrued expenses and other liabilities on the balance sheets.
p. Cost of revenues:
Cost of revenues consists primarily of direct media costs
associated with the purchase of digital media, data centre costs,
amortisation of technology and internally developed software and
allocation of attributable personnel and associated costs.
q. Comprehensive income:
The Company accounts for comprehensive income in accordance with
ASC 220, "Comprehensive Income". Comprehensive income generally
represents all changes in shareholders' equity during the period
except those resulting from investments by, or distributions to,
shareholders. The Company's items of other comprehensive income
relate to foreign currency translation adjustments, which were
immaterial for the years 2016 and 2015.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
r. Research and development costs:
Research and development costs are charged to the statement of
income (operations) as incurred, except for certain costs relating
to internally developed software, which are capitalized and
amortized on a straight line basis over their estimated useful life
once the asset is ready for its intended use.
s. 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 2016 and 2015, the Company
capitalized software development costs, net of $ 5,106 and $ 2,195,
respectively. Amortization expense for the related capitalized
internally developed software in 2016 and 2015 totaled $ 1,179 and
$ 233, respectively, and is included in cost of revenues in the
accompanying consolidated statements of income (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 software development costs of $ 6,058 and $
2,149 are included in property and equipment in the consolidated
balance sheets as of 31 December 2016 and 2015, respectively (see
Note 4).
t. Accounting for stock-based compensation:
The Company accounts for stock-based compensation under ASC 718,
"Compensation - Stock Compensation", which requires the measurement
and recognition of compensation expense based on estimated fair
values for all share-based payment awards made to employees and
directors. ASC 718 requires companies to estimate the fair value of
equity-based awards on the date of grant, using an option-pricing
model. The value of the portion of the award that is ultimately
expected to vest, is recognized as an expense over the requisite
service periods in the Company's consolidated statement of income
(operations). ASC 718 requires forfeitures to be estimated at the
time of grant, and revised if necessary in subsequent periods, if
actual forfeitures differ from those estimates.
The Company recognizes compensation expenses for the value of
its awards, which have graded vesting based on service conditions,
using the accelerated attribution method, over the requisite
service period of each of the awards, net of estimated forfeitures.
Estimated forfeitures are based on actual historical pre-vesting
forfeitures.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
1. The Company estimates the fair value of stock options granted
to its employees and directors using the Black-Scholes-Merton
option-pricing model. The Black-Scholes-Merton model requires a
number of assumptions, of which the most significant are the fair
value of its ordinary shares, the expected stock price volatility,
expected option term, risk-free interest rates and expected
dividend yield, which are estimated as follows:
-- Volatility - the Company's ordinary shares had not been
publicly traded for long enough to accurately evaluate volatility,
and therefore the volatility assumption is based on the
volatilities of other publicly-traded companies that are comparable
to the Company, as in previous periods.
-- Expected option term - the expected term of the options
represents the period of time that the options are expected to be
outstanding and is based on the simplified method, which is the
midpoint between the vesting date and the end of the contractual
term of the option.
-- Risk-free interest - the risk-free interest rate assumption
is based on the yield from zero-coupon US government bonds
appropriate for the expected term of the Company's employee stock
options.
-- Dividend yield - the Company estimates its dividend yield
based on historical pattern, however the Company currently intends
to invest funds in business development and not to distribute
dividends.
The fair value of the Company's stock options granted to
employees and directors for the years ended 31 December 2016 and
2015 was estimated using the following weighted average
assumptions:
Year ended
31 December
--------------
2016 2015
------ ------
Volatility 43% 45%
Expected option term (in
years) 6.3 6.3
Risk-free interest rate 1.3% 1.55%
Dividend yield 0% 0%
2. The Company estimates the fair value of restricted share
units ("RSUs") granted to employees according to the fair value of
the Company's share at the grant date.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
u. Income taxes:
The Company is subject to income taxes in Israel, Germany, the
United States and numerous other jurisdictions. The Company
accounts for income taxes in accordance with ASC 740, "Income
Taxes". This topic prescribes the use of the liability method,
whereby deferred tax asset and liability account balances are
determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect when the differences are
expected to reverse. The Company provides a valuation allowance, if
necessary, to reduce deferred tax assets to the amount that is more
likely than not to be realised. In such determination, the Company
considers future reversal of existing temporary differences, future
taxable income, tax planning strategies and other available
evidence in determining the need for a valuation allowance.
The Company implements a two-step approach to recognise and
measure uncertain tax positions. The first step is to evaluate the
tax position taken or expected to be taken in a tax return by
determining if the weight of available evidence indicates that it
is more likely than not that, on an evaluation of the technical
merits, the tax position will be sustained on audit, including
resolution of any related appeals or litigation processes. The
second step is to measure the tax benefit as the largest amount
that is more than 50% (on a cumulative basis) likely to be realised
upon ultimate settlement. The Company classifies interest incurred
payable to tax authorities as interest expenses.
v. Concentrations of credit risks:
Financial instruments that could potentially subject the Company
to concentrations of credit risk consist principally of cash and
cash equivalents and trade receivables.
Cash and cash equivalents are managed in major banks, mainly in
Israel, the United States, United Kingdom and Germany.
The Company's trade receivables are derived from sales to
customers located mainly in Europe and the United States. The
Company performs ongoing credit evaluations of its customers and a
specific allowance for doubtful accounts is provided.
w. Fair value of financial instruments:
The Company applies ASC 820, "Fair Value Measurements and
Disclosures". Under this standard, fair value is defined as the
price that would be received to sell an asset or paid to transfer a
liability (i.e., the "exit price") in an orderly transaction
between market participants at the measurement date.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
In determining fair value, the Company uses various valuation
approaches. ASC 820 establishes a hierarchy for inputs used in
measuring fair value that maximises the use of observable inputs
and minimises 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 the asset
or liability developed based on market data obtained from sources
independent of the Company. Unobservable inputs are inputs that
reflect the Company's assumptions about the assumptions market
participants would use in pricing the asset or liability developed
based on the best information available in the circumstances.
A three-tier fair value hierarchy is established as a basis for
considering such assumptions and for inputs used in the valuation
methodologies in measuring fair value:
Level 1 - Quoted prices (unadjusted) in active markets for
identical assets or liabilities that the Company can access at the
measurement date.
Level 2 - Inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly
or indirectly.
Level 3 - Unobservable inputs for the asset or liability.
x. Derivative instruments:
The Company accounts for derivatives and hedging based on ASC
815, "Derivatives and Hedging", which requires recognizing all
derivatives on the balance sheet at fair value. If the derivatives
meet the definition of a cash flow hedge and are so designated,
depending on the nature of the hedge, the effective portion of the
gain or loss on the derivative is reported as a component of other
comprehensive income and reclassified into earnings in the same
period, or periods, during which the hedged transaction affects
earnings. The ineffective portion of a derivative's change in fair
value, if any, is recognized in earnings, as well as gains and
losses from a derivative's change in fair value that are not
designated as hedges are recognized in earnings immediately.
In order to mitigate the potential adverse impact on cash flows
resulting from fluctuations in the exchange rate of the New Israeli
Shekels ("NIS"), the Company started to hedge portions of its
forecasted expenses denominated in NIS with options contracts. The
Company does not speculate in these hedging instruments in order to
profit from foreign currency exchanges, nor does it enter into
trades for which there are no underlying exposures.
The options contracts were not designated as hedging instruments
and therefore gains or losses resulting from the change of their
fair value are recognized in "financial expenses, net". As of 31
December 2016 and 2015, the Company had derivative liability of $
33 and $ 110, respectively, representing the fair value of
outstanding options contracts. The Company measured the fair value
of these contracts in accordance with ASC 820, "Fair Value
Measurement and Disclosures", and they were classified as level 2.
Net gain (loss) from hedging transactions recognized in financial
expenses, net, during 2016 and 2015, was ($ 673) and $ 197,
respectively.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The notional value of the Company's derivative instruments as of
31 December 2016 and 2015, amounted to $ 7,504 and $ 8,911,
respectively. Notional values in USD are translated and calculated
based on the spot rates for options. Gross notional amounts do not
quantify risk or represent assets or liabilities of the Company,
however, they are used in the calculation of settlements under the
contracts.
y. Basic and diluted earnings per share:
Basic earnings per share are computed based on the weighted
average number of ordinary shares outstanding during each year.
Diluted earnings per share are computed based on the weighted
average number of ordinary shares outstanding during each year,
plus dilutive potential ordinary shares outstanding during the
year, in accordance with ASC 260, "Earnings Per Share".
The total weighted average number of shares related to the
outstanding options excluded from the calculations of diluted
earnings per share, since they would have an anti-dilutive effect,
was 10,159,124 and 2,751,352 for the years ended 31 December 2016
and 2015, respectively.
z. Treasury shares:
In accordance with ASC 505-30, the Company shares held by the
Company and/or its subsidiaries are recognized at cost of purchase
and presented as a deduction from equity. Any gain or loss arising
from a purchase, sale, issue or cancellation of treasury shares is
recognized directly in equity.
aa. Reclassification:
Certain amounts in prior years' financial statements have been
reclassified to conform to the current year's presentation. The
reclassification had no effect on previously reported net income
(loss) or shareholders' equity.
ab. Recently issued accounting standards:
In May 2014, the FASB issued Accounting Standards Update No.
2014-09, Revenue from Contracts with Customers (Topic 606) (ASU
2014-09), which amends the existing accounting standards for
revenue recognition. In July 2015, FASB deferred the effective date
by one year to December 15, 2017 and permitting early adoption of
the standard, but not before the original effective date of
December 15, 2016. The FASB also agreed to allow entities to choose
to adopt the standard as of the original effective date. In March
2016, the FASB issued Accounting Standards Update No. 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations (Reporting Revenue Gross versus Net) (ASU
2016-08) which clarifies the implementation guidance on principal
versus agent considerations. The guidance includes indicators to
assist an entity in determining whether it controls a specified
good or service before it is transferred to the customers.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The new standard also permits two methods of adoption:
retrospectively to each prior reporting period presented (full
retrospective method), or retrospectively with the cumulative
effect of initially applying the guidance recognized at the date of
initial application (the modified retrospective method). The
Company is still evaluating the effect that this guidance will have
on its consolidated financial statements and related
disclosures.
In 2014, the FASB issued ASU 15-2014, Presentation of Financial
Statements-Going Concern (Subtopic 205-40): Disclosure of
uncertainties about an entity's ability to continue as a Going
Concern, which defines management's responsibility to assess an
entity's ability to continue as a going concern, and to provide
related footnote disclosures if there is substantial doubt about
its ability to continue as a going concern. The update is effective
for annual period ending 15 December 2016.
In February 2016, the FASB issued Accounting Standards Update
No. 2016-02, Leases (Topic 842) (ASU 2016-02), which generally
requires companies to recognize operating and financing lease
liabilities and corresponding right-of-use assets on the balance
sheet. The standard is effective for the Company for 2020. Early
adoption is permitted. The Company is still evaluating the effect
that this guidance will have on its consolidated financial
statements and related disclosures.
In March 2016, the FASB issued ASU 2016-09, Improvements to
Employee Share-Based Payment Accounting. The new guidance will
require all income tax effects of awards to be recognized in the
income statement when the awards vest or are settled. It will allow
an employer to repurchase more of an employee's shares than it can
today for tax withholding purposes without triggering liability
accounting. It also will allow an employer to make a policy
election to account for forfeitures as they occur. The update is
effective for fiscal years beginning after 15 December 2016,
including interim periods within reporting period, with early
adoption permitted. The Company is still evaluating the effect that
this guidance will have on its consolidated financial statements
and related disclosures.
In November 2016, the FASB issued Accounting Standards Update
No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash
(ASU 2016-18), which requires companies to include amounts
generally described as restricted cash and restricted cash
equivalents in cash and cash equivalents when reconciling
beginning-of-period and end-of-period total amounts shown on the
statement of cash flows. This guidance will be effective for the
Company 1 January 2018 and early adoption is permitted. The Company
is still evaluating the effect that this guidance will have on its
consolidated financial statements and related disclosures.
NOTE 3:- ACQUISITIONS
a. Acquisition of Avenlo Inc.:
On 15 April 2015, the Company completed the acquisition of 70%
of the issued and outstanding shares of a newly formed company,
Avenlo Media Group Inc. ("Avenlo") that has purchased the principal
business activity and operations of Maven Marketing Group Inc., for
a total consideration of $ 22,860. On 8 March 2016, the Company
signed an amendment to the purchase agreement, setting the total
consideration on the amount of $ 10,790. As a result of the
amendment, the Company reassessed the fair value of the purchased
assets and the assumed liabilities within the measurement period as
defined in ASC 805, and adjusted the fair values as of the
acquisition date.
The purchase price of Avenlo's shares is composed as
follows:
Amount
--------
Cash consideration $ 5,570
Issuance of Company shares 872
Contingent consideration *) 2,859
Redeemable non-controlling interest
**) 1,489
--------
Total purchase price $ 10,790
========
*) The contingent consideration will be paid upon achieving
certain milestones of future savings, revenue momentum and EBITDA
over a period of 4 years following the acquisition date.
As of 31 December 2016, the contingent consideration was
estimated at $ 638 (as of 31 December 2015, the liability amounted
to $ 1,347).
**) According to the agreement, Avenlo's shareholders have the
right to individually transfer all of their remaining shareholding,
(being 30% in aggregate) to the Company in three equal instalments
of 10% every year starting 21 April 2017 ("the Put Options"). The
Put Options' exercise prices are calculated based on Avenlo's
EBITDA multiplied by a changing multiplier as defined in the
agreement. In addition, The Company will have corresponding call
options to the put options.
Avenlo is a leading performance email marketing and ad targeting
company, and is incorporated under the laws of Canada. The
acquisition was accounted for by the acquisition method and
accordingly, the purchase price has been allocated according to the
estimated fair value of the assets of Avenlo acquired and the
liabilities assumed. In performing the purchase price allocation,
management has considered, inter alia, Avenlo's business model and
its value drivers, its historical financial performance and
estimates of future performance. The fair value of the intangible
assets was assessed assuming a market participant acquirer
utilising the income approach.
NOTE 3:- ACQUISITIONS (Cont.)
The following table summarises the fair values of the assets
acquired as of the acquisition date:
Database $ 5,451
Technology *) 2,119
Customer relationships 406
Goodwill 2,814
-------
Total assets acquired 10,790
=======
*) For impairment recorded in 2016, refer to note 5c.
The acquired customer relationships are amortised over their
estimated useful lives in proportion to the economic benefits
realised (3 year weighted-average useful life). The Database and
the technology is amortised over its estimated useful life of 10
and 4 years, respectively, on a straight-line basis.
The results of Avenlo's operations have been included in the
consolidated financial statements commencing 1 April 2015.
Management estimates that the difference between the consolidation
date and the acquisition date has an immaterial effect on its
results of operations.
b. Acquisition of Optimatic Media:
On 13 November 2015, the Company acquired the entire share
capital of Optimatic Media Inc. ("Optimatic") by way of a reverse
triangular merger, pursuant to the terms and conditions of the
Agreement and Plan of Merger dated 13 November 2015, for a total
consideration of $ 33,571. Optimatic is a leading programmatic
technological Video Platform company that enables top-tier
publishers to manage their inventory programmatically and a full
suite of digital video Supply Side Platform capabilities. Optimatic
developed a unique proprietary video platform and is considered a
leader in the video space. Optimatic is incorporated under the laws
of USA.
The purchase price of Optimatic's shares is composed as
follows:
Amount
--------
Cash consideration $ 20,000
Contingent consideration *) 13,571
--------
Total purchase price $ 33,571
========
*) The contingent consideration is calculated based on
Optimatic's expected EBITDA for the years 2016 to 2018. As of 31
December 2016 and 2015, the contingent consideration amounted to $
13,421 and $ 13,571, respectively.
NOTE 3:- ACQUISITIONS (Cont.)
The acquisition was accounted for by the acquisition method and
accordingly, the purchase price has been allocated according to the
estimated fair value of the assets of Optimatic acquired and the
liabilities assumed. In performing the purchase price allocation,
management has considered, inter alia, Optimatic's business model
and its value drivers, its historical financial performance and
estimates of future performance. The fair value of the intangible
assets was assessed assuming a market participant acquirer
utilising the income approach.
The following table summarises the fair values of the assets
acquired and liabilities assumed as of the acquisition date:
Cash $ 2,104
Deposits 124
Trade receivables 13,838
Other receivables and prepaid expenses 541
Property and equipment 7
Customer relationships 7,028
Trade name 3,468
Technology 13,490
Goodwill 18,735
--------
Total assets acquired 59,335
Trade payables (15,345)
Accrued expenses and other liabilities (667)
Deferred tax liability (9,752)
--------
Total liabilities assumed (25,764)
--------
Net assets acquired 33,571
========
The acquired customer relationships and trade name are amortised
over their estimated useful lives in proportion to the economic
benefits realised (6 and 5 year weighted-average useful life,
respectively). The Technology is amortised over its estimated
useful life of 5 years, on a straight-line basis.
The results of Optimatic's operations have been included in the
consolidated financial statements commencing 1 November 2015.
Management estimates that the difference between the consolidation
date and the acquisition date has an immaterial effect on its
results of operations.
NOTE 3:- ACQUISITIONS (Cont.)
In 2016, during the measurement period, the Company completed
the purchase price allocation, and updated the goodwill related to
Optimatic acquisition in $ 372, and recorded the following
adjustments:
Goodwill $ 372
Customer relationships 457
Accrued expenses and other liabilities (642)
Deferred tax liability (187)
-----
-
=====
Unaudited pro forma condensed results of operations:
The following represents the unaudited pro forma condensed
results of operations for the year ended on 31 December 2015,
assuming the acquisitions of Avenlo and Optimatic occurred on 1
January 2015. The pro forma information is not necessarily
indicative of the results of operations that would have actually
occurred had the acquisitions been consummated on this date, nor
does it purport to represent the results of operations for future
periods.
Year ended
31 December
2015
------------
Unaudited
------------
Revenues $ 327,732
============
Net income attributable to Matomy Media Group Ltd. $ 4,170
============
Basic net earnings per share $ 0.05
============
Diluted net earnings per share $ 0.04
============
NOTE 4:- PROPERTY AND EQUIPMENT, NET
a. Cost:
31 December
----------------
2016 2015
------- -------
Computers and software $ 2,895 $ 4,689
Office furniture and equipment 1,247 820
Electronic equipment 249 188
Capitalized research and
development costs 7,488 2,382
Leasehold improvements 1,240 1,190
------- -------
13,119 9,269
------- -------
Accumulated depreciation
and amortization:
Computers and software 1,624 3,147
Office furniture and equipment 358 284
Electronic equipment 126 112
Capitalized research and
development costs 1,430 233
Leasehold improvements 549 632
------- -------
4,087 4,408
------- -------
Property and equipment, net $ 9,032 $ 4,861
======= =======
b. Depreciation and amortization expense amounted to $ 2,527 and
$ 1,442 for the years ended 31 December 2016 and 2015,
respectively.
In 2016 and 2015, the Company wrote off property and equipment
in the amount of $ 2,927 and $ 1,169, respectively, that were fully
depreciated.
NOTE 5:- OTHER INTANGIBLE ASSETS, NET
a. Other intangible assets:
31 December
------------ --------
2016 2015
----------- --------
Original amounts:
Technology $ 28,840 $ 28,715
Customer relationships *) 27,714 27,257
Database 5,572 5,539
Trade name 3,468 3,468
65,594 64,979
------------ ---------
Accumulated amortisation:
Technology 12,960 6,369
Customer relationships 14,216 7,758
Database 979 415
Trade name 862 95
29,017 14,637
------------ ---------
Other intangible assets, net $ 36,577 $ 50,342
============ =========
*) The customer relationship was adjusted during the measurement
period of Optimatic acquisition. See also note 3b.
b. Amortisation expense amounted to $ 13,984 and $ 11,179 for
the years ended 31 December 2016 and 2015, respectively.
c. During the years ended 31 December 2016 and 2015 the Company
recorded an impairment charges in the total amount of $ 396 and $
0, respectively. The impairment charges were attributed to
technology related to Avenlo acquisition. The Company updated its
revenue forecast based on this technology, and revalued the fair
value of the technology based on the future discounted cash flow
and royalty savings in the upcoming years.
d. The estimated future amortisation expense of other intangible
assets as of 31 December 2016 is as follows:
2017 $ 12,359
2018 9,603
2019 6,376
2020 4,981
2021 and after 3,258
--------
$ 36,577
========
NOTE 6:- GOODWILL
Changes in goodwill for the years ended 31 December 2016 and
2015 are as follows:
Year ended
31 December
------------------
2016 2015
-------- --------
Goodwill at beginning of year $ 96,643 $ 75,094
Acquisitions - 21,549
Adjustment to goodwill during
the measurement period *) 372 -
$ 97,015 $ 96,643
======== ========
*) See also note 3b.
NOTE 7:- Fair value of financial instruments
The following table present liabilities measured at fair value
on a recurring basis as of 31 December 2016 and 2015:
31 December 2016
--------------------------------------
Fair value measurements
using input type
--------------------------------------
Level Level Level
1 2 3 Total
------- ------ --------- ---------
Liabilities:
Contingent consideration
in connection with
acquisitions $ - $ - $ 17,358 $ 17,358
Derivative liabilities - 33 - 33
-------- ------ --------- ---------
Total financial liabilities $ - $ 33 $ 17,358 $ 17,391
======== ====== ========= =========
31 December 2015
--------------------------------------
Fair value measurements
using input type
--------------------------------------
Level Level Level
1 2 3 Total
------- ------ --------- ---------
Liabilities:
Contingent consideration
in connection with
acquisitions $ - $ - $ 18,091 $ 18,091
Derivative liabilities - 110 - 110
-------- ------ --------- ---------
Total financial liabilities $ - $ 110 $ 18,091 $ 18,201
======== ====== ========= =========
NOTE 7:- Fair value of financial instruments (Cont.)
The following table summarizes the changes in the Company's
liabilities measured at fair value using significant unobservable
inputs (Level 3), during the year ended 31 December 2016 and 31
December 2015:
2016 2015
Total fair balance at the beginning
of the year 18,091 3,050
Increase in contingent liability
due to new acquisitions - 16,430
Accretion of contingent liability
related to acquisitions 712 122
Changes in fair value recognized
in earnings *) (821) -
Payment of consideration during
the period (624) (1,511)
------ -------
Total fair value at the end
of year 17,358 18,091
====== =======
*) The Company updated its forecast related to Optimatic future
results, and recorded a decrease in its contingent liability
accordingly.
NOTE 8:- REDEEMABLE NON-CONTROLLING INTEREST
The following table provides the movement in the redeemable
non-controlling interests:
Year ended
31 December
------------------
2016 2015
-------- --------
Redeemable non-controlling interest
at beginning of year $ 35,365 $ 34,062
Increase in redeemable non-controlling
interests due to new subsidiary - 1,489
Decrease in redeemable non-controlling
interests due to change in ownership
in subsidiaries *) (565) (565)
Revaluation of redeemable non-controlling
interest in subsidiaries 3,141 76
Net income attributable to redeemable
non-controlling interests 487 545
Dividend declaration to non-controlling
interests (961) (242)
Classification of redeemable
non-controlling interest into
current liabilities **) (13,776) -
$ 23,691 $ 35,365
======== ========
*) In November 2016 and October 2015, the non-controlling
interest of Matomy Social exercised their put option, and sold 10%
of Matomy Social to the Company. As of 31 December 2016 and 2015,
the Company holds 90% and 80% of Matomy Social, respectively.
**) During the fourth quarter of 2016, the non-controlling
interest of Team Internet exercised their put option and sold 10%
of Team Internet to the Company. The payment was made after balance
sheet date, and therefore the Company classified the respective
amount from redeemable to current liabilities. Following the
exercise of the put option, the Company holds 80% of Team Internet
shares.
NOTE 8:- REDEEMABLE NON-CONTROLLING INTEREST (Cont.)
Out of the closing balance as of 31 December 2016, an amount of
$ 12,072 is exercisable during the year 2017.
NOTE 9:- BANK LOAN AND CREDIT LINE
a. On 16 June 2014, the Company signed a term loan agreement
with an Israeli bank in an amount of $ 21,600. The loan agreement
requires repayment of 85% of the principal in 12 equal payments
every three months commencing 16 September 2014, and 15% of the
principal in 4 equal payments every three months commencing 16
September 2017. The loan bore an initial interest of three months
USD LIBOR plus 4.5%, which was reduced in January 2015 to USD LIBOR
plus 3.5% to be paid together with the relevant portion of the
principal. In relation to this loan, the Company is required to
comply with certain covenants, as defined in the loan agreement and
its amendments. In connection with the new loan obtained in January
2017 (see note 17), the covenants were amendment. As of 31 December
2016, the Company was in full compliance with the financial
covenants.
b. As of December 31, 2016, the Company has line of credit with
Israeli banks for total borrowings of up to $13,000 million, out of
which, it utilized $ 2,409. The Company presented the bank credit,
net of cash deposits in the amount of $ 2,093, at the same bank
account.
The line of credit is unsecured and available to the Company
based on meeting certain account receivable conditions. Interest
rate of the credit line is USD LIBOR plus 3.25% as of 31 December
2016. The Company is in compliance with the agreed account
receivable condition.
The line of credit and the loan describes in (a) above secured
by way of: (i) a fixed charge over the unpaid equity of the
Company; and (ii) a floating charge over all the assets of the
Company; and (iii) mutual guarantees between the Israeli
companies.
c. On 11 July 2013, Team Internet borrowed $ 547 (EUR 450
thousand) from a German bank pursuant to a loan agreement requiring
repayment after two years (30 September 2015). The interest rate on
the loan was 2.65% and is payable every three months commencing 30
September 2013. The loan was repaid in full on 30 September
2015.
d. On 20 August 2015, Team Internet signed a term loan agreement
with a German bank in an amount of $ 1,297 (EUR 1,192 thousand). In
accordance with the loan agreement, repayment of the principal
shall be made in 54 equal monthly payments, commencing 31 March
2016. The loan is indexed to the Euro and bears an interest of 1.8%
to be paid on a monthly basis, commencing 31 August 2015.
NOTE 9:- BANK LOAN AND CREDIT LINE (Cont.)
e. On 28 April 2016, Team Internet signed a loan agreement with
a German bank in an amount of $ 3,021 (EUR 2,660 thousand). In
accordance with the loan agreement, repayment of the principal
shall be made in 20 equal quarterly payments, commencing 30
September 2016. The loan is indexed to the Euro and bears an
interest of 1.1% to be paid on a quarterly basis, commencing 30
June 2016.
f. On 28 September 2016, the Company's subsidiary in the US
("Matomy US") signed a loan agreement with a bank in the US in an
amount of $ 4,000, and an unsecured line of credit in the amount of
$ 1,000. The term loan agreement requires repayment of principal
and interest every 3 months commencing 28 December 2016. The loan
bears an initial interest of three months USD LIBOR plus 3.65% and
the line of credit bears a monthly interest of LIBOR plus 3.25%. As
of 31 December 2016 the credit line was unused.
As security, Matomy US and its subsidiary have granted a first
priority lien on and security interest in all of the assets of
Matomy US, and provided cross guaranties.
Matomy US and its subsidiary, Optimatic, are required to comply
with certain covenants, as defined in the term loan and line of
credit agreement and its amendments. As of 31 December 2016, the
Company was in full compliance with the financial covenants.
g. As of 31 December 2016, the aggregate principal annual
maturities according to the loan agreement are as follows:
2017 (current maturities) $ 6,867
2018 3,794
2019 1,840
2020 747
2021 280
Total $ 13,528
========
NOTE 10:- COMMITMENTS AND CONTINGENT LIABILITIES
a. The Company rents its facilities under operating lease
agreements with an initial term expiring in 2021. Future minimum
lease commitments under non-cancellable operating leases for the
year ended 31 December 2016 were as follows:
2017 $ 2,403
2018 1,929
2019 1,723
2020 1,638
2021 and thereafter 186
$ 7,879
=======
Rent expenses for the years ended 31 December 2016 and 2015,
were $ 2,337 and $ 2,105, respectively.
The Company has provided guarantees for rent expenses in the
amount of $ 1,060.
NOTE 10:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
The Company leases its motor vehicles under cancellable
operating lease agreements until July 2019. The minimum payment
under these operating leases, upon cancellation of these lease
agreements, was $ 16 as of 31 December 2016.
Lease expenses for motor vehicles for the years ended 31
December 2016 and 2015 were $ 133 and $ 106, respectively.
b. From time to time, the Company is party to ordinary and
routine litigation incidental to its business. As of December 2016
the Company does do not expect the outcome of any such litigation
to have a material effect on its consolidated financial position,
results of operations, or cash flows.
NOTE 11:- EQUITY
a. The Company's equity is composed of shares of NIS 0.01 par value each, as follows:
31 December 2016 31 December 2015
Authorised Issued Outstanding Authorised Issued Outstanding
----------- ----------- ----------- ----------- ----------- -----------
Number of shares
----------------------------------------------------------------------------
Ordinary
Shares
*) 430,500,000 105,546,569 94,576,458 430,500,000 102,852,501 91,882,390
=========== =========== =========== =========== =========== ===========
*) The Ordinary Shares confer upon the holders thereof the right
to receive notices and to attend general meetings of the Company,
to be present thereat and to participate in and vote at such
meetings, the right to participate in all distributions of
dividends (whether of cash, assets or in any other lawful way) made
by the Company and the right to participate with the other
shareholders in the distribution of the surplus of assets of the
Company which remains available for distribution on winding-up.
b. Warrants to investors:
As of 31 December 2016, there are 1,239,735 fully vested
outstanding warrants with exercise price of $ 1.11 which were
granted to investors in the past, and are exercisable through
August 2017.
c. Options issued to employees and directors:
Under the share plan as approved in 2012 options and Restricted
Share Unit ("RSU") may be granted to employees, directors, officers
and consultants of the Company. As of 31 December 2016, the Company
reserved for issuance 36,275,287 Ordinary shares. Each option
granted under the Plans is fully exercisable up to 4 years and
expires in between 7 to 10 years from the date of grant. The 2012
plan is in accordance with section 102 to Israel's Income Tax
Ordinance. In 2012, the Company adapted the US Sub-plan which set
the grants and tax to employees in the US.
NOTE 11:- EQUITY (Cont.)
Any options, which are forfeited or not exercised before
expiration, become available for future grants.
As of 31 December 2016, there were 998,534 options available for
future grants under the plan.
A summary of the activity in options granted to employees and
directors is as follows:
Weighted-
average
remaining
Weighted-average contractual Aggregate
Number exercise term (in intrinsic
of options price years) value
Outstanding at
1 January 2016 8,713,947 $ 1.44 4.4 2,821
Granted 1,838,281 $ 1.36
Exercised (2,349,068) $ 1.02
Forfeited (793,315) $ 2.28
-----------
Outstanding at
31 December 2016 7,409,845 $ 1.46 5.1 1,480
=========== ================ ============ ==========
Vested and expected
to vest at 31
December 2016
*) 7,204,878 1.45 5.01 1,465
=========== ================ ============ ==========
Exercisable at
31 December 2016 4,093,158 $ 1.34 2.23 1,261
=========== ================ ============ ==========
*) The expected to vest options are the result of applying
pre-vesting forfeiture rate assumptions to unvested options
outstanding
As of 31 December 2016, the total compensation cost related to
options granted to employees and directors, not yet recognized
amounted to $ 1,589.
The aggregate intrinsic value of the outstanding stock options
at 31 December 2016 and 2015, represents the intrinsic value of
5,225,268 and 7,358,134 outstanding options that are in-the-money
as of such dates. The remaining 2,189,577 and 1,350,813 outstanding
options are out-of-the-money as of 31 December 2016 and 2015, and
their intrinsic value was considered as zero.
Total intrinsic value of options exercised during the years
ended 31 December 2016, and 2015 was $ 1,088 and $ 814,
respectively
The weighted average grant date fair values of options granted
for the years ended 31 December 2016 and 2015, were $ 1.08 and $
0.85, respectively.
NOTE 11:- EQUITY (Cont.)
d. Options to non-employees:
The Company's outstanding options to non-employees as of 31
December 2016 were as follows:
Options Exercise
for Ordinary price Options Exercisable
Issuance date shares per share exercisable through
-------------- ------------- ---------- ------------ -----------
December
January 2010 32,044 0.21 32,044 2017
No stock-based compensation expense was recorded in respect of
options granted to non-employees in the years ended 31 December
2016 and 2015.
In 2016 and 2015, 0 and 23,900 options to non-employees were
exercised, respectively.
e. Restricted Share Units ("RSU") issued to employees and directors:
Number
of RSU's
---------
Unvested at 1 January 2016 640,000
=========
Granted 1,215,000
Vested (345,000)
Forfeited (37,500)
Unvested at 31 December 2016 1,472,500
=========
RSU expected to vest after 31 December
2016 1,370,917
=========
RSU expected to vest after 31 December 2016 reflect estimated
forfeiture rate.
The weighted average grant date fair value per share for the
year ended 31 December 2016 and 2015 was $ 1.35 and $ 1.54,
respectively.
As of 31 December 2016, the total compensation cost related to
RSUs granted to employees, not yet recognized amounted to $
1,225.
f. Treasury shares
As of 31 December 2016 and 2015, treasury shares amounted to
10,970,111 shares of which 1,211,236 shares are held by Team
Internet.
NOTE 12:- EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share:
31 December
----------- -------
2016 2015
----------- -------
Basic and diluted net income
(loss) attributable to Matomy
Media Group Ltd. $ (11,733) $ 6,613
=========== =======
Weighted average ordinary shares
outstanding (in thousands) 92,884 92,269
Dilutive effect:
Employee stock options and RSUs
(in thousands) - 3,698
----------- -------
Diluted weighted average ordinary
shares outstanding (in thousands) 92,884 95,967
=========== =======
Basic and diluted (loss) earnings
per ordinary shares (in dollars) $ (0.13) $ 0.07
=========== =======
NOTE 13:- TAXES ON INCOME
a. Israeli taxation:
1. Corporate tax rates in Israel:
The Israeli corporate income tax rate was 25% in 2016 and 26.5%
in 2015.
In January 2016, the Law for Amending the Income Tax Ordinance
(No. 216) (Reduction of Corporate Tax Rate), 2016 was approved,
which includes a reduction of the corporate tax rate from 26.5% to
25%, effective from 1 January 2016.
In December 2016, the Israeli Parliament approved the Economic
Efficiency Law (Legislative Amendments for Applying the Economic
Policy for the 2017 and 2018 Budget Years), 2016 which reduces the
corporate income tax rate to 24% (instead of 25%) effective from 1
January 2017 and to 23% effective from 1 January 2018.
2. Tax benefits under the Israeli Law for the Encouragement of
Capital Investments, 1959 ("the Law"):
The Company obtained a ruling from the Israeli tax authorities,
under which, Matomy Media Group received a "Preferred Enterprise"
status through 31 December, 2016, which provides certain benefits,
including reduced tax rates. Income not eligible for Preferred
Enterprise benefits is taxed at a regular rate. The tax rates
applicable for preferred enterprise income are 16% in 2015 and
thereafter.
NOTE 13:- TAXES ON INCOME (Cont.)
The entitlement to the above benefits is conditional upon the
Company's fulfilling the conditions stipulated by the Law and
regulations published thereunder. Should the Company fail to meet
such requirements in the future, income attributable to its
Preferred Enterprise program could be subject to the statutory
Israeli corporate tax rate and the Company could be required to
refund a portion of the tax benefits already received, with respect
to such programs. As of 31 December 2016, management believes that
the Company is in compliance with all the conditions required by
the Law. The Company is considering applying for a new ruling.
As of 31 December 2016, the Company had $ 5,819 of tax-exempt
income attributable to its Privileged Enterprise program resulting
from 2012. The Company does not intend to distribute any amounts of
its undistributed tax-exempt income as dividends as it intends to
reinvest its tax-exempt income within the Company. Accordingly, no
deferred income taxes have been provided on income attributable to
the Company's Privileged Enterprise programs as the undistributed
tax-exempt income is essentially permanent in duration. If such tax
exempt income is distributed, it would be taxed at the reduced
corporate tax rate applicable to such profits (25%) and an income
tax liability of approximately $ 1,455 would be incurred as of 31
December 2016.
3. Carryforward operating tax losses of the Israeli parent total
to $ 10,318 as of 31 December 2016 and may be used
indefinitely.
b. Income taxes on non-Israeli subsidiaries:
Non-Israeli subsidiaries are taxed according to the tax laws in
their respective country of residence. The Company's main
non-Israeli subsidiaries are located in Germany and in the United
States, and are subject to tax rate of approximately 33% and 35%,
respectively.
Carryforward operating tax losses of its Canadian subsidiary
total approximately $ 4,000 as of 31 December 2016 which can be
carried forward and offset against taxable income up to 20 years,
expiring between fiscal 2035 and fiscal 2036.
NOTE 13:- TAXES ON INCOME (Cont.)
c. Deferred tax assets and liabilities:
Deferred taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts recorded for tax
purposes. Significant components of the Company's deferred tax
assets and liabilities are as follows:
Year ended
31 December
----------------------
2016 2015
---------- ----------
Deferred tax assets:
Carry forward losses $ 2,799 $ 737
Research and development
expenses 542 966
Allowance for doubtful debts 892 763
Intangible assets 1,003 844
Other 420 771
---------- ----------
Deferred tax assets 5,656 4,081
---------- ----------
Deferred tax liabilities:
Intangible assets $ 9,218 $ 12,861
Gain on achieving control 2,022 2,330
Deductible goodwill 1,207 804
Other 73 48
---------- ----------
Deferred tax liabilities 12,520 16,043
Valuation allowance (4,284) (26)
---------- ----------
Deferred tax liabilities,
net $ (11,148) $ (11,988)
========== ==========
The net change in the valuation allowance primarily reflects an
increase in deferred tax assets on net operating losses and other
temporary differences for which full valuation allowance is
recorded.
d. Income (loss) before taxes on income is comprised as follows:
Year ended
31 December
------------------
2016 2015
--------- -------
Domestic $ (6,859) $ 4,979
Foreign 3,516 4,958
--------- -------
$ (3,343) $ 9,937
========= =======
NOTE 13:- TAXES ON INCOME (Cont.)
e. Taxes on income (tax benefit) are comprised as follows:
Year ended
31 December
-----------------
2016 2015
------- --------
Current
Domestic $ 268 $ 1,078
Foreign 5,452 3,827
------- --------
5,720 4,905
------- --------
Deferred
Domestic 1,731 181
Foreign (2,762) (2,405)
-------
(1,031) (2,224)
$ 4,689 $ 2,681
======= ========
f. A reconciliation of the beginning and ending amount of
unrecognised tax benefits related to uncertain tax positions is as
follows:
Year ended
31 December
--------------
2016 2015
------ ------
Beginning balance $ 139 $ 136
Increase related to tax positions taken
during prior years 66 3
Increases related to tax positions taken
during the current year 103 -
Reductions to unrecognized tax benefits
as a result of a lapse of the applicable
statute of limitations (139)
Ending balance $ 169 $ 139
====== ======
The entire amount of unrecognised tax benefits as of 31 December
2016, if recognised, would reduce the Company's annual effective
tax rate.
As of 31 December 2016, the Company and its subsidiaries in
Israel and in USA received final, or considered final, tax
assessments through 2012.
Team Internet received final tax assessments through 2013.
The Company does not expect uncertain tax positions to change
significantly over the next 12 months, except in the case of
settlements with tax authorities, the likelihood and timing of
which is difficult to estimate.
NOTE 13:- TAXES ON INCOME (Cont.)
During the years ended 31 December 2016 and 2015, the Company
did not record any interest and exchange rate differences expenses
related to prior years' uncertain tax positions, since the amount
was immaterial.
The Company believes that it has adequately provided for any
reasonably foreseeable outcome related to tax audits and
settlement. The final tax outcome of its tax audits could be
different from that which is reflected in the Company's income tax
provisions and accruals. Such differences could have a material
effect on the Company's income tax provision and net income (loss)
in the period in which such determination is made.
g. Reconciliation of the theoretical tax expenses:
Reconciliation between the theoretical tax expenses, assuming
all income is taxed at the statutory rate in Israel and the actual
income tax as reported in the statements of income (operations) is
as follows:
Year ended
31 December
------------------
2016 2015
--------- -------
Income before taxes as reported
in the statements of income $ (3,343) $ 9,937
========= =======
Statutory tax rate in Israel 25% 26.5%
--------- -------
$ (836) $ 2,633
Increase (decrease) in taxes
resulting from:
Effect of "Preferred Enterprise"
status *) 729 (20)
Increase in valuation allowance 4,258 23
Tax adjustment in respect
of different tax rate of
foreign subsidiaries 493 (105)
Non-deductible expense 394 22
Effect of foreign exchange
rate ***) (55) 65
Decrease due to decrease
of statutory tax rate (308) -
Others 14 63
--------- -------
$ 4,689 $ 2,681
========= =======
*) Basic earnings per share
amounts of the benefit resulting
from "Privileged Enterprise"
or "Preferred Enterprise"
status $ - $ **)
========= =======
Diluted earnings per share
amounts of the benefit resulting
from "Preferred Enterprise"
status $ - $ **)
========= =======
**) Represents an amount lower than $ 0.01
NOTE 13:- TAXES ON INCOME (Cont.)
***) Results for tax purposes are measured under, Measurement of
results for tax purposes under the Income Tax (Inflationary
Adjustments) Law, 1985, in terms of earnings in NIS. As explained
in Note 2c, the financial statements are measured in U.S. dollars.
The difference between the annual changes in the NIS/dollar
exchange rate causes a difference between taxable income and the
income before taxes shown in the financial statements. In
accordance with ASC 740-10-25-3(F), the Company has not provided
deferred income taxes in respect of the difference between the
functional currency and the tax bases of assets and
liabilities.
NOTE 14:- REPORTABLE SEGMENTS
a. Reportable segments:
The Company applies ASC 280, "Segment Reporting". While the
Company has offerings in multiple media channels, the Company's
business operates in one segment, and the Company's chief operating
decision maker evaluates the Company's financial information and
resources and assesses the performance of these resources on a
consolidated basis.
b. Revenues from media channels:
Total revenues from external customers divided on the basis of
the Company's media channels are as follows:
Year ended
31December
----------------------
2016 2015
---------- ----------
Display and video *) $ 137,288 $ 133,430
Domain monetisation 63,282 54,268
Email 27,510 34,382
Mobile 39,789 26,412
Social and search 7,529 18,990
Virtual currency 1,233 3,494
---------- ----------
Total $ 276,631 $ 270,976
========== ==========
*) Revenues from display and video are integrated to one media
channel, since video ads appear before, during or after the display
of video content and video is considered one of multiple formats of
display.
c. Geographical information:
Revenues by geography are classified based on the location where
the consumer completed the action that generated the relevant
revenues. The following table sets out the Company's revenues from
external customers and property and equipment, net by geography for
the years ended 31 December 2016 and 2015:
NOTE 14:- REPORTABLE SEGMENTS (Cont.)
1. Revenues from external customers:
Year ended
31 December
--------------------
2016 2015
--------- ---------
United States $ 180,048 $ 163,580
Europe 44,132 54,499
Asia 17,922 11,474
Israel 200 287
Other 34,329 41,123
$ 276,631 $ 270,976
========= =========
2. Property and equipment, net:
Year ended
31 December
----------------
2016 2015
------- -------
Israel $ 5,665 $ 3,237
United states 1,908 556
Germany 1,335 737
Other 124 331
$ 9,032 $ 4,861
======= =======
d. In the year ended 31 December 2016, one customer contributed
20% of the Company's revenues, while no other customer contributed
more than 10%.
In the year ended 31 December 2015, one customer contributed 19%
of the Company's revenues, while no other customer contributed more
than 10%.
NOTE 15:- FINANCIAL EXPENSES, NET
Year ended
31 December
--------------------
2016 2015
--------- ---------
Financial income:
Interest income $ 45 $ 13
Foreign currency remeasurement,
net 659 -
Hedging transactions - 197
Other 32 -
736 210
--------- ---------
Financial expenses:
Bank fees (662) (453)
Interest expense (746) (780)
Foreign currency remeasurement,
net - (1,034)
Hedging transactions (673) -
Accretion of contingent payment
obligation related to acquisitions (712) (122)
--------- ---------
(2,793) (2,389)
--------- ---------
$ (2,057) $ (2,179)
========= =========
NOTE 16:- RELATED PARTIES
The Company has activity with related parties as part of its
ordinary business. The majority of the related parties'
transactions include domain monetisation activity with the
non-controlling interest of Team Internet.
Revenues from related parties amounted to $ 711 and $ 2,407 for
the years ended 31 December 2016 and 2015, respectively. Cost of
revenues to related parties amounted to $ 2,552 and $ 2,489 for the
years ended 31 December 2016 and 2015, respectively.
Trade receivables from related parties amounted to $ 132 and $
354 for the years ended 31 December 2016 and 2015, respectively.
Trade payables to related parties amounted to $ 268 and $ 243 for
the years ended 31 December 2016 and 2015, respectively.
NOTE 17:- SUBSEQUENT EVENTS
On 3 January 2017, after the balance sheet date, the Company
signed a term loan agreement with an Israeli bank in an amount of $
2,000. In accordance with the loan agreement, repayment of the
principal and the interest shall be made in 12 equal monthly
payments, commencing 10 April 2017. The loan bears an annual
initial interest of three months USD LIBOR plus 4.6%.
After the balance sheet date, the Company signed a secured line
of credit in the amount of $ 5,000 with a bank in the USA. The line
of credit bears an interest rate of LIBOR plus 3.25%, and an
interest of 0.35% on the unused credit line.
During March 2017 the Company entered in a credit line facility
agreement with its Israeli bank securing $ 6,000 out of the
aggregate $13,000 credit facility, without any additional
terms.
During March 2017 the Company updated its credit line facility
agreement with the bank in the US, securing the $ 1,000 credit
line. The line of credit bears an unused credit line interest rate
of 0.35%.
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This information is provided by RNS
The company news service from the London Stock Exchange
END
FR DXLFLDXFEBBK
(END) Dow Jones Newswires
March 24, 2017 03:00 ET (07:00 GMT)
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