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RhythmOne plcFY2017 RESULTS 1 April 2016 to 30 March 2017
MAY 2017
2
FORWARD-LOOKING STATEMENTS This announcement contains (or may contain) certain forward-looking statements with respect to certain of RhythmOne’s plans and its current goals and expectations relating to its future financial condition and performance and which involve a number of risks and uncertainties. RhythmOne cautions readers that no forward-looking statement is a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as 'aim', 'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan', 'goal', 'believe', or other words of similar meaning. Examples of forward-looking statements include, among others, statements regarding RhythmOne's future financial position, income growth, impairment charges, business strategy, projected levels of growth in its markets, projected costs, estimates of capital expenditure, and plans and objectives for future operations of RhythmOne and other statements that are not historical fact.
By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances,including, but not limited to, UK domestic and global economic and business conditions, the effects of continued volatility in credit markets, market-related risks such as changes in interest rates and exchange rates, the policies and actions of governmental andregulatory authorities, changes in legislation, the further development of standards and interpretations under International Financial Reporting Standards ("IFRS") applicable to past, current and future periods, evolving practices with regard to the interpretation and application of standards under IFRS, the outcome of pending and future litigation, the success of future acquisitions and other strategic transactions and the impact of competition - a number of which factors are beyond RhythmOne's control. As a result, RhythmOne's actual future results may differ materially from the plans, goals, and expectations set forth in RhythmOne's forward-looking statements.
Any forward-looking statements made herein by or on behalf of RhythmOne speak only as of the date they are made. Except as required by the FCA, AIM or applicable law, RhythmOne expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement to reflect any changes in RhythmOne expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. Neither the content of the Company’s website (or any other website) nor the content of any website accessible from hyperlinks on the Company’s website (or any other website) is incorporated into, or forms part of, this announcement.
COPYRIGHT STATEMENT© 2017 RhythmOne, LLC. All rights reserved. All materials contained herein are the property of RhythmOne, LLC. and may only be used, copied or distributed with the express written permission of RhythmOne, LLC. Other products and companies referred to herein are the trademarks or registered trademarks of their respective companies or mark holders.
Safe Harbor & Copyright Statements
3
Overview
FUNDAMENTAL TRANSFORMATION COMPLETERobust Core product growth and complete Non-Core exit accelerate return to profitability
DEMONSTRATED FINANCIAL PERFORMANCEDelivered against all targets, returned to profitability, switched to cash generation mode
WELL DEFINED REVENUE MODELRevenue = Price x Fill Rate x Volume, known cost and growth drivers
CLASS-LEADING TECHNOLOGYUnified programmatic platform for engaged audiences at scale
STRUCTURAL SECTOR OPPORTUNITYOpportunity to build a credible, enduring and necessary alternative to super-majors
UNIQUE CONSOLIDATION PLATFORMTechnology, team and resources to lead industry consolidation in 2nd Coming of ad tech
4
FY2017 Review
FINANCIALS
• Transformation, profitability and growth
• Rev = Price x Fill Rate x Vol, GM: 36%, EBITDA: $1.4M
• 1 bps1 Fill ~$3M Revenue and ~$1M Adj. EBITDA
• Well defined growth and cost drivers
• Strong, debt free balance sheet with $75M+ net cash
COMPANY
• Connect Audiences, Brands, Content across Devices
• Leading 2nd Gen Mobile, Video, Programmatic provider
• Scalable unique, unified, uniform, full stack platform
• Tenured team with deep operating, M&A discipline
• Significant opportunities to accelerate growth
OPPORTUNITY
• Fragmented sector, with redundant offerings
• Revenue, profit scale critical to thrive and grow
• Industry shake-out, consolidation opportunity and need
• Urgency and need for credible, alternative platform
• Technology, team and resources to lead consolidation
1. Bps: 1 Basis Point or 0.01%
SECTOR
• Offline spend migration, 5x comparative growth rate
• Online spend projected to double to $117B in 3 years
• Mobile, Video, Programmatic remain fastest growing
• Programmatic dominant trading modality
• Accelerating consolidation for scale and relevance
5
Key Metrics1
REVENUE$175.4M$166.7M
OPEX$60.5M$73.4M
NET CASH3
$75.2M$78.5M
EMPLOYEES 320274
CORE$149.0M$116.0M
ADJ. EBITDA2
$1.4M($10.5M)
1. Figures are FY2017 (top) compared with FY2016 (bottom). 2. Before finance income and expense, taxes, depreciation and amortization, share based payment expense and exceptional costs. 3. Includes cash and cash equivalents, and marketable securities. Net cash grew half-on-half (H12017: $69.2M)
6
Core Growth, Non-Core Exit
Mobile
Video
Programmatic
NON-COREDesktop
Services
Technologies
CORE
CORE: CONTINUING OPERATIONS NON-CORE: DISCONTINUED OPERATIONS
48%70%
85%100%
52%30%
15%
FY2015 FY2016 FY2017 FY2018(E)
7
Revenue Model
SUPPLY
Owned
Extended
Controlled
DEMAND
Direct
Programmatic
Network
Definitions:Volume: Total number of ad requests processed through the platform and available to monetizeFill: Proportion of ad requests actually monetized, based on filtering, targeting and availability of demandPrice: Weighted average price of inventory across all ad formats flowing through the platform
REVENUE PRICE FILL RATE VOLUME
8
KPIs1
FILL RATE: 1 BPS FILL ~$3M REVENUE, $1M PROFIT2
PRICE: AUDIENCES, DATA, QUALITY GUARANTEES, VIDEO, NATIVE, CTV
Metric H12016 H22016 FY2016 H12017 H22017 FY2017
VOLUME Billions 4,012.4 6,996.3 11,008.6 7,469.4 13,099.2 20,568.5
DESKTOP % - - - 51.3 42.5 45.7
MOBILE % - - - 48.7 57.5 54.3
FILL RATE % 1.69 0.62 1.01 0.58 0.31 0.41
PRICE $/CPM 0.93 1.22 1.04 1.54 2.01 1.76
REVENUE $62.9M $53.1M $116.0 $66.8 $82.3 $149.0
1. Continuing Operations (Core Products)2. Assuming price and volume remain constant
9
Income Statement, Balance SheetINCOME STATEMENT ($M)
78.5
37.2
24.2 22.8 19.2 29.9
75.2
48.838.0 41.5
18.9
43.6
Cash Goodwill Intangibles Receivables Deferred Tax Trade Payables
31-Mar-16 31-Mar-17
BALANCE SHEET ($M)
166.7
100.4
40.0 25.1
11.7 (10.5)
175.4
112.3
30.1 20.8
10.9 1.4
FY-2016 FY-2017
Revenue Cost of Sales
Sales & Marketing
Research & Development General & Administrative Adjusted EBITDA
* Note: Excludes depreciation, amortization, share-based comp expense, and acquisition and exceptional items.
10
EBITDA, Cash BridgeEBITDA BRIDGE – FY2017 ($M)
Net Loss Amortization, Depreciation *
Income Tax Credit / Finance Income
Share Based Compensation
Exceptional Costs Adjusted EBITDA
(18.7)
10.2 (1.2) 2.0
9.1 1.4
FY2017Beginning Cash
Adj EBITDA Exceptionals
Working Capital
Capital Development
Proceeds of disposals,
acquisitions and def consideration
Lease and Finance Obligations
FY2017 Ending Cash
78.5
75.2
(5.6)
10.8
(2.6)
0.8
(8.1)
1.4
CASH BRIDGE – FY2017 ($M)
* Purchase Intangibles Amortization $5.7m / Depreciation & Amortization $4.5m
11
Financial ProfileREVENUE ($M)
Consensus1
Actual Consensus1
6.5 13.933.7
66.1
114.4
198.0
247.2215.0
166.7 175.4220.0
0
50
100
150
200
250
300
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
1. FY2018 financials are based on Bloomberg consensus estimates as of May 2017.
ADJUSTED EBITDA ($M)
(11.5) (8.8)(4.4)
9.9 14.3
30.2 39.6
3.5
(10.5)
1.4
15.1
(20)(10)
0 10 20 30 40 50
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Actual
12
Sector Trends
Sources: Top-left, bottom-left – eMarketer, March 2017. Top-right – JMP Securities, "Internet & Digital Media," Jan 19, 2017. Bottom-right – eMarketer, April 2017.
US DIGITAL VIDEO AD SPEND, 2016-2020 ($B)
11
13
15
18
20
2016 2017 2018 2019 2020
US PROGRAMMATIC AD SPEND (2016-2019)
25
3339
46
73%
78%
82%84%
65%
70%
75%
80%
85%
0
10
20
30
40
50
2016 2017 2018 2019
Programmatic digital display ad spend ($B)
% of total digital display ad spend
US TOTAL AND DIGITAL AD SPEND, BY MEDIA, 2016-2021 ($B)
7283
94105
118129
71 73 75 76 78 80
52 51 51 50 50 50
2016 2017 2018 2019 2020 2021
Digital TV Traditional (ex. TV)
US DIGITAL AD SPEND BY DEVICE, 2016-2021 ($B)
3449
64
81
99
116
36 33 29 26 24 22
2016 2017 2018 2019 2020 2021
Mobile Desktop
13
Product Focus
SUPPLY
Owned
Extended
Controlled
DEMAND
Direct
Programmatic
Network
GROW UNIQUE
AUDIENCES
FORTIFY CORE
PLATFORM
EXPAND DEMAND
FOOTPRINT
UNIFIED PROGRAMMATIC PLATFORM FOR QUALITY, ENGAGED AUDIENCES, AT SCALE.
14Estimated monthly opportunities
Engaged Audiences at Scale
Owned353M+ Display1.6B+ Mobile1.3B+ Video
Extended
1,491B+ Display1,251B+ Mobile606.9B+ Video15B+ Native
Controlled
9.6B+ Display102.2B+ Mobile148.5B+ Video
RANK NETWORK/EXCHANGE UNIQUES REACH
1 Google Ad Network 199,126 91.0
2 Yahoo Audience Network 184,474 84.3
3 Conversant 177,078 80.9
4 RadiumOne 163,830 74.9
5 RhythmOne 160,007 73.1
RANKED
US
#5
Source for reach figures: RhythmMax platform, February, 2017.Source for Rankings: comScore US Display Ad Ecosystem, Media Metrix, May, 2017.
15
Uniform Quality
INDUSTRY ASSOCIATIONS
RANKED
US
#2
RANKED
INTL.
#1
PRE-BID
POST-BID
SOURCE
USER
CREATIVE
PLACEMENT
DOMAIN
GLOBAL SELLER TRUST INDEX
Source: Pixalate’s Global Seller Trust Index, February, 2017.1. GIVT: General Invalid Traffic - Includes traffic identified through routine and list-based means of filtration—such as
bots, spiders, other crawlers; non-browser user agent headers; and pre-fetch or browser pre-rendered traffic. 2. SIVT: Sophisticated Invalid Traffic - Includes traffic identified through advanced analytics, multipoint corroboration,
human intervention—such as hijacked devices, ad tags, or creative; adware; malware; misappropriated content.
3RD PARTY VERIFICATION PARTNERS
RANK SELLER NAMEFINALSCORE
REACH SCORE
GIVT SCORE1
SIVTSCORE2
NETWORK SCORE
VIEWABILITYSCORE
MASKINGSCORE
1 Sovrn 94 A 96 A 91 A 94 B 91 A 96 A 99 A
2 RhythmOne 94 A 98 A 94 A 90 B 99 A 95 A 99 A
3 OpenX 94 A 97 A 92 A 92 B 90 A 93 A 99 A
4 Sonobi 93 A 97 A 95 A 85 B 88 A 86 B 99 A
5 UnderDog Media 93 A 89 B 96 A 96 A 85 B 93 A 98 A
RANK SELLER NAMEFINALSCORE
REACH SCORE
GIVT SCORE1
SIVTSCORE2
NETWORK SCORE
VIEWABILITYSCORE
MASKINGSCORE
1 RhythmOne 94 A 99 A 95 A 89 B 99 A 90 A 99 A
2 OpenX 94 A 97 A 94 A 90 B 88 A 89 A 99 A
3 PubMatic 93 A 96 A 93 A 89 B 88 A 88 A 98 A
4 Switch Concepts Limited 93 A 92 B 96 A 88 B 85 B 93 A 98 A
5 AppNexus 92 A 88 B 98 A 95 A 85 B 75 B 96 A
16
Growth Vectors
INT’L
UNIQUE SUPPLY
DEMAND
FILL RATE
EMEA and APAC O&O, Controlled
PRICING
Video, Native Private Marketplaces Direct, Integrations
SIGNIFICANT ORGANIC AND ACQUISITION OPPORTUNITIES.
17
ConclusionsConnect audiences and brands through content across devices
Sector continues to evolve and is expected to grow to $117B/Yr1 over next 3 years
Focus on programmatic engine across channels and formats
Strong, well-understood growth and cost drivers
Scale, scope and reach across the digital advertising supply chain
Platform to lead sector consolidation
1. Source: US Digital Advertising Spend, eMarketer, RhythmOne Estimates
18
Appendix
19
Market Opportunity
DIGITAL ADVERTISING IS EXPECTED TO BECOME THE #1 ADVERTISING MEDIUM THIS YEAR AND GROW TO OVER $117B IN THE NEXT THREE YEARS1.
1. eMarketer comparative estimates for March 2017.
MEDIA AD SPEND
U.S.$206.8B1
WORLDWIDE$591.1B1
DIGITAL AD SPEND
WORLDWIDE$223.7B1
U.S. $83.0B1
Branding 42%Performance 58%
20
Industry
CONNECT AUDIENCES AND BRANDS THROUGH CONTENT ACROSS DEVICES.
CONTENT
BRAND
DEVICE
AUDIENCES
21
Value FlowCONTENT
CONSUMERBRAND DEVICEMonetization
Audience
Content
Attention
Monetization Distribution
22
Fragmentation
Monetization
Audience
Content
Attention
Monetization Distribution
AUDIENCESDEVICESBRANDS
CONTENT
23
AUDIENCES
Ecosystem
PUBLISHERSBRANDS AGENTS
CONTENT
DEVICES
RhythmOneSUPPLYDEMAND
24
Programmatic Adoption
Source: Digiday, “State of the Industry: Programmatic TV is Up Next”, 2015.
DISPLAY86%
SOCIAL/NATIVE49%
MOBILE69%
VIDEO67%
TV24%
DIGITAL OUT OF HOME7%
25
Issues and Opportunities
Sources: Top-left – Kantar Media, "DIMENSION: Communication Planning in a Disrupted World," April 20, 2017 Top-right – Forrester Research, "Poor Quality Ads Cost US Marketers $7.4 Billion In 2016" as cited in press release, March 30, 2017. Lower – Ad Ops Insider, Jan-Oct, 2016.
CONSOLIDATION AND TRENDS (JAN-OCT, 2016)
TRANSACTIONS185
EST. VALUE
$158B+
Fighting Fake News is a Necessary and Urgent Task
— The Guardian
Ads Ran Before ISIS Videos— CNN Money
The Time for Advertisers to Embrace Artificial Intelligence is Now
— FORBES
Huge Levels Of Ad Fraud Found On Many Mobile Networks
— Adotas
Ad Blocking will Cost Publishers $27B by 2020
— CNBC
26
ATD: Agency Trading DesksDSP: Demand Side PlatformSSP: Supply Side Platform
Technology Platform
RG: RhythmGuard – traffic quality filterRMP: RhythmMax for PublishersDMP: Data Management Platform
SUPPLY
Owned
Extended
Controlled
DEMAND
Direct
Programmatic
Network
A UNIFIED PLATFORM THAT CONSOLIDATES THE SUPPLY CHAIN TO DELIVER ENGAGED AUDIENCES AT SCALE.
SSP WEBSITESSP CONSUMEREXCHANGEATDBRAND AGENCY DSP NETWORK
TagManager
/SDK
Rhythm Guard
RhythmExchange
Analytics & Reporting
AdServer
DMP
RMP
27
RHYTHMMAX FOR ADVERTISERS
PERFORMANCE
FORECASTING
CREATIVES SAFETY
TARGETING
☂
SERVICESSECURITYOPTIMIZATIONAD SERVINGINFRASTRUCTURE
EXCHANGE TECHNOLOGY
RHYTHMMAX FOR PUBLISHERS
QUALITY
TRAFFICKING
PORTAL
YIELD
MONETIZATION
28
Continuing Operations
SUPPLY
Owned
Extended
Controlled
Direct
Programmatic
Network
DEMAND
Agency Services
Desktop Apps/Network
CORE
Non-Core
29
Fragmented Sector
Source: LUMA Partners, http://www.lumapartners.com/resource-center/RhythmOne Estimate
30
Scale and Scope
Source: LUMA Partners. Represents companies with over $100M/Yr in revenue.
31
Complete PlatformAUDIENCES474M Global Uniques 847B Desktop Opp/Month1,251B Mobile Opp/Month1,491B Display Opp/Month607B Video Opp/Month15B Native Opp/Month
BRANDSOver 500 top brands with campaigns across desktop and mobile video, display, social and native.
PUBLISHERS
Relationships with over 1,200 professional publishers.
DEVICESCross-screen advertising targetable across devices by individual or segment.
Source for scale figures: Global Uniques, Quantcast, May 2017; Opportunities – RhythmOne Platform, Monthly figures, 2017