XLMedia PLC – Business and Trading Update

XLMedia PLC – Business and Trading Update

XLMedia (AIM: XLM), a leading global digital performance publisher, today outlines a number of strategic initiatives following an internal review initiated by Stuart Simms, who was appointed Chief Executive Officer of the Group on 2 October 2019, and updates on trading for the remainder of 2019 and the full year to 31 December 2020.

The key elements of this internal review centre on the Group's operating model, organisational structure and culture.

Over the past two months, this ongoing review has assessed the core operational base of the business, including both scale and commercial responsiveness, with the resulting conclusion that the Group will require increasing expenditure in 2020 in order to support sustainable growth in the medium term. These new initiatives are aimed at strengthening the Group's core business, mitigating ongoing regulatory headwinds and better positioning the Group for growth.

The following decisions were taken to strengthen the foundations for the Group's wider growth aspirations:

·    To invest in and expand the Group's global publishing activities

XLMedia has over 13 years' experience as a technology-driven, online performance publisher and operates over 2,000 content rich websites across sectors. The Group's core skill is the creation of consumer engagement. The Group monetises online content by sending paying users to its partners and gets paid based on the value it brings to those partners through performance-based models. As a global business, XLMedia will seek to further deploy its online real estate and market knowledge to expand its geographical footprint in areas such as North and Latin America and APAC, and to broaden its growth potential.

Owning strong publishing assets puts the Group in a position to create better engagement and results than other traditional performance marketing, whereby consumers actively choose the content they want to consume, generating both greater value and increased levels of engagement.

To facilitate this expansion, management will increase its spend beyond historical budgets, in both new and existing online properties, to invest organically in the business alongside actively seeking acquisitions. This new initiative is designed to increase exposure and traffic in new territories in addition to improving engagement in existing territories through improved functionality, rich content and design. Ultimately, the Group aims to both extend its geographic reach and expand into new verticals, which complement the Group's existing focus on gaming, gambling, personal finance and sports betting.

·    To initiate a detailed review on the Group's technology platform to leverage data and AI opportunities more effectively

Going forward, the Company will seek to leverage opportunities that exist around smart data analysis and AI more effectively in order to deliver appropriate content and offers to consumers which, in turn, bring value to XLMedia's partners. A thorough review will be conducted in the next three months and the Company will re-focus its technology investments based on its findings.

·    To implement a transformation plan aimed to evolve the Group's operating model and people strategy

The plan is to review and address shortcomings of the current operating model through a structured program of transformation which will review, and evolve as necessary, all areas of the business. There are many talented people in the business and the review will have a particular focus on our employees and how best to retain and nurture talent. Management aims to implement a progressive people strategy, which complements the wider efforts to leverage both existing data and AI platforms. Immediate changes have already been made through eliminating executive positions which were held both at headquarter and at subsidiary levels, now operating with a unified, aligned executive team. These transformation costs are estimated to be c.$3 million in aggregate across 2019 and 2020.

Trading update

Trading for the year ended 31 December 2019 has been broadly consistent with previous guidance, with management focused on the planning and execution of the transformation strategy aimed at evolving the business for sustainable growth. The Board expects the Group to deliver consolidated revenues of c.$78 million and adjusted EBITDA1 to be c.$32 million for the year ending 31 December 2019.

Management remains encouraged by the US sports betting markets as they continue to regulate. The Group has already built a number of websites, is engaged with US users across multiple states, and is in the process of expanding its local presence. In addition, the Group is actively looking for acquisition opportunities to accelerate its expansion into this important market.

 

Regulatory headwinds highlighted earlier in the year are expected to continue to create trading uncertainty for XLMedia, and the review has been central in addressing the future diversification of the Group's revenue base. However, in the longer term, the board believes that fully regulated markets will provide better, sustainable conditions in which to operate.

 

As a result of the implementation of the initiatives outlined above, the Group will incur a greater level of direct costs (investment in core capabilities / assets / new markets) than was budgeted for in 2020 financial year, in addition to one off transformation costs which are estimated to be c.$3 million in aggregate across 2019 and 2020.

 

The combination of increased spend on direct costs to support growth, further predicted regulatory headwinds and implementation of a transformation plan which prepares XLMedia for the next phase of growth means the Board is today also updating market guidance for the year ending 31 December 2020.

 

The initiatives outlined above are proactive measures designed to benefit the business in the longer term. As a result of those measures, the investment and costs budgeted for 2020 are significantly higher than previously anticipated and will consequently impact the overall performance of the Group. Therefore, despite revenues for the year ending 31 December 2020 expected to remain broadly stable versus 2019, adjusted EBITDA is anticipated to be materially lower than previous management expectations.

Stuart Simms, Chief Executive Officer of XLMedia, commented:

"Having now spent a couple of months immersed in the business, I am excited to be leading it towards the next phase of growth. Whilst there are some clear near-term headwinds and operating issues (similar in many other companies of our size and stage of development), our core expertise, assets and market presence remain incredibly strong.

"We have already identified and are investing in market opportunities which will generate sustainable growth in the future. I look forward to the coming months to continue to evolve our strategy, progress with the transformation program and execution of our strategic plan."

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