Operational Review  

Taptica entered 2017 with a significantly enhanced offering to Tier 1 advertisers, compared with the same period of the prior year, as a mobile-focused business centring on its own demand-side platform ("DSP"). During the period, the Company leveraged these capabilities and increased its sales & marketing efforts to grow its business with its existing household-name clients and gain new customers. As a result, mobile app customer revenue retention rate for H1 2017 over H1 2016 was 118% - with total revenue increasing by 27% to $65.6 million (H1 2016: $51.8 million).

In particular, the revenue growth was driven by the significant contribution to revenues from the Company's newly established international offices, particularly in the Asia-Pacific region. This evidences the Company's efforts to diversify the revenue base, although the US remained the largest single contributor to revenue.

Taptica continued to expand its global footprint with the establishment of a presence in Japan and the UK. In Japan, Taptica entered into a partnership with Adinnovation Inc. ("Adinnovation"), which specialises in mobile app and mobile advertising marketing promotion, implementation, management, tracking, and media site monetisation. The companies commenced working closely together, primarily targeting the mobile games industry, and post period, as announced on 7 July 2017, Taptica entered an agreement to acquire a majority shareholding in Adinnovation for up to $5.7 million. The management of Taptica expect this transaction to accelerate the raising of the Company's brand awareness in Japan, which they believe will be the next key growth market for mobile advertising due to its developed mobile networks and strong proliferation of smartphones, and facilitate its regional and global market expansion.

During the period, Taptica opened an office in the UK - becoming the fifth international market to have a Taptica presence after the US, China, South Korea and Japan. In the UK, Taptica will work with advertising agencies to bring brands into the digital and mobile world, with a primary focus on the entertainment, e-commerce, retail, digital banking, travel and gaming sectors. The Company intends to leverage its relationship with two of Europe's largest advertising agencies with headquarters in the UK to penetrate these sectors. Opening an office in the UK will enable Taptica to better serve its existing client base in the UK and Europe as well as to target new customers and further expand its addressable market.

Taptica also continued to enhance its offering through R&D into database and machine learning to further enhance its ability to leverage data, as well as through the continual development of user data to enable ever-more accurate user targeting.

Acquisition of Tremor Video's DSP

Post period, as announced on 7 August 2017, Taptica acquired Tremor Video's demand-side platform ("DSP") - a patented auto-optimisation solution for buying effective, programmatic cross-screen video brand advertising - thereby significantly enhancing the Company's offering and US presence. Since the acquisition, Taptica has been working closely with the Tremor Video DSP team and is very pleased with the initial progress and commitment of the unit's management. Based on the early indications, Taptica is confident that the Tremor Video DSP unit will achieve its targets for full year 2017 and the Company remains excited about the future prospects.   

Taptica is leveraging Tremor Video's established brand awareness in US markets, as well as their excellent client base, introducing its global business and cross-selling to multiply growth opportunities with Tier 1 customers. The Company has a significant competitive advantage with a unique offering built around next-generation mobile usage, combining mobile, video and social programmatic ad buying platforms for brands and their agencies to ever more accurately target their consumers and users. 

Financial Review

Revenues for the six months ended 30 June 2017 increased by 27% to $65.6 million compared with $51.8 million for H1 2016.

Gross profit increased by 45% to $25.8 million (H1 2016: $17.8 million), primarily representing the growth in overall revenue but also an improvement in gross margin to 39.4% (H1 2016: 34.4%). Cost of sales, which consists primarily of traffic acquisition costs that are directly attributable to revenue generated by the Company and based on the revenue share arrangements with audience and content partners, decreased as a proportion of revenue compared with the prior year due to increased technology efficiency gains resulting from improved use of the big data collected thereby significantly improving the gross margins.

Operating costs increased primarily due to greater sales & marketing expenses. Sales & marketing costs increased to $8.9 million (H1 2016: $5.7 million) as investments were made to enhance brand recognition, expand the global customer base and invest in the expansion of global offices. R&D expenses were $3.1 million (H1 2016: $2.5 million) due to investment in technology platform enhancements and database capabilities. General & administrative expenses were $3.5 million (H1 2016: $2.7 million), with the increase due to acquisition costs and investment into growing the global operations.

Adjusted EBITDA for the first half of 2017 was $13.1 million compared with $9.2 million for H1 2016, which is comprised as follows:

The Company continued to be cash generative with net cash provided by operating activities of $13.7 million (H1 2016: $4.5 million).

As at 30 June 2017, cash and bank deposits were $32.6 million (31 December 2016: $21.5 million) after making a $2.1 million dividend payment. Post period, the Company paid the initial acquisition payment of $4.4 million to Adinnovation and acquired Tremor Video's core video DSP business for $50.0 million, satisfied from the Company's own cash resources and a new $30.0 million loan facility from HSBC. As previously announced, the Company will receive a net working capital balance of $22.5 million as a result of the Tremor acquisition.

Comment on Industry News

Noting the press comment surrounding an open letter to Apple regarding browser changes due to be implemented with the introduction of iOS 11 to limit cross-website tracking, the Company welcomes the "Intelligent Tracking Prevention" feature and believes that this represents an opportunity for Taptica. For the past few years, Taptica has focused on mobile and in-app integration, which are not impacted by browser tracking restrictions. As a result of the upcoming browser changes, the Company anticipates greater demand for its services from advertisers that will shift their campaigns to in-app marketing, where Taptica has a strong market position.

Outlook

The Company is focused on building a business that is truly global in scale with the aim of establishing a presence in ten hubs worldwide in the next three years (Russia, China, Germany, San Francisco, New York, Korea, Japan, India, South America and the UK).

In the second half of the year, the Company made its largest acquisition to date when it purchased Tremor Video's industry-leading platform for video advertising optimisation. The acquisition has the effect of diversifying the Company's revenue streams and, added to the majority stake acquisition of Japan-based Adinnovation, gives the Company a broader footprint in the US and Asia-Pacific - the two standout regions for growth in digital ad spending. It also gives Taptica significant competitive advantage by building a unique offering around next-generation mobile usage, combining mobile, video and social programmatic ad buying platforms for brands and their agencies to ever-more accurately target their consumers and users. Based on the early indications, Taptica is confident that the Tremor Video DSP unit will achieve its target revenues for full year 2017 and the Company remains excited about the future prospects.   

With consumers continuing to increase their use of apps and accessing the internet on their mobiles, the Company anticipates that its strategy of on-boarding local advertisers onto global platforms will result in a significant increase in revenues worldwide. Trading since the period end has remained strong and, as a result, the Board remains confident of delivering strong year-on-year growth in line with market expectations.

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

*          Amounting to USD 1,944 thousand (31 December 2016: USD 3,177 thousand, 30 June 2016: USD 1,574 thousand) of amortization of purchased intangibles acquired in business combination and related acquisition expenses.

**         Amounting to USD 1,513 thousand (31 December 2016: USD 2,573 thousand, 30 June 2016: USD 1,087 thousand) of amortization of purchased intangibles acquired in business combination and related acquisition expenses.

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