Regulatory trends push revenue and profit down at XLMedia

24 September 2019

XLMedia has put a 10% year-on-year decline in revenue during the first half of the year primarily down to regulatory headwinds, while the digital marketing service provider also saw gross profit slip 9% in the period.

Total revenue for the six months through to June 30, 2019 amounted to $42.5m (£34.2m/€38.7m), compared to $47.2m last year.

XLMedia said regulatory headwinds led to a drop in core gaming activity, citing new regulations in Sweden as a particular issue, with revenue in the country down 23% year-on-year.

Aside from Sweden, XLMedia said it was also impacted by new regulation in the Swiss market, where licences for online gambling are only granted to a limited number of operators. As a result, XLMedia said most of its customers have exited the market, which has in turn negatively impacted its performance in the market.

In addition, the UK’s decision to increase the online casino tax rate from 15% to 21% hit the provider’s average revenue per user figures.

However, XLMedia did note that revenue from its personal finance assets was up from $3.1m to £6.0m, representing 14% of overall revenue for the period.

XLMedia also spent more during the first six months of the year, with the $14.5m in expenses being 6% ahead of $13.6m in the same period last year. This was mainly due to higher general and administration costs relating to changes in management and increased amortisation of capitalised R&D costs.

First half operating expenses included the first implementation of IFRS 16, a new accounting principle that requires a lessee to recognise assets and liabilities for leases with a term of more than 12 months. This meant amortisation expenses at XLMedia were up from $700,000 to $900,000.

R&D costs were level at $700,000 while investments in technology and internal systems developed were down from $4.3m to $4.1m. General and administrative expenses climbed from $10.4m to $11.2m.

Gross profit slipped from $31.7m to $28.8m and this, coupled with lower revenue and higher expenses, meant profit before tax dropped by 22% year-on-year from $17.6m to $13.8m.

Net income for the first half was also down by 14% year-on-year to $12.2m.

“This year has proven to be challenging for both XLMedia and the industry as a whole, as the gaming industry changes and regulates,” XLMedia’s chief executive Ory Weihs said. “However, this does result in the Group having greater visibility, more sustainable revenues and stable earnings.

“Whilst we expect this disruption to continue in the midterm, we remain committed to our stated strategy, focusing on publishing. We continue to diversify our asset base, specifically developing our US gambling strategy and the personal finance sector, in which we continue to make good progress with this sector now accounting for 14% of the group's revenues.”

Weihs also took the opportunity to pass on his best wishes Stuart Simms, who will replace him as chief executive next month. Simms, who was appointed to the position in July, will join XLMedia from Rakuten Marketing.

“As my last address as CEO of XLMedia, I would like to wish Stuart every success and firmly believe that with the support of the board and management team he will lead the business back to sustainable growth,” Weihs said.

This week, it was also confirmed that Yehuda Dahan has stepped down as chief financial officer of XLMedia.

XLMedia did not disclose the reasons behind the departure, but did confirm that it will immediately commence a search for a permanent replacement.

Liat Hellman, who is currently CFO for XLMedia’s Webpals subsidiary, will take on Dahan's role on an interim basis while a replacement is sought.