ZURICH, Switzerland – 23 February 2017 – Myriad Group AG (SIX Swiss Exchange: MYRN) today reported consolidated group revenue of USD 14.7m for the full year 2016.
Erik Hansen, Myriad Group Executive Chairman explains: “2016 was a year of transition for Myriad as the company moves to a more diversified business model, seeking to capitalize on the continued growth of mobile and digital markets. 2017 presents exciting opportunities for Myriad as we bring our new B2B Connect propositions into the market.”
Myriad Connect Division
In early 2016 Myriad rebranded the Myriad Connect division, a repositioning of the former Sub Data Division. We extended the existing portfolio with more advanced solutions for Mobile Network Operators (MNOs), content providers and large enterprises. These solutions enable MNOs, and enterprises worldwide to connect to ‘no data access’ consumers through compelling and more secure services. This is particularly important in emerging markets where the access to or cost of data is still beyond most consumers’ reach.
During 2016, Myriad Connect built on its strong relationship with MNOs worldwide. Myriad supports 35 operators worldwide with a strong presence in both Africa and Latin America. There are currently 220 million mobile phones running on Myriad USSD platforms operated by our MNO partners, with 1.5 billion USSD interactions processed every month.
We also introduced a platform-as-a-service (“PaaS”) proposition. The cloud-based platform enables enterprises to develop and deliver reliable, secure and cost-effective mobile services over USSD, bridging the gap between basic digital inclusion and the emerging app economy in developing markets. Early focus has been on the financial services sector, providing services such as multi-factor authentication (MFA) across mobile networks in a secure environment. We also believe that there is potential to use this PaaS in Internet of Things (IoT) applications.
As the market for USSD core services such as self-care and operational messaging becomes more commoditised, these newer generation services are intended to compensate and then offer growth opportunities for Myriad with both new enterprise customers and its existing stable of large MNOs.
In FY 2016, Myriad Connect had revenues of USD 11.0 million down 19% from USD 13.6 million in FY 2015. This decrease is attributable to continued pricing pressure on the established USSD core services, and the decision by Facebook to discontinue support for new users over USSD, thereby affecting revenue from VAS Services.
Over 2016, the strategy for Versy has been focused around the core concept that people want to chat about interests they have and share those with other people; and that this will provide a richer level of engagement from which to scale and ultimately to enable monetisation of those interactions.
The launch of the new Versy smart-phone only App during in the first half of 2016 also saw Versy enter the United States market, specifically targeting the US Hispanic millennial audience aiming to expand on its Latin American roots. The launch was coordinated with carefully chosen content publishers which are relevant, and provide reach, in both Latin America and the US market, including Allrecipes, Complex, Food Network, Fox Deportes and Refinery29.
Various product features and marketing approaches were field-tested in order to closely observe what drives user behaviour and conversation. Since the initial product launch, a number of key features were added to the platform to enhance user experience and facilitate engagement, including the introduction of video and audio; geolocation, enabling a community to identify users, conversations and events local to them; and the gamification of the platform, allowing users to compete virtually within Versy. Following the launch in Q1, we made a total of 18 releases on Android and iOS throughout the year.
Through a continuous feedback and development loop, we have been listening to our users and evolving the whole chat proposition from supporting content led conversation to a community led conversation. We believe the community approach will lead to both higher engagement and retention as Versy, over time, becomes more meaningful to end users. We believe it will shift user behaviour from “views” or “likes” towards real conversation and therefore a deeper and more retentive engagement. This is the basis for future monetisation.
Monthly unique visitors have decreased by 16% from 1,206,000 at 30 September 2016 to 1,012,000 at 31 December 2016 due to significantly reduced digital marketing expenditure over Q4 2016, whilst we continue to develop the community engagement proposition. As we communicated at the end of 2016, we have focused resources on generating more engaged and sustainable and therefore more valuable organic development. As a result, we de-emphasised paid content and materially reduced the Versy marketing budget.
Our research and development investment throughout the year was focused on the smart-phone only version of Versy (and not on Versy Lite), as this was essential to target our cash resources on the products with the most promising monetisation potential. After the end of free-data and SMS agreements provided by our operator partners during the first half of 2016, and after a meaningful transition period, we then announced the end-of-life of the Versy Lite product at the end of the year.
Device Solutions Division
The Device Solutions Division has extended several licensing and service deals with existing customers, including Arris, Technicolor and Jolla. Nonetheless, the Division continued to experience significant headwinds due mainly to the overall declining market for basic phones and Java-based products. As we had been expecting, the result was a marked decline in revenue from USD 12.9 million in FY 2015 to 3.5 million in FY 2016.
2016 Financial Results in Brief
Consolidated group revenue in FY 2016 was USD 14.7 million, down 46% from FY 2015 (USD 27.3 million). The decrease from FY 2015 was driven by the continued decline in revenue from the legacy Device Solutions Division, the pre-revenue state of the Versy product, pricing pressure in the market for core USSD services, and Facebook’s discontinuation of support for its product over USSD resulting in a decline in the market for those VAS services in the Myriad Connect division.
EBITDA before non-recurring items for FY 2016 was a USD 19.3 million loss (versus FY 2015 13.1 million loss). Versy investments focused on continued product and content development and significant marketing in key regions including Latin America, Brazil and the US Hispanic market during Q1 to Q3. Investments in Myriad Connect included key hires in field sales and marketing, and research and development to support the repositioning of the business in new markets.
We have continued to actively manage the cost base of the business, including a reduction in headcount from 180 to 146, resulting in annualised savings of USD 3.6 million. This has helped preserve cash for investment in the essential growth opportunities in Myriad Connect Services, and in parallel support the field testing of Versy.
Below EBITDA, the Group incurred a non-cash impairment charge of USD 6.5 million against intangible assets associated with the acquisition of Cellicium SA in 2006. This included goodwill and other intangibles previously allocated to the Sub Data division, and could not be deemed to be supported by expected future revenues from the new PaaS proposition which would form a new cash generating unit under the Myriad Connect division. These non-cash charges, together with the significant investments made throughout the year in Versy and the new lines of business within Myriad Connect, resulted in a net loss of USD 29.2 million (FY 2015 67.9 million loss).
We reported a cash position of USD 19.2 million at 31 December 2016 (USD 37.8 million at 31 December 2015).
Shareholder Approval of Opt-Out
At the 2016 Annual General Meeting held in March, the shareholders of Myriad approved the request of Patinex AG, Freienbach AG, to include an “Opting Out” clause in the articles of incorporation. With such amendment, a shareholder who exceeds the threshold value of 331/3% of our voting rights is no longer obliged to make a public offer to the other shareholders to acquire all of our listed equity securities. The Board of Directors believes that this has had a stabilising effect on the stock. Prior to the announcement of the Opting-Out in late December 2015, Myriad stock had been subject to large valuation swings, which the Board of Directors believes was in part due to the inherent risk in the Versy strategy driving speculative behaviour. The Board notes that the since the initial announcement of the Opting-Out, the stock price has enjoyed a period of low volatility and the Board believes this is in part is because of the beneficial counterbalance the Opting-Out has had on the volatility caused by short-term oriented investor activity in a relatively illiquid market.
Changes to the Executive Management Team
Stephen Dunford resigned as CEO of Myriad effective 31 January 2017 due to the illness of a family member. Erik Hansen is now our Executive Chairman. Mr. Hansen has served on the Board of Directors since 2012. As required under our Articles of Incorporation and in line with best governance practice, Mauro Saladini was named Lead Director in February 2017.
Changes to the Board of Directors
David Nuescheler notified Myriad that he did not intend to seek re-election to the Board of Directors at the 2016 Annual General Meeting due to increasing time commitments with his senior role at Adobe Systems. As part of the 2016 Annual General Meeting, the shareholders approved the nomination of David Galbraith to fill the vacancy created by Mr. Nuescheler’s departure.
We foresee Myriad Connect producing stable revenues in 2017. We are moving more resources from potential short-term revenue opportunities to more strategic long-term goals for the business, this will see the launch of our MFA proposition to challenge SMS in the mobile-identity market, where we believe USSD has a competitive advantage due to inherent security features.
We will also pursue unique and valuable opportunities for using our new PaaS proposition in specific areas of financial services and IoT, where we expect to continue further research and development with a view to launching commercial services in H2 2017.
Although the total number of users of Versy entering 2017 is below our initial estimates, development efforts during the first half of 2017 will stay focused on building engaged communities and encouraging and testing organic user growth. Marketing activity will continue to be significantly curtailed whilst this process continues as we seek to manage the Company’s resources in the most efficient and effective way. Versy did not contribute revenues during 2016, and based on industry comparable experience, is not expected to do so during 2017, as active user levels will most likely not be at the level drawing interest from digital marketeers.
Given the market constraints currently faced by the Device Solutions Division, Myriad continues to take steps to ensure that costs for Device Solutions tightly align with anticipated revenue.
We continue to manage our cost base, re-balancing the business to focus on more easily monetised B2B opportunities and provide resources for future growth. We expect to be in position to update our shareholders about the market opportunities existing for Myriad Connect, and progress on Versy, at an Investor Technical Briefing Day on 6th April 2017.
Summary Financial Information
|USD million||FY 2016||FY 2015|
|Adjusted gross profit1||5.7||16.6|
|Adjusted gross margin||39%||61%|
|Cash and cash equivalents||19.2||37.8|
1 Adjusted for amortisation, impairment, non-recurring items and restructuring costs.
2 Adjusted for non-recurring items and restructuring costs.
Information on Myriad’s 2016 Earnings call
Myriad will present its 2016 results to members of the media, investors and analysts today at 18:00 CET. There will be a presentation by Erik Hansen (Executive Chairman) and Peter McCormack (CFO), followed by a Q&A session.
|Dial-ins for the conference call:|
|0800 423 452
+41 (0) 44 580 0083
|0808 237 0030
+44 (0) 203 139 4830
|Participant Pin Code:||25474310#|
|Audience URL||click here|
The 2016 Report as well as the presentation slides for the Earnings Call are available on the company’s website: http://www.myriadgroup.com/investors/publications/