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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Digital Globe | LSE:DGS | London | Ordinary Share | BMG2870A1036 | COM SHS USD0.001 (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 59.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMDGS
RNS Number : 5687L
Digital Globe Services Limited
04 October 2016
4 October 2016
Digital Globe Services, Ltd.
(the "Company", the "Group" and together with its subsidiaries "DGS")
Final Results for the year ended 30 June 2016
Digital Globe Services, Ltd. (AIM: DGS), a leading provider of digital marketing solutions for large, consumer-facing organisations, is pleased to report its Final Results for the year ended 30 June 2016.
Financial Highlights (US dollars)
Hot Features
Premium
-- Record revenue as a result of continued growth in core business and new verticals
-- Revenue increased 19% to $47.8M (FY15: $40.3M)
-- Revenue from verticals outside of the Company's core telecoms and media clients increased to $19.2M (FY15:
$15.3M)
-- Gross margin compression in second half due primarily to increased marketing investment in core business and new
verticals, resulting in gross margin for the year of 27.6% (FY15: 32.7%)
-- Gross profit of $13.2M (FY15: $13.2M)
-- Adjusted EBITDA* margin of 5.3% (FY15: 7.3%), reflecting investments in core business, technology enhancements
and acquisition of on-shore call centre
-- Adjusted EBITDA* of $2.5M (FY15: $3.0M)
-- Underlying adjusted EBITDA of $3.3M before reallocation of $0.8M of revenue reversal
-- Net loss of $4.9M driven primarily by non-cash goodwill impairment of $1.4M, write-down of $3.3M of aging
accounts receivables and $0.8M of revenue reversal**
-- Basic (loss) per share of ($0.18) (FY15: earning per share $0.09)
-- Balance sheet remains strong:
-- Cash on hand at 30 June 2016 of $1.3M (30 June 2015: $2.2M)
-- Additional cash availability of $3.5M from $5.0M short-term working capital revolver
-- No long term debt
-- The board does not recommend the payment of a final dividend resulting in a total dividend for the period of
$0.7M at $0.026 per share (FY15: $0.041) paid on 7 April 2016, resulting in a trailing dividend yield of
approximately 4%***
Strategic and Operational Highlights
-- Significant investment in people and technology to expand into new verticals and geographies:
-- Further investment in dgSMART and dgsAPI expected to drive margin improvement in FY17
-- Acquisition of a US-based contact centre to drive profitable growth in expanding satellite vertical
-- Launched 7degrees in H2, a social media advertising services agency, further diversifying Group revenues into
this rapidly growing market segment and providing strategic growth avenue for FY17 and beyond
-- Core customers continued their focus on subscriber acquisition and commercial services growth resulting in 21%
YoY revenue increase
-- Bolstered executive team with addition of new CRO
Outlook
-- Investments made in FY16 will drive margin expansion and profitable growth for the year ahead
-- FY17 trading expected to show continued revenue growth and a significant increase in profitability
-- Anticipated further consolidation within the competitive environment expected to bring improved margins over time
-- Continued focus on three pillars of growth: expansion within the existing client base, extension into new
geographical markets, and entrance into new industry verticals
Jeff Cox, CEO of DGS, commented:
"This financial year has been characterised by significant investment in both our technology and our people including growing our contact centre agent staff by 20%. Consequently we have recorded our highest ever revenue at $47.8M and increased our revenue from verticals outside of the Company's core telecoms and media clients to $19.2M from $15.3M in FY15. Furthermore, we are delighted to have won our first major European telecoms customer which we expect to start generating revenue for us in FY17. The consequence of the investments we made this year is a compression in margins causing our Adjusted EBITDA to drop to $2.5M from $3.0M in FY15. We expect the progress made in FY16 to continue into FY17 with a recovery in our margins as our investments bear fruit. We are confident in achieving continued growth and a significant increase in profitability in FY17."
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.
For further information please contact:
Digital Globe Services, www.dgsworld.com
Ltd.
Jeff Cox, CEO +1 303 736 2105
Panmure Gordon (UK) +44 (0)207 886
Limited 2500
Karri Vuori / Andrew
Godber / James Greenwood
+44 (0)208 004
Alma PR 4218
Josh Royston
Hilary Buchanan
Overview of DGS
Founded in 2008 with offices in London, Bermuda, Netherlands, USA and Ireland, DGS is a specialist provider of outsourced online customer, lead, and inquiry acquisition and digital media solutions for large, consumer-facing corporations. DGS delivers customers to its clients through optimised paid search, search engine optimization, mobile, integrated websites, e-mail, social media and contact centre support.
DGS is seeking to establish itself as the leading international provider of outsourced online customer, lead and inquiry acquisition, services, through its focus on having the premier technology platform in the industry. By using its optimising technology platform, dgSMART, and its experience of website management and digital media customer acquisition, efficient contact centre operations and other process expertise, DGS is able to acquire customers and achieve conversion rates that deliver profitable, high quality customers and valuable leads and inquiries to its clients.
DGS employs over 700 staff in Europe, North America and Asia. The Company currently has over 100 direct and indirect client relationships globally, many of which are with companies in the US Fortune 500.
Reconciliation of Net Profit/(Loss) to Adjusted EBITDA
Adjusted EBITDA Reconciliation
in US$ 2016 2015 2014
------------ ---------- -----------
Net Profit/(Loss) (4,944,537) 257,493 3,859,843
Plus/(Less)
Interest expense - net 209,885 70,862 5,258
Income Tax (Credit)/Expense (153,190) 405,077 (103,151)
Depreciation and amortisation 1,787,557 1,463,013 851,981
Bank charges 42,702 96,534 101,026
Foreign exchange gain or loss 15,837 9,123 (58,595)
Change in fair value of warrant (24,496) (301,555) 344,890
Restructuring costs 336,492 194,117 274,088
Write-back of contingent consideration - - (724,440)
Non-cash Employee Stock Option
Plan charges 522,794 756,092 781,470
Legal costs associated with
acquisition - - 57,300
One-time staff expense (training,
relocation, medical) 32,552 - 41,293
Goodwill impairment 1,425,587 - -
Bad debt write off 3,275,960 - -
Adjusted EBITDA 2,527,143 2,950,756 5,430,963
------------------------------------------ ------------ ---------- -----------
*EBITDA is earnings before interest, taxes, depreciation and amortisation. "Adjusted EBITDA" additionally excludes bank facility and other charges, foreign exchange gains or losses, non-recurring restructuring costs and non-cash Employee Stock Option Plan Charges, warrants, legal costs associated with the EDU acquisition, non-recurring severance and other employee costs and write-back of contingent consideration. A reconciliation is provided above.
** Assessed carrying value of intangibles and goodwill on the balance sheet for all entities and determined to impair $1.4M of DGS EDU goodwill. Board took the decision to write off or provision $3.3M of aging accounts receivables and reversal of $0.8M of revenue due to change in revenue recognition policy on merchant processing.
***Trailing dividend yield based on today's trading value: 4.3% = $0.026/(GBP0.47*$1.3/GBP1.0)
Chairman and Chief Executive Review
This has been a year of record sales for the Group combined with operational improvements. The Group has finished fiscal year 2016 as a larger business, with an expanded service and technology offering and in a better position to grow profitably than ever before.
Throughout fiscal year 2016, the Group successfully grew top line revenue while also investing in the Group's growth and product and service offering. Key developments in the period include new business opportunities and revenue growth in the commercial cable space, a growing service offering outside of the Group's traditional domestic cable space; further expansion of the technology platform enabling deeper penetration into the value chain for cable service delivery; and the launch of a new service offering, 7degrees, which expands the Group's reach into the fast growing social media advertising space.
As a result, the Group delivered year over year revenue growth of 19%. Gross margins experienced compressions in the second half of the year, due in part to our entry into new industry verticals such as energy and utilities where we won new customers, as well as our strategic investments in growing the core business, investing in our technology and geographic expansion. Gross profit remained level at $13.2M and adjusted EBITDA declined by $0.5M to $2.5m. Net income was a loss of $4.9M due to $3.3M of aging accounts receivables written to bad debt and provision and $0.8M in revenue reversal due to change in revenue recognition policy for merchant activity (total revenue and AR treatment of $4.1M). Gross margins and EBITDA are expected to recover to historic levels as new business matures and as the Group yields returns on the monetization of its technologies through third parties and new verticals.
The investments in significant core market share growth were reflected in our revenue growth but also margin compression as a result of higher direct labour costs associated with the acquisition of an on-shore call centre required for new vertical expansion, higher affiliate expenses required to service our expanding industry footprint and higher advertising expenses associated with higher overall volume share. As explained in the year-end trading update, management expects margins to return to historic levels as the Company uses its proprietary dgSmart technology to optimise performance of the expanded core business. In the first half of FY16, we successfully maintained the strong margins we delivered coming out of the last fiscal year, while over the course of the second half we expanded our core business, strengthened our technology and launched expansion efforts into new verticals. We believe the Company is now in a better position in terms of technology and service offering, expanded core market share and customer relationships, and new revenue opportunities to drive sustainable, profitable revenue growth creating value for our shareholders and stakeholders in FY17 and beyond.
Our core business and new verticals drove the strongest revenue performance the Company has ever delivered. The fiscal year returned to top-line growth rates of 19%; something that we and our shareholders expect. The future market opportunity remains robust. We continue to be recognised as a leader by our peers and partners in the rapidly growing global digital media advertising industry. The Company continues to see digital advertising budgets grow within its core clients as a result of their renewed focus on profitable revenue growth following multiple mergers within the cable space, and as we increase our market share, we remain focused on providing high quality consumer relationships for our customers. Additionally, we believe our 7degrees business has strategic and technology advantages over industry incumbents and expect this to create sizable future growth opportunity within the online advertising services space.
It is our privilege to work with a diverse set of colleagues across the globe. In the past three years, we have significantly bolstered the executive team, global management and technology groups, as well as expanded our lines of business across multiple verticals, channels and geographies. Our competitive advantage lies in our ability to quickly deploy new technology and human capital, as needed, to respond and anticipate our customers evolving needs in the rapidly evolving digital marketplace. The willingness and professionalism demonstrated by our teams is a credit to them.
We pride ourselves on keeping management layers thin, our executives both highly accountable to performance objectives and close to our operations helps to further our Group growth strategy as we strive to become and stay the number one customer acquisition partner to our clients. Our Board has been strengthened over this past fiscal year with the additions of Dave Flowers and Simon Lee as Non-Executive Directors, and has continued to provide valuable strategic guidance and focus to growing the intrinsic value of the Group. We are grateful for the contributions of the entire team from each Board member to the first ad campaign builder on our marketing science team. We are at an exciting point in our growth path and, following significant investment in FY16, we look forward to profitable growth in core business, new verticals and revenues in new geographic locations in FY17.
Financial Review
In the financial year ended 30 June 2016, the Group produced revenues of $47.8M (FY15: $40.3M; FY14: $38.9M) and $2.5M in adjusted EBITDA (FY15: $3.0M; FY14: $5.4M). The non-cash charge mandated by US GAAP for the Stock compensation expense for the year was $0.52M. Reported operating (loss)/profit was ($4.9M) (FY15: $0.5M; FY14: $3.5M).
The Company expects to invest further in both geographical and vertical expansion in the coming year and will keep reserves for that expectation. Additionally, in accordance with the shareholder approval received in the Annual General Meeting on November 12, 2015, the Company will keep further reserves to make purchases of its own shares when the Board believes the intrinsic value of the Group is not properly reflected in the market capitalisation. Such purchases will be made in accordance with the Bermuda law, the rules of the AIM Market of the London Stock Exchange, the By-Laws of the Company and the collar and cap requirements of the shareholder approvals.
The Group delivered adjusted EBITDA of $2.5M (FY15: $3.0M) for the period despite strategic second half investments in market share growth, technology and vertical expansion. We expect positive top line growth year over year to continue along with EBITDA margin improvement for the full year 2017, realizing the benefits of investments made this year.
In the 3(rd) quarter of FY16, the Group amended its $3M Working Capital Facility with Heritage Bank of Commerce in San Jose California, United States, expanding the capacity to $5M. The amount drawn down on this facility as at 30 June 2016 was $1.5M. At the end of the first half of FY16, the Company maintained a cash balance of $0.6M. At the end of FY16, the Company held a cash balance of $1.3M. The Group continues to produce cash, permitting it to make planned capital investment in further expansion or for acquisitions to support its three pillars of growth. During the period the Group wrote off as bad debt expense and made revenue adjustments totaling $4.1M. $3.3M AR was booked as bad debt and provision ($1.4M bad debt, and a reserve against $1.9M of total accounts receivable that management believes is still collectable and continues to pursue) and reversed $0.8M of revenue based on a change in revenue recognition policy for merchant processing. As a result, accounts receivable decreased to $6.0M as against $10.2M at the half year.
In accordance with US GAAP standards as part of its annual impairment review, the Group is required to qualitatively test the intangible assets and goodwill for each entity and compare it to the entity's carrying value. The results of the qualitative assessment required that the EDU business be assessed via detailed quantitative analysis; the carrying value of which resulted in a lower value than the combined total of intangible assets and goodwill. Per US GAAP, the review and subsequent analysis required that we impair the full $1.4M of goodwill held in EDU. This is a non-cash adjustment that does not impact the ongoing operations of the Group or individual business units.
Operational Review
Business Model
The Group's business model remains principally performance-based, where the Group earns revenue from fee-per-customer, lead and inquiry arrangements from its core business, as well as management fees based on account size and successes for its 7degrees business. Group clients pay a fixed commission for each customer, service, lead or inquiry that the Group successfully acquires on their behalf, as well as a percent-based fee for management services to the 7degrees business for its clients. The Group has expanded beyond paid search and search engine optimization ("SEO") and into e-mail, social media advertising and relationships with other companies that perform on-line customer acquisition activities. As Google, the Group's largest vendor, continues to adapt its business model to deliver more revenue through higher Cost-Per-Click, we will continue to ensure our proprietary systems can respond in such a way as to ensure the paid search business remains profitable while at the same time continuing to reduce the percentage of the overall cost of goods sold that paid search represents. The strategic launch and expansion of the 7degrees business has allowed the Group to not only expand its monthly advertising under management for itself and its clients, but diversify that more steadily into other advertising channels such as Facebook, Instagram and other emerging social advertising platforms. Through its new JV, ClearConnect, the Company has started to grow revenues from the commercial services offered by its core clients (JV FY16 revenue $170k). Typically, the business model for commercial accounts includes a one-time bounty paid up front, plus a recurring revenue model that is paid out over the lifetime of the customer.
Strategy
The Company has continued to focus on its three pillars of growth: growth within the core business, extension into new geographical markets, and entrance into new industry verticals.
Expansion within core US clients
With its existing client base, we believe the Company continues to lead its competitors in organic revenue and market share growth. Relationships with our principal clients remain strong as we continue to focus on procuring those customers with the longest recurring value to our clients. We believe that we have captured increased market share during the fiscal year as we had the flexibility to rapidly respond to market challenges that prompted consolidation amongst some of our competitors. During the year, we have expanded our relationships and won new customers within our core business resulting in increased volumes. This increased volume was driven by growth within the existing product suite of video and broadband services, and through the addition of home automation and security related products.
In late fiscal 2014 we began deploying our SaaS integration platform, dgsAPI, which permits national, regional and local affiliates to sell services on behalf of our clients. We have incorporated key capabilities of dgSmart into this platform and we will continue to focus on integrating these two technologies onto a unified platform.
It continues to be our belief that the newly formed entities resulting from the recent mergers between many of our largest clients will benefit the Company. For example, the merger of Charter and TimeWarnerCable includes the addition of over two million homes that are serviced by BrightHouse Communications but not currently serviced by the Company and therefore presents opportunities to significantly expand our addressable market. The Group intends to be the premier service provider to the evolving industry, recognised for its superior capabilities in driving new subscribers with greater customer lifetime value and an innovation partner in providing software platform solutions.
Extension into new Geographical Markets:
The Company has continued to explore geographic expansion that is both value and profit accretive. In July 2016, the Company signed an agreement with a European telecom operator and expects to launch services to this customer in the new financial year.
Entrance into New, Relevant Verticals:
The Group was able to grow revenues outside of its largest core telecoms and media clients from $15.3M in FY15 to $19.2M in FY16. The launch of our 7degrees business in FY16 leverages the strategic advantages the Company maintains in team size, performance, geographic location and cost within its marketing science division and enables the Company to grow revenues across verticals as digital advertising within the US and EMEA markets expands across Facebook and Google in particular. Our strategy is to continue to grow revenue from core clients while at the same time accelerating growth outside of the core cable and telco customers. We further expect to grow the customer acquisition business into the growing small and medium business sector through organic growth and acquisition.
Product and Service Development
During the FY16 we continued to expand resources in our Business Intelligence ("BI"), Analytics and Software Development Teams. Our entire BI team is Google Adwords Certified within one year of being hired. Additionally, we have implemented Facebook ad and SEO certification programmes for existing staff and new hires to further diversify and differentiate the skill set of the team. As a result, our BI team has developed a reputation for highly competent and client focused analysis that is valued by our clients and partners, which we believe will further enable our expansion within the existing client base and into new verticals. The investments in the BI team development enabled the launch of the 7degrees business in FY16, gaining quick recognition from both the Google and Facebook agency partner teams. Our focus on hiring software developers to build out our new business services lines and custom software for our clients and partners continues to yield results with additional efficiencies in ad spend and revenue increments, as well as the development of monetizable platforms.
Mobile search has become the predominant manner in which consumers shop. In the FY15 mobile search represented approximately 76% of click-throughs to our websites. In FY16, mobile search represented approximately 95% of click-throughs to our websites. In this same period, Click to Call to our call centres increased from 67% in FY15 to 95% in FY16. The focus of our development is to ensure that consumers have the maximum choice of two-way communication with us on any type of mobile or fixed device in the manner that the consumer chooses. With the growth in mobile, we invested heavily to be at the front of technology adoption and will continue to do so. Our advantages in technology and cost structure within our call centres offer long term, sustainable advantages over our competition.
We operate and manage call centres in Pakistan, Philippines and the United States. We use our call centres to qualify and sell prospects products and services from our clients, unless those prospects complete a purchase exclusively on-line including via desktop or mobile internet. A significant number of our sales and qualified leads are derived from a prospect calling into a call centre based upon information from websites owned or operated by the Group. During FY16, we increased the number of call centre agents to meet increased usage on higher call volumes driving higher revenue. Our retention rate in our Pakistani call centres is higher than industry averages, with a low voluntary employee turnover of approximately 5% per month. Given the continued leading performance of our Pakistani call centres, we intend to continue to expand our call centre footprint in our Lahore and Karachi centres when justified by demand. During FY16, we also acquired a US-based call centre in the Dallas, TX metro area, necessary to serve new partners operating in the energy and other new verticals requiring onshore centres.
Acquisitions
The Company continues to explore acquisition opportunities, both in the US and European markets, that align with our acquisition criteria.
Summary & Outlook
In the coming year we look forward to aggressively pursuing our three pillars of growth: expanding within the existing client base, extending our business into new geographies and expanding in new, relevant verticals. The Company has reacted decisively to align the business to service more effectively its core clients and we continue to invest in technology innovation to capture additional opportunities in other verticals and geographies, especially through the growth of our 7degrees business. We have maintained growth throughout the year and expect to accelerate this momentum in the year ahead.
3 October 2016
Zia Chishti Jeff Cox Chairman of the Board Chief Executive Officer
Consolidated Statements of Income
For the year ended 30 June 2016
2016 2015
Notes US$ US$
------------------------------------------- ------ ------------ -----------
Revenue 47,751,712 40,271,031
Cost of Revenue
Search engine expenses 12,421,013 10,928,835
Lead generation 13,837,577 10,008,728
Call centre costs 5,562,235 4,564,860
Communication 1,074,898 678,374
Other cost of revenue 1,662,105 904,385
Total cost of revenue 34,557,828 27,085,182
------------------------------------------- ------ ------------ -----------
Gross profit 13,193,884 13,185,849
------------------------------------------- ------ ------------ -----------
Selling, General and Administrative
Expenses
General and administrative costs 704,296 591,318
Salaries and other employee costs 6,377,347 6,720,538
Stock compensation expense 522,794 756,092
Third-party consultants 370,351 460,851
Rent and utilities 785,471 629,675
Traveling and entertainment 539,623 379,753
Insurance 505,779 497,961
Office supplies, printing, postage 83,576 75,972
Communication 442,027 292,709
Legal and professional expenses 717,076 573,647
Depreciation and amortisation 1,787,557 1,463,013
Goodwill Impairment 6 1,425,587 -
Foreign currency exchange loss 15,837 9,123
Write down of trade accounts receivables 3,275,960 -
Other expenses 357,884 206,786
Total selling, general and administrative
expenses 17,911,165 12,657,438
------------------------------------------- ------ ------------ -----------
Operating (Loss)/Profit (4,717,281) 528,411
------------------------------------------- ------ ------------ -----------
Other Expenses/(Income)
Interest expense 209,885 70,862
Bank charges 42,702 96,534
Warrant (24,496) (301,555)
Share of loss of equity-accounted 152,355 -
investees
Total other expenses/(income) 380,446 (134,159)
------------ -----------
(Loss)/Profit before income taxes (5,097,727) 662,570 Deferred Tax (benefit)/expense 7 (210,887) 304,949 Current Tax Expense 7 57,697 100,128 ------------------------------------------- ------ ------------ ----------- Net (Loss)/Profit (4,944,537) 257,493 ------------------------------------------- ------ ------------ ----------- (Loss)/Earnings per share - basic 11 (0.181) 0.009 (Loss)/Earnings per share - diluted 11 (0.181) 0.009 Shares used to compute basic earnings per share 11 27,318,424 27,326,448 Shares used to compute diluted earnings per share 11 27,577,498 27,701,503
Statement of Other Comprehensive Income
For the year ended 30 June 2016
Notes 2016 2015
US$ US$
(Loss)/Profit for the Year (4,944,537) 257,493
Other Comprehensive income for
the year
-Foreign Currency Translation (98,051) -
Difference
Total comprehensive (loss)/ income
for the year (5,042,588) 257,493
--------------------------------------------- ------------ --------
Consolidated Balance Sheets
As at 30 June 2016
Notes 2016 2015
US$ US$
Assets
Current Assets
Cash and cash equivalents 3 1,259,045 2,150,480
Trade accounts receivable, net
of allowance for doubtful debt
of $,1,905,282 (2015: Nil) as
at June 30, 2016 5,966,688 10,200,707
Related-party receivables 9 624,373 270,384
Prepayments and other assets 662,155 1,214,166
Deferred tax asset 7 581,043 78,136
Total Current Assets 9,093,304 13,913,873
----------------------------------------- ------ ------------ -----------
Non-Current Assets
Goodwill 6 260,632 1,631,969
Intangible Assets 5 2,778,065 3,320,594
Property and equipment, net of
accumulated depreciation of $1,432,002
(2015: $903,577) as at 30 June
2016 4 1,079,935 1,116,433
Investment in Joint Venture 287,645 -
Total Non-Current Assets 4,406,277 6,068,996
----------------------------------------- ------ ------------ -----------
Total Assets 13,499,581 19,982,869
----------------------------------------- ------ ------------ -----------
Liabilities and Stockholders'
Equity
Current Liabilities
Revolving line of credit 1,505,109 1,792,301
Accounts payable 4,877,101 4,793,939
Related-party payables 9 440,778 250,200
Other liabilities 999,870 1,392,770
Income tax payable 7 191,683 140,623
Total Current Liabilities 8,014,541 8,369,833
----------------------------------------- ------ ------------ -----------
Non-Current Liabilities
Deferred tax liabilities 7 405,086 113,067
Total Liabilities 8,419,627 8,482,900
----------------------------------------- ------ ------------ -----------
Stockholders' Equity
Common stock, $0.001 par value,
Authorised shares 120,000,000
shares, shares issued and outstanding
29,926,472 at 30 June 2016 and
30 June 2015 29,926 29,926
Additional paid-in capital 8,731,123 10,005,505
Treasury stock, at cost (71,665 (78,549) -
shares)
Warrant 18,839 43,335
Accumulated and other comprehensive
loss (98,303) (252)
Retained (deficit)/earnings (3,523,082) 1,421,455
----------------------------------------- ------ ------------ -----------
Total Stockholders' Equity 5,079,954 11,499,969
----------------------------------------- ------ ------------ -----------
Total Liabilities and Stockholders'
Equity 13,499,581 19,982,869
----------------------------------------- ------ ------------ -----------
Consolidated Statements of Stockholders' Equity
For the year ended 30 June 2016
Number of Common Additional Treasury Warrant Accumulated Accumulated Total
Shares in stock paid-in Stock other Deficit/Retained
Issue capital comprehensive Earnings
loss
----------- ------- ------------ --------- ---------- -------------- ----------------- ------------
No $ $ $ $ $ $ $
Balance, 30
June 2014 29,926,472 29,926 10,195,177 - 344,890 (252) 1,163,962 11,733,703
Stock
Compensation
expense - - 756,092 - - - - 756,092
Stock option
exercise - - 46,840 - - - - 46,840
Fairvalue
movement in
Warrant - - - - (301,555) - - (301,555)
Net profit
for the year - - - - - - 257,493 257,493
Dividend paid - - (992,604) - - - - (992,604)
Balance, 30
June 2015 29,926,472 29,926 10,005,505 - 43,335 (252) 1,421,455 11,499,969
----------- ------- ------------ --------- ---------- -------------- ----------------- ------------
Stock
Compensation
expense - - 522,794 - - - - 522,794
Stock option
exercise - - 58,668 - - - - 58,668
Treasury
stock buy
back - - - (78,549) - - - (78,549)
Fairvalue
movement in
Warrant - - - - (24,496) - - (24,496)
Net loss for
the year
ended - - - - - - (4,944,537) (4,944,537)
Foreign
currency
translation - - - - - (98,051) - (98,051)
Dividend paid - - (1,855,844) - - - - (1,855,844)
Balance, 30
June 2016 29,926,472 29,926 8,731,123 (78,549) 18,839 (98,303) (3,523,082) 5,079,954
----------- ------- ------------ --------- ---------- -------------- ----------------- ------------
Consolidated Statements of Cash Flow
For the year ended 30 June 2016
2016 2015
US$ US$
Cash flows from operating activities
Net (Loss)/Income (4,944,537) 257,493
Depreciation and amortisation 1,787,557 1,463,013
Goodwill Impairment 1,425,587 -
Interest Expense 209,885 70,862
Income tax expense 51,060 73,239
Stock compensation expense 522,794 756,092
Share of loss of equity-accounted 152,355 -
investees
Fair value difference on warrant (98,051) -
Foreign currency translation loss (24,496) (301,555)
Adjustment to reconcile net income
to net cash provided by operating
activities:
Changes in assets and liabilities:
Accounts receivable 4,234,019 83,452
Related-party receivables (353,989) (127,168)
Prepayments and other assets 367,011 63,836
Accounts payable 76,987 1,090,942
Related-party payables 190,578 250,200
Other liabilities (587,993) 31,655
Deferred tax - net (210,888) 304,949
---------------------------------------- -------------- --------------
Net cash provided by operating
activities 2,797,879 4,017,010
---------------------------------------- -------------- --------------
Cash flows from investing activities
Acquisition of DSI business (440,000) -
Investment in Joint Venture (440,000) - Purchases of intangible assets (164,303) (2,229,337) Purchases of tangible assets (278,384) (311,103) ---------------------------------------- -------------- -------------- Net cash used in investing activities (1,322,687) (2,540,440) ---------------------------------------- -------------- -------------- Cash flows from financing activities Proceeds from revolving line of credit 42,457,237 28,828,490 Payment of revolving line of credit (42,744,429) (28,052,873) Interest Paid (203,710) (65,524) Proceeds from exercise of share options 58,668 46,840 Buy back of Treasury Shares (78,549) - Dividend paid (1,855,844) (992,604) ---------------------------------------- -------------- -------------- Net cash used in financing activities (2,366,627) (235,671) ---------------------------------------- -------------- -------------- Net (decrease)/increase in cash (891,435) 1,240,899 Cash at the beginning of the period 2,150,480 909,581 ---------------------------------------- -------------- -------------- Cash at the end of the period 1,259,045 2,150,480 ---------------------------------------- -------------- -------------- Supplement disclosures of Cash Flow Information Cash paid during the period for interest 203,710 64,524 Cash paid during the period for - - income tax
Notes to the consolidated financial statements
30 June 2016
1. Segment reporting
The information being presented to and reviewed by the chief operating executive (i.e. the Group's Chief Executive Officer) is divided into three main reporting segments the company's core businesses DGS Inc., and Telsat Inc. as well as DGS EDU the education lead-generation business (EDU). DGS Inc. is the main business for core customers in the cable industry (Comcast, TimeWarner and Charter), Telsat Online Inc. (which includes the acquisition of the call center and affiliate relationships from DSI Distributing Inc.) for non-cable clients in telecommunications and telephone (CenturyLink and ATT), as well as satellite providers (DirecTV) and DGS EDU being the lead generation business for prospective students of for-profit and not-for profit universities and educational institutions.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The segment performance is evaluated based upon Net Income.
The following table presents information of our various segments.
30 June 2016
DGS
DGS EDU TELSAT INC TOTAL
$ $ $ $
Revenues from external
customers 5,237,701 5,217,621 37,296,390 47,751,712
Revenues from major
customers
- Comcast Corporation - - 13,825,091 13,825,091
Revenues from major
customers
- Time Warner Cable - - 6,782,367 6,782,367
Revenues from major
customers
- Charter Communications - - 6,112,023 6,112,023
Depreciation and
amortisation 344,952 145,129 1,297,476 1,787,557
Impairment of goodwill 1,425,587 - - 1,425,587
Interest expense - - 209,885 209,885
Segment (loss)/profit (3,275,543) (1,865,912) 196,918 (4,944,537)
Income tax expense - - 57,697 57,697
Other significant
non-cash
items - stock
compensation
expense - - 522,794 522,794
Segment assets 1,853,859 3,888,869 7,756,853 13,499,581
Expenditures for segment
assets - 440,000 882,687 1,322,687
30 June 2015
DGS
DGS EDU TELSAT INC TOTAL
$ $ $ $
Revenues from external
customers 6,802,927 4,122,994 29,345,110 40,271,031
Revenues from major
customers
- Comcast Corporation - - 10,630,775 10,630,775
Revenues from major
customers
- Time Warner Cable - - 5,257,587 5,257,587
Revenues from major
customers
- Charter Communications - - 5,736,587 5,736,587
Depreciation and
amortisation 394,721 14,403 1,053,889 1,463,013
Interest expense - - 70,862 70,862
Segment (loss)/profit (183,394) (667,888) 1,108,775 257,493
EBITDA 371,755 (618,678) 2,443,368 2,196,445
Income tax expense 428 34,807 369,842 405,077
Other significant
non-cash
items - stock options
plan charge - - 756,092 756,092
Segment assets 5,079,740 2,587,755 12,315,374 19,982,869
Expenditures for segment
assets 1,385 - 2,539,055 2,540,440
Disclosed in the following table is the company's geographical information:
Geographic Information 30 June 2016 30 June 2015
---------------------------- -------------------------------
Long-Lived Long-Lived
Revenues Assets Revenues Assets
$ $ $ $
United States and Canada 47,751,712 180,340 40,271,031 81,235
Pakistan - 899,595 - 1,035,198
47,751,712 1,079,935 40,271,031 1,116,433
=========== =============== ============== ===============
2. Dividend
During the year ended 30 June 2016, the Group paid dividend of $1,855,844 (2015: $992,604) as follows:
30 June 2016 30 June 2015
Dividend
per Total Dividend Total
Date share Dividend Date per share Dividend
-------------- ---------- ------------ ----------- ----------- -----------
23 September GBP 28 October
2015 0.0269 $1,132,930 2014 GBP0.0224 $ 992,604
11 March GBP
2016 0.0181 $ 722,914
3. Cash and cash equivalents
2016 2015
$ $
Cash in hand 8,505 1,338
Cash in transit 809,588 905,497
Cash at bank 440,952 1,243,645
Total cash and cash equivalents 1,259,045 2,150,480
========== ==========
The group has foreign cash and cash equivalent currency balances at 30 June 2016 of $82,520 (2015: $45,179).
4. Property and equipment
2016 2015
$ $
Property and equipment - net 920,421 1,105,369
Capital work in progress 159,514 11,064
Total property and equipment - net 1,079,935 1,116,433
============ ===========
2016 2015
$ $
Building 263,558 280,355
Computer and office equipment 1,139,477 1,021,229
Electrical equipment 423,902 372,971
Furniture and fixtures 525,486 334,391
2,352,423 2,008,946
Less: Accumulated depreciation (1,432,002) (903,577)
------------ -----------
Property and equipment - net 920,421 1,105,369
============ ===========
Depreciation for the years ended 30 June 2016 and 2015 amounted to approximately $528,425 and $502,311 respectively. There were no disposals or impairment during the year ended 30 June 2016.
5. Intangibles
Intangibles consist of the following:
30 June 2016
------------------------------------------------------------------------
Weighted
average Gross Net
amortisation carrying Accumulated carrying
period amount amortisation amount
-------------- -------------- ------------------- ------------------
Amortising intangible
assets: $ $ $
Software 4-5 yrs 3,613,640 1,919,259 1,694,381
Research & Development 3 yrs 65,671 56,562 9,109
Covenant Not To Compete 2 yrs 150,000 150,000 -
Customer Based Intangibles 6 yrs 1,674,300 599,725 1,074,575
Total 5,503,611 2,725,546 2,778,065
============== =================== ==================
30 June 2015
------------------------------------------------------------------------
Weighted
average Gross Net
amortisation carrying Accumulated carrying
period amount amortisation amount
-------------- -------------- ------------------- ------------------
Amortising intangible
assets: $ $ $
Software 4-5 yrs 3,449,337 1,128,687 2,320,650
Research & Development 3 yrs 65,671 34,671 31,000
Covenant Not To Compete 2 yrs 150,000 125,000 25,000
Customer Based Intangibles 6 yrs 1,307,000 363,056 943,944
Total 4,972,008 1,651,414 3,320,594
============== =================== ==================
Aggregate amortisation expense for amortising intangible assets was $1,295,132 for the year ended June 30, 2016, this includes $185,000 for an asset that was put to use and fully amortised during the year and $960,702 for the year ended June 30, 2015. There were no disposals or impairment during the year ended 30 June 2016. Estimated amortisation expense for the next five years is: $890,345 in 2017, $712,276 in 2018, $555,575 in 2019, $488,906 in 2020 and $244,453 in 2021.
6. Goodwill
The Company performed its annual goodwill impairment test as of June 30, 2016. The Company performed a qualitative assessment of each reporting unit and determined that it was not more-likely-than-not that the fair value of the DGS Inc. and Telsat Online reporting units were less than their carrying amount. As a result, the two-step goodwill impairment test was not required and no impairments of goodwill were recognized in 2016.
For DGS EDU, the qualitative assessment required the two-step quantitative analysis of goodwill impairment to be conducted. When performing a quantitative assessment, we estimate the fair value of our EDU business based on a discounted cash flow over a 5 year horizon with a terminal value. Revenues, cost of goods sold and SG&A were extrapolated from current levels with the core business modeled as a stand-alone entity. The result of the analysis indicated that the reporting unit goodwill was impaired, and an impairment charge equal to the goodwill attributable to the DGS EDU business was recognised.
The changes in the carrying amount of goodwill for the year ended 2016 and 2015 are as follows:
Year ended 30 June 2016
TELSAT DGS DGS TOTAL
ONLINE EDU INC
$ $ $ $
Gross goodwill as
on
1 July - 1,425,587 206,382 1,631,969
Goodwill acquired
during
the year 54,250 - - 54,250
Goodwill impaired
during
the year - (1,425,587) - (1,425,587)
Gross goodwill as
on
30 June 54,250 - 206,382 260,632
===================== ===================== ===================== =====================
Year ended 30 June 2015
TELSAT DGS DGS TOTAL
ONLINE EDU INC
$ $ $
Gross goodwill as
on
1 July - 1,425,587 206,382 1,631,969
Goodwill acquired - - - -
during
the year
Gross goodwill as
on
30 June - 1,425,587 206,382 1,631,969
===================== ===================== ===================== =====================
7. Income taxes
The tax provision consists of the following:
2016 2015
$ $
Current tax expense
Federal - -
State Tax 7,088 27,666
Foreign 50,608 72,462
----------- -----------
57,697 100,128
Deferred tax (benefit)/expense
Federal (190,614) 287,727
State Tax (20,273) 17,221
Foreign - -
----------- -----------
(210,887) 304,949
Total income tax (credit)/expense (153,190) 405,077
=========== ===========
The U.S. tax provision calculations include DGS, Inc, DGS Edu, LLC, Telsat Online, Inc, DGS Auto, LLC, DGS Lake Ball LLC and DGS 7 Degrees LLC. Additionally, included in the provision are DGS Cyprus Limited, DGS Tech (Ireland) and DGS BV (Netherland). DGS Private Limited (Pakistan) is exempt from corporate income tax under Pakistan's tax laws, being an exporter of IT enabled services. DGSL (Bermuda based holding company) became a UK tax resident on 26 June 2013 and files its tax return in the UK.
The Group recognizes deferred tax assets on deductible temporary differences and deferred tax liabilities on taxable temporary differences. Temporary differences are the differences between the reported amount of assets and liabilities and their tax bases. As those differences reverse, they enter into the determination of future taxable income included on the tax return. Management has evaluated the Group's tax positions and concluded that the Group had taken no uncertain tax positions that require adjustment to the consolidated financial statements. The Group recognizes interest and penalties related to uncertain tax positions in income tax expense. As of 30 June 2016, the Group had no provision for interest or penalties related to uncertain tax positions. The years 2011-2015 are open to examination by the tax authorities.
The following shows the nature and components of Group's deferred tax asset and liabilities:
2016 2015
$ $
Current deferred tax asset
Net operating losses 5,997,271 1,856,716
Valuation allowance (5,877,195) (1,922,640)
Amortisation of intangibles 460,654 144,060
Depreciation 313 -
581,043 78,136
============ ============
Non-current deferred tax liabilities
Depreciation (362,499) 50,616
Amortisation of intangibles (42,587) 62,451
(405,086) 113,067
============ ============
The valuation allowance at June 30, 2016 was primarily related to net operating losses, in the judgment of management, are not more-likely-than-not to be realized. In assessing the realizability of deferred tax assets, which management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more-likely-than-not that the Group will realize the benefits of these deductible differences, net of the existing valuation allowances at June 30, 2016. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.
At June 30, 2016, group's U.S. federal and state net operating loss carry forward for income tax purposes is $14.29 million ( June 30, 2015: $4.23 million) which will begin to expire in 2035. Group's UK net operating loss carry forward for income tax purposes is $0.93 million (June 30, 2015: $0.81 million). Group's Ireland and Cyprus net operating losses carry forward for income tax purpose are $1.61 million (June 30, 2015: $0.66 million) and $0.06 million (June 30, 2015: $0.06 million), respectively. These amounts are based on estimated amounts for the year ended June 30, 2016.
The income tax provision differs from the amount of income tax determined by applying the statutory tax rate to pretax income, due to the following:
2016 2015
--------------------- ----------------------
% $ % $
Net (loss)/income for the
year (4,944,537) 257,493
Total income tax (benefit)/expense (153,190) 405,077
Net (loss)/income excluding
income tax (5,097,727) 662,570
============ ============
Expected income tax expense
using applicable tax rate 34.00 (1,733,227) 34.00 225,275
State taxes, net of federal
effect 4.29 (218,613) 2.27 15,031
Foreign subsidiaries taxed
at lower rate or tax exempt -19.15 976,311 179.62 1,190,146
Non-deductible expenses/Other -16.13 822,339 -154.76 (1,025,375)
Income tax (credit)/expense 3.01 (153,190) 61.13 405,077
======= ============ ======== ============
8. Major customers and credit risk
Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. Financial instruments which potentially expose the Group to concentration of credit risk consist primarily of cash, accounts receivable and accounts payable. The Group's cash is held with US commercial banks.
The following table summarises those non-related party customers with revenue or accounts receivable in excess of 5 per cent of total revenue or total receivables for the twelve months ended 30 June 2016 and 30 June 2015. These concentrations cause risk and may have an impact on the operations of the company.
Year ended 30 June 2016
-------------------------------------------------
Revenue Trade AR
------------------------ -----------------------
Amount Percentage Amount Percentage
of of
($) Total ($) Total
Revenue AR
Comcast Corporation 13,825,091 29% 1,882,590 32%
Time Warner Cable 6,782,367 14% 864,968 14%
Charter Communications 6,112,023 13% 519,544 9%
Cox Communication 3,797,510 8% 1,116,468 19%
Total 30,516,991 64% 4,383,570 74%
=========== =========== ========== ===========
Year ended 30 June 2015
-------------------------------------------------
Revenue Trade AR
------------------------ -----------------------
Amount Percentage Amount Percentage
of of
($) Total ($) Total
Revenue AR
Comcast Corporation 10,630,775 26% 3,902,641 39%
Time Warner Cable 5,257,587 13% 618,292 6%
Charter Communications 5,736,587 14% 580,270 6%
Cox Communication 2,418,063 6% 500,269 5%
Total 24,043,012 59% 5,601,472 56%
=========== =========== ========== ===========
9. Related party transactions
The Group has service agreements for call centre and administrative services with subsidiaries of TRG. These agreements are in effect until terminated by either party and specify payments based on services performed. Expenses incurred for the year ended 30 June 2016, under these service agreements totaled $600,810 (2015: $647,906) which is included in call centre costs, communication expense and selling, general and administrative costs in the accompanying consolidated statements of income. The total net amounts due from these subsidiaries totaled $183,595 at 30 June 2016, (2015: $20,184) which is included under assets as related-party receivables, on the accompanying balance sheet.
10. Remuneration of Directors and other key management personnel
Remuneration of those serving as Directors during the year is analysed below:
For the year ended 30 June 2016
Compensation
for loss
Salary Bonus Fees of office Total
$ $ $ $ $
Jeff Cox 309,000 45,000 - - 354,000
Andrew
Lear 185,657 30,000 - - 215,657
Sandra
Rodger - - - - -
Amit
Basak - - 15,595 - 15,595
Sam Howe - - - - -
Anthony
Watson - - 32,291 - 32,291
Simon Lee - - 18,919 - 18,919
Dave
Flowers - - 29,280 - 29,280
Total 494,657 75,000 96,085 - 665,742
========================= ========================= ========================= ============= =========================
For the year ended 30 June 2015:
Compensation
for loss
Salary Bonus Fees of office Total
$ $ $ $ $
Jeff Cox 289,583 - - - 289,583
Sandra
Rodger 103,863 - - 57,145 161,008
Amit
Basak - - 35,000 - 35,000
Sam Howe - - 13,125 - 13,125
Anthony
Watson - - 35,000 - 35,000
Total 393,446 - 83,125 57,145 533,716
========================= ========================= ========================= ===================== =====================
No pension payments are made for Directors.
Details of share options granted to the Directors are as follows:
Granted
At 30 in the At 30
June 2015 period Exercised Lapsed/Canceled/Expired June 2016
No. No. No. No. No.
Jeff Cox - - - - -
Andrew Lear
* 200,535 - - - 200,535
Sandra Rodger - - - - -
Amit Basak 22,730 - (22,730) - -
Sam Howe - - - - -
Anthony
Watson 33,416 - (33,416) - -
Dave Flowers
* 20,000 74,906 - - 94,906
Simon Lee - 74,906 - - 74,906
Total 276,681 149,812 (56,146) - 370,347
=========== ======== ============= ======================== =============
*Andrew Lear and Dave Flowers were appointed as the CFO and Non-Executive Director respectively, on October 15, 2015.
Granted
At 30 in the At 30
June 2014 period Exercised Lapsed/Canceled/Expired June 2015
No. No. No. No. No.
Jeff Cox - - - - -
Sandra Rodger 370,837 - - (370,837) -
Amit Basak 22,730 - - - 22,730
Sam Howe 64,178 - (40,111) (24,067) -
Anthony
Watson 33,416 - - - 33,416
Total 491,161 - (40,111) (394,904) 56,146
=========== ========= =========== ======================== ===========
The following are the details of shares exercised during the year:
30 June 2016
------------------------------------------
Exercise Exercise Gain on exercise
Price Date of Option
$ $
04 April
Anthony Watson 0.01 2016 38,770
30 June 2015
------------------------------------------
Exercise Exercise Gain on exercise
Price Date of Option
$ $
22 December
Sam Howe 0.01 2014 401
The following are the details of share options outstanding:
30 June 2016
--------------------------------------------------
Strike
Price Vesting Dates
$
2013 Stock
Options Plan
Andrew 25% vested on 1 April 2013 and remainder
Lear 2.34 equally per month for next 36 months
Dave 50% vested on 1 June 2015 and remaining
Flowers 0.01 50% on 1 January 2017
2015 Stock
Options Plan
Andrew 25% vested on 1 April 2016 and remainder
Lear 0.48 equally per month for next 36 months
Dave 25% vested on 1 April 2016 and remainder
Flowers 0.01 equally per month for next 36 months
Simon 25% vested on 1 June 2016 and remainder
Lee 0.01 equally per month for next 36 months
30 June 2015
--------------------------------------------------
Strike
Price Vesting Dates
$
2013 Stock
Options Plan
Amit 50% vested on 1 April 2013 and remainder
Basak 0.01 equally per month for next 36 months
Anthony 50% vested on 1 April 2013 and remainder
Watson 0.01 equally per month for next 36 months
2015 Stock
Options Plan
Amit
Basak N/A N/A
Anthony
Watson N/A N/A
11. (Loss)/Earnings Per Share
For the year ended 30
June 2016
----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------- ----------------------- -----------
Basic EPS
Loss (4,944,537) 27,318,424 $ (0.181)
===========
Effect of Dilutive Securities
Options 259,074
Warrants
Diluted EPS
Loss before assumed conversions (4,944,537) 27,577,498 $ (0.181)
============== ======================= ===========
For the year ended 30
June 2015
----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------- ----------------------- -----------
Basic EPS
Income 257,493 27,326,448 $ 0.009
===========
Effect of Dilutive Securities
Options 375,055
Warrants -
Diluted EPS
Income before assumed conversions 257,493 27,701,503 $ 0.009
============== ======================= ===========
Options to purchase the following shares were outstanding at 30 June 2016 but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares.
30 June 2016
------------------------
Number Exercise
of Shares Price
224,448 1.74
578,961 2.34
37,417 2.00
155,654 3.01
30 June 2015
------------------------
Number Exercise
of Shares Price
1,265,119 2.34
450,654 3.55
137,251 2.36
224,448 2.05
This information is provided by RNS
The company news service from the London Stock Exchange
END
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