Frankly FRNKF

RE:RE:RE:RE:Sorry

[cg16]

Iscfa, I got the idea from an Analyst commentary (there's only 2 following it) after the Acquistion Report was public.
it seems as though Worldnow was missing the boat on moving to Mobile. This was the big upside for them to merge with Frankly. Frankly can help with Mobile applications. 
Here's excerpt from the commentary.

Event:
·         Last night Frankly filed its business acquisition report for Worldnow.
 
Highlights:
·         From a big picture perspective, the performance of Worldnow is largely as we expected – i.e., while the business was growing at double-digit rates it has since slowed. 
·         Management has done a very good job holding the line on expenses in our view, leading to significant operating leverage. 
·         Accordingly, as Frankly is able to transition this desktop-based business to mobile and grow revenue, we would expect the bulk of this increased revenue to flow to EBITDA.
·         On valuation, we calculate that the consolidated Frankly entity is currently trading at an EV/Trailing Sales multiple of 1.2x on just the revenue generated by Worldnow over the past 12 months ($27.2MM).
 
Details:
·         Worldnow generated 11% revenue growth in 2014.  Yet operating expenses barely budged (up 2% y/y).  As a result, almost all the incremental revenue flowed down to EBITDA, which was up 52% y/y to $6.5MM.
·         Revenue growth slowed during the first half of 2015 to 5% (flat if termination license fees are excluded).  As it is a desktop-based business, which admittedly largely missed the recent shift to mobile, this does not come as a surprise to us.
·         However, even in H1/FY15, general and administrative expenses were essentially unchanged, allowing this incremental revenue to flow to EBITDA, which was up 18% y/y.
·         According to the business acquisition report, on a pro-forma basis, the combined company would have generated a very modest EBITDA loss in H1/FY15, of only $853K.


Management’s Plans, Outlooks and Potential Implications (emphasis ours)

·         The demonstrated fixed cost structure of Worldnow suggests to us that as Frankly is able to grow revenue of Worldnow, the bulk of these increases is likely to flow down to EBITDA (once the incremental expenses of adding the Frankly part of the business are covered).  With significantly fewer bodies, the incremental opex added to Worldnow from Frankly is relatively minor (i.e., legacy Frankly’s operating expenses in H1/FY15 were $5.4MM versus $9.8MM for Worldnow).
·         “Going forward, we will drive revenue growth by: developing next generation mobile apps for our local broadcast customers,delivering highly targeted advertisements into our news and conversation platform, and leveraging big data to drive more business for our customers. This transaction is another step toward Frankly becoming ubiquitous as the leading mobile technology and platform for our current and prospective customers.”
·         We expect Frankly to report Q3/FY15 results on or about November 20, 2015.  With the Worldnow acquisition having closed on August 25, 2015, the quarter will only include just over one month of contribution from Worldnow.  In a press release issued this morning, the company indicated that “while the Company is pleased with its achievements in Q3 2015, Worldnow underwent some customer transition in the quarter and we anticipate several one-time expenses related to the integration efforts. Frankly remains optimistic about its continued growth opportunities.”  Customer churn is a natural occurrence in this industry (often M&A related); however, we will look to get more colour on this matter.

So I think the Q3 results won't look good on the surface but the potential is still there. They only lost $853K in first 6 months of 2015 with 1 month of Worldnow Revenue included. next quarter or two should start to show the true picture of the upside.