Snakk Media Quarter 2 Business Update

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SNK – MARKET UPDATE
29 October 2018

Snakk Media - Business Update for the period 1 July to 30 September 2018
The Board and Management of Snakk Media Limited (“Snakk”) present the Quarter 2 (“Q2”)
Business Update for the Financial Year ending 31 March 2019 (“FY19”).
Variance to Key Operating Milestone
Following a review of its unaudited results for the six months ended 30 September 2018 and
its forecast for the remainder of FY19, Snakk is now expecting a Compensation to Revenue
Ratio of 38.2% for the full year. This will exceed the target of 34% by 4.2%, which is a -12.3%
variance from the target. Further information is provided below.
General Commentary and Review:
The Gross Margin in Q2 is 57%, which is within 1.8% of the FY19 target of 58%. We expect
this to remain on target for the rest of FY19
The Compensation to Revenue ratio for Actual Q2 YTD FY19 is 52% which is a YTD variance
of -52.5% compared to the FY19 target of 34%. The main causes are lower than forecasted
revenue in the first half of the year for managed services, delays in growing and realising the
data products and services revenue, and higher compensation costs recognised in the period
due to the termination payment for the previous Head of Sales. Snakk has recruited a Chief
Commercial Officer who has strong sales leadership credentials in digital media, is expanding
its mobile product range and has implemented plans to expand the customer base (including
for data products and services). Provided the forecast assumptions are realised, the
Compensation to Revenue Ratio for the full year will be 38.2%, which is more than a 10%
variance to the target of 34%.
The Impressions delivered to Impressions Booked % for Q2 was 102% compared to the FY19
target of 101%, a variance of -1%. Snakk’s preference is to narrowly over deliver and invoice
in full than under deliver and not invoice in full. The FY19 KOM is expected to remain within
target.
The “% of Campaigns Delivered to Target” was within the +/- 5% of 98% in Q2 and is expected
to remain in target for FY19.
Snakk will release its Q3 Business Update by 30 January 2019.
Placement
As noted at the Annual General Meeting on 25 September 2018, Snakk has continued to
operate with low working capital which places considerable pressure on the business
including: the ability to fully develop and introduce products in a timely manner; to develop
other channels; to absorb revenue volatility and the ability to adjust to changing customer
demands; and also diverts the continuing attention of management and the board away from
value adding activities.
The Board also announced at the meeting that it planned to undertake a share placement to
wholesale investors to raise funds to support working capital and that Snakk directors
Messrs James and King intended to participate in the raise.
The Board is therefore pleased to announce that Snakk is issuing 1,294,117 fully paid
ordinary shares(7.97% of the Company's issued capital) at $0.0425 per share to Yee
Industries for a total of $55,000.
As the issue of shares to directors requires shareholder approval Messrs James and King
will initially provide funds via convertible loans as follows:

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a) A convertible loan from Snowden Peak Investments Limited to Snakk of $55,000. Mr B.
King is a director of Snakk and of Snowden Peak Investments.
The board will be seeking shareholder approval to convert the loan to 1,294,117 fully paid
ordinary shares (plus any additional fully paid ordinary shares to reflect interest accrued on
the loan) at $0.0425 per share as soon as practicable. Should shareholder approval not be
obtained, the loan is repayable by no later than 30 June 2019. The interest rate on the loan
is 6.00% per annum.
b) A convertible loan from Christie James Funds Management Pty Ltd as trustee of the
Christie James Superannuation Fund (“lender”) to Snakk of $34,000. Mr P. James is a
director of Snakk and of the lender and a beneficiary of the Christie James Superannuation
Fund. The board will be seeking shareholder approval to convert the loan to 800,000 (plus
any additional fully paid ordinary shares to reflect interest accrued on the loan) fully paid
ordinary shares at $0.0425 per share as soon as practicable. Should shareholder approval
not be obtained, the loan is repayable by no later than the maturity date being 30 June 2019.
The interest on the loan is 6.00% per annum.
The Board is pleased that a new investor has recognised the potential of Snakk and has
decided to take a significant stake in Snakk. The board warmly welcomes Mr M. Yee via Yee
Industries Ltd as an investor. The decision by the Chairman, Mr P. James, and the newest
director to join Snakk, Mr B. King, to provide further funds as convertible loans reflects the
confidence the board and management have in the future potential of Snakk.
Intention to Change Director
The intention is for Mr M. Yee, a director of Yee Industries, to be appointed to the board of
Snakk following the placement and at the same time for Mr R. Antulov to step down. Mr M.
Yee is expected to be appointed as a director by the board on ! November 2018 and will be
an independent director.
The board notes that Mr P. James and Mr B. King will continue to be independent directors.

Performance against Key Operating Milestones:


Key Operating Milestone (KOM)
Actual
Q1 FY19
Actual
Q2 FY19
Q2
Actual
YTD
FY19
FY19
Target
Q2 YTD
FY19
Target
Variance
Gross Margin %
58% 57% 57% 58% 1.8%
Compensation to Revenue Ratio %
47% 61% 52% 34% -52.5%
Impressions Delivered to Impressions Booked %
105% 102% 104% 101% 2.9%
% of Campaigns Delivered to Target
98% 98% 98% 98%, +/5% 0.0%

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AUTHORITY FOR THIS ANNOUNCEMENT
Name of senior manager or director
authorised to make this announcement
Joel Williams
Chief Executive Officer
Contact for enquiries Heidi Aldred
Group Company Secretary
Contact Phone Number +64 9889 2616
Contact email investors@snakkmedia.com
Date of release 29 October 2018

Future Events and Business Update Timetable
Q3 Business Update 30 January 2019

Snakk shares can be traded on the NXT Market (Ticker Code: SNK).
Snakk is required to disclose information under the NXT Market Rules. Information about the
NXT Market and Snakk is available at www.nxt.co.nz or from the company’s website at
www.snk.co.nz

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KOM Calculation Methodologies:

GROSS MARGIN
Gross margin is the percentage of total revenue that Snakk retains after incurring the direct costs
associated with producing services sold (Direct Media Costs).
At least maintaining Gross Margin allows a higher percent of revenues to be spent on other business
operations, such as R&D, technology, marketing and expansion into new markets / territories. As the
company grows, a stable or improving Gross Margin will drive the delivery of positive EBITDA.
Direct media costs are the costs of the advertising inventory that Snakk onsells to its clients.
Snakk’s strategy to maintain and grow Gross Margin includes:
• utilising increasingly sophisticated and efficient technologies to purchase advertising
inventory cost-effectively without compromising quality; and
• maintaining premium product pricing by delivering strong results for advertisers,
combined with product offerings that are underpinned by unique and innovative ad
technologies.

Gross Margin =
Gross Margin % = Total revenue less Direct Media Costs
Total revenue

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COMPENSATION TO REVENUE RATIO
Compensation to revenue ratio is the percentage of permanent full-time employee salaries within
Snakk's operating divisions compared to total revenue.

The company's main cost outside of direct media costs (being the costs of the advertising inventory
that Snakk onsells to its clients) is staff salaries across its various divisions, particularly sales,
marketing and management. Measuring the relationship between revenue and compensation
figures within a period provides a method to monitor how well the business is utilising its human
resources to generate revenues.
The efficiency or scale of a labour force increases as the labour-to-revenue ratio decreases, which is
why a lower ratio is better for the company. Comparing the ratio against the company’s historical
records can show if the labour force efficiency is deteriorating, improving or being maintained at the
same level over a period of time.
Snakk’s strategy is to optimise the Compensation to Revenue Ratio by:
• Managing staff headcount closely compared to revenue and growth potential;
• Automating manual and people-driven processes whenever possible;
• Utilising technologies to drive operational efficiencies;
• Remunerating staff comparable to market and offering appropriate ‘at risk’
incentives matched to performance; and
• Use of third party outsourced providers, contractors and non-employee based
distribution channels where feasible to reduce full-time and part-time permanent
head count and associated wages and on-costs.
It is calculated as follows:
Compensation to Revenue Ratio % =

Total permanent full-time employee salaries

Total revenue

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IMPRESSIONS DELIVERED TO IMPRESSIONS BOOKED %
The Impressions Delivered to Impressions Booked is the ratio of ad impressions served in managing
an advertisement campaign compared to the number of impressions booked by the customer.
Snakk’s objective and operational measure is to match the number of impressions delivered as
closely as possible as measured by Snakk and independent verification service providers to the
number of impressions booked by the customer.
The Impressions Delivered to Impressions Booked measures the effectiveness of Snakk’s ability to
manage campaigns that underpin Snakk’s core Managed Services business. By managing as closely as
possible to the target, Snakk maximizes operational efficiency allowing full invoicing and avoiding
paying for excess unbillable ad inventory.
Impressions Delivered to Impressions Booked =
Impressions Delivered
x 100%
Impressions Booked

Typically, campaigns need to be managed slightly over 100% per Snakk’s platform measures in order
to ensure independent measures reviewed by customers that use a different basis for billing
purposes achieve 100%.
Industry standards typically allow billing at a 100% even if the actual number of impressions
delivered varies by up to +/- 10% to that booked. Snakk operates to a higher standard than industry
as per its terms and conditions offered to customers. Snakk chooses to bill for the actual number of
impressions delivered as per independent measures up to 100% of the number of impressions
booked and does not, in the normal course of business, bill for any impressions served over the
number booked by the customer.
Snakk’s target is slightly over the impressions delivered as measured by internal platforms to ensure
the independent external measures achieve 100% for billing purposes.

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% OF CAMPAIGNS DELIVERED TO TARGET
The % of Campaigns Delivered to Target is the number of campaigns within an acceptable range of
the target delivering impressions that equal the number of booked impressions.
Snakk maximises its revenue when there is effective sales and operational interaction with
customers and a high level of operational efficiency in delivering impressions that closely match the
customers’ requirements over the majority of campaigns managed.
The % of Campaigns Delivered to Target measures how many campaigns are delivered within an
acceptable deviation range from the target. It is a complimentary measure with Impressions
Delivered to Impressions Booked.
Campaigns falling above the target range cannot be billed and Snakk will incur unnecessary high
inventory costs. Campaigns falling below the acceptable range have not delivered enough
impressions according to the initial customer order and represent either changing customer
requirements or an inability to effectively fill the order. In either case it represents lost revenue
opportunities for Snakk.
Operational efficiency is demonstrated by having a high proportion of campaigns fall within the
acceptable variance range from the target.
% of Campaigns Delivered to Target =
Number of Campaigns Falling Within Target Range
x 100%
Total Number of Campaigns

Whilst an ideal target is to deliver 100% of campaigns with impressions delivered to impressions
booked in practice it is not possible:
a) For the operational reasons given in the explanatory notes to Impressions Delivered
to Impressions Booked, and;
b) Customers will sometimes pause, cancel, or fail to deliver assets required to fulfill
campaigns
For campaign changes driven by customers the number of impressions delivered may be significantly
lower than the impressions booked. However, it is part of the sales and customer service process to
effectively liaise with customers to limit the number campaigns that may be affected.
For the reasons cited above the actual mean average and target is slightly less than 100%.