BBTV Holdings Inc.

everyone. And thank you for attending today's BBTV Holdings Inc. Q3 earnings call. My name is Dante. I'm your moderator for today's call. All lines will be muted during the presentation portion of the call and opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Ms. Nancy Glacier, General Counsel and Chief Legal Officer of BBTV. Ma'am, the floor is yours.

Welcome to BBTV's Fiscal Third Quarter 2022 Conference Call. I'm Nancy Glaister, Chief Legal Officer for BBTV. During the course of the conference call, we may provide forward-looking information and make forward-looking statements within the meaning of applicable securities laws. These are statements regarding the company's current expectations, goals, and beliefs about future events relating to or which may impact the company, its business, and results. These may include forward-looking statements regarding our expected or anticipated financial position, growth, diversification, expansion, operations, plans, and objectives. Forward-looking statements are statements about the future and are inherently uncertain. Any financial or other goals discussed are goals only and are not meant to be taken as future-oriented financial information or guarantees of future results or performance. Certain financial outlooks in particular are provided to aid in understanding management's goals and expectations regarding future financial matters and may not be achieved. Such financial outlooks may not be appropriate for other purposes. All of our forward-looking statements are necessarily based on a number of assumptions and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those contained in our forward-looking statements. These include the risk that our assumptions may not be accurate, as well as the risk factors contained in our press release and MD&A issued today, and in our latest annual information form filed on CDAR.com. We undertake no obligation to update these forward-looking statements, except as required by law. You can read more about these assumptions, risks, and uncertainties in our press release and MD&A issue today, as well as in our AIF, dated March 29, 2022, and our prospectus, dated October 22, 2020, filed at cdar.com. Also, our commentary today will include adjusted financial measures and ratios, which are non-GAAP measures. Although the company believes these non-GAAP financial measures and ratios are useful in evaluating the company, these should be considered as a supplement to and not as a substitute for financial information compared and presented in accordance with IFRS. Reconciliations between the two can be found in our earnings press release and our MD&A, which are available on our website and on CR.com. Lastly, we also report on certain metrics such as views and RPMs. A further description of these metrics, which are also non-GAAP measures, can be found in our earnings press release and our MD&A. I now turn the call over to BBTV's Chief Executive Officer, Sharzad Lafaxi.

Hello, everyone, and thank you for joining me and our CFO, Ben Gruth, on this conference call to discuss our Q3 2022 financial results. For the first few minutes, I will review some of the market conditions and our operations. After that, Ben will review our financial results, and then I will close with our outlook before we take analyst questions. BBTV is the largest professional creator network worldwide. From individuals to global media companies, professional content creators rely on BBTV to generate meaningful revenue for them while they focus on their core competency, content creation. Our roster of thousands of creators continue to grow and almost 600 million viewers interact with their content monthly. I will discuss overall market conditions and quarterly performance momentarily, but I would like to first address investor feedback regarding our liquidity. Management and the board believes that the company's current resources, when combined with its near-term debt financing, will be sufficient to fund its organic growth plans through to being cash flow break-even. Ben will go into further details during his review, but we believe that we're well-positioned to execute our growth and profitability plans, regardless of current microeconomic conditions going forward. Additionally, during the quarter, we began the implementation of a cost optimization plan aimed to reduce annual headcount expenses by 14%. As a result, Q3 2022 operating costs declined sequentially by 2.2 million compared to the second quarter of 2022, and we expect operating expenses to fall further in the coming months. TikTok's micro-content format has been a competitive disruptor in the video content space, for several quarters now. Its impact is apparent in the results of most of the financial social media earnings releases over the past couple of quarters. As we monitor the marketplace, YouTube Shorts is emerging as a formidable alternative to TikTok. Although monetization is just now getting underway, as a result, one of our key initiatives was to task our content acquisition team to sign up more micro-content creators. During the third quarter, we successfully added 1.1 billion YouTube Shorts views, which brings the format up to 26% of our total views for BBTV. Sequentially, we increased YouTube Shorts views by 33% compared to the second quarter of 2022. Once these views are monetized, we anticipate a significant improvement in RPMs and views in 2023 within our base solutions business. While overall views continue to trend lower for the third quarter, being down approximately 10% year-over-year, the COVID-related pullback in viewership appears to have subsided and begun to normalize as we exit Q3 2022 and with views up 1% sequentially from Q2 2022 to Q3 2022, which is more favorable than the sequential seasonal decline typically seen in past years. Views retention remained exceptionally strong at 98% for the third quarter, which is ahead of the 93% retention rate seen for the last 12 months. A few years ago, we recognized the value of diversifying our revenue streams to help de-risk the market volatility of online advertising and monetization and to maximize gross margins. We began investing into the development of several plus solutions revenue streams. Over the last 12 months, we are pleased to report that the overall Plus Solutions revenue has grown by 40% compared to the previous period. Led by the ongoing adoption of content management solutions by significant content enterprises, this reoccurring revenue category represented 22% of our gross profit, and we are confident that Plus Solutions will continue to reduce the impact of market volatility on BBTV's performance and will continue to help maintain greater retention going forward. During the quarter, BBTV signed a partnership deal with Harlem Globetrotters, providing 360 solutions across a number of platforms, including YouTube and Meta. BBTV also signed an agreement with Revolt TV to manage their video strategy on Meta. Subsequent to the quarter, we also signed new deals with premier Hispanic MMA sports franchise, Combate the Global, as well as Amazon's podcast network, Wondery. Also subsequent to the quarter, we completed the acquisition of Outloud Media for performance-based considerations of up to $5 million. With minimal outlay of capital, the acquisition has nearly zero impact on our balance sheet or liquidity. However, Outloud brings a few million dollars of revenue as amongst the highest gross margin across both base and plus solutions revenue streams for BBTV. It also provides an excellent cross-selling opportunity for BBTV and its creators to expand distribution and monetization across social and video platforms through our multi-platform partnership program. As we leverage Outlook Media's capabilities and technologies, we expect that the multi-platform partnership solution to have a significant positive impact on both base solutions revenue and gross margins. I can't wait to talk to you about our outlook in a few minutes. However, I'm very pleased to hand the call over to Ben Gruth, BBTV CFO, to discuss the quarterly and year-to-date performance in more detail. Ben, over to you.

Thank you, Sharzad, and good afternoon, everyone. Before I begin the review of our Q3 performance, I'd like to remind everyone that our cost of revenue, as presented in the results, includes the amortization of assets recorded as part of the Purchase Price Allocation, or PPA, when BBTV Holdings acquired our main operating entity, Broadband TV Corp, for our IPO in the fourth quarter of 2020. Amortization associated with the PPA in the amount of $7.5 million was recorded in cost of revenue for Q3, and the amortization is non-cash. Accordingly, we will provide the commentary on the company's gross profit and gross margin as per the statutory filings without the PPA amortization. as well as the metrics of BBTV share and adjusted gross margin. Now, turning to our results, the third quarter was impacted by the same recessionary economic trends that are seen across the industry. As a result, there has been some temporary softening in advertising spend, which has resulted in lower RPMs. In addition, our views performance in Q3 continues to reflect the shift in consumption patterns towards microform content. As a result of these consumption trends that Sharzad also mentioned earlier, both our base and plus solutions revenue were impacted in Q3. On a positive note, the benefits of our cost optimization exercise that we announced in the summer have contributed to a reduction in our operating expenses, which helped mitigate the impact on our overall results and helped improve our adjusted EBITDA performance sequentially from Q2. Despite the short-term market challenges, as we look ahead into 2023, we expect to realize the benefit of some positive underlying shifts in our business, including the activation of YouTube Shorts monetization and diversification of our base solutions to platforms like Facebook and Snapchat, which will be accelerated with our recent acquisition of Outloud Media. Our multi-platform partnerships solution has among the highest gross margins across both base and plus solutions. The growth of our plus solutions also remains a bright spot, and it is benefiting our overall gross margin as our revenue mix favorably shifts to these higher margin solutions. Despite the impact of the recessionary pressures in Q3, our plus solutions revenue was still up 14% from the same period last year. Our viewership retention rate also remained exceptionally high at 98% for the quarter and 93% for the last 12 months. The total revenue of 95.1 million for Q3 is 16% lower than the same quarter last year, reflecting the temporary market headwinds. Our total views were 96 billion for the quarter, and even though views were down 10% year over year, they were up 1% sequentially from Q2, which is a more favorable trend than the typical 4% decline we've seen from Q2 to Q3 in the last three years. As a result, it appears to us that the post-COVID pullback in views has subsided, and it is showing signs of improvement. The other factor contributing to the year-over-year decline is the growth and consumption of microcontent, which is not currently monetized. Over the past few quarters, YouTube Shorts viewership has consistently represented about 20% of our total views. Since our content acquisition team began actively onboarding new microcontent creators last quarter, we have increased this figure to 26%, or a sequential increase in YouTube Shorts views of 33%, which leaves us well-positioned for the activation of YouTube Shorts monetization. RPMs were down 12% in the quarter compared to a year earlier, and although advertisers modestly scaled back their ad spending in response to current market conditions, the bigger impact on our RPMs continues to be the YouTube Shorts viewership, which artificially depresses the RPM figures because Shorts content is not monetized. If we exclude YouTube Shorts viewership, our Q3 RPMs were only down 2% year over year. So despite the economic pressures, RPMs have remained relatively stable, which we believe highlights the resilience of the YouTube platform for monetization in the creator economy. When YouTube commences full-scale monetization of Shorts content, it should benefit both our views and RPMs. Our Plus Solutions revenue was up 14% year over year to $10.5 million, which was a positive offset to the 19% decline in our base solutions revenue that resulted from the lower RPMs and views. Content management grew by 24% and now represents 22% of the company's overall gross profit. Similar to our base solutions, content management operates under a favorable, reoccurring revenue model, which makes the solution more resilient in recessionary environments. Our gross profit for Q3 was $8.2 million, excluding PPA amortization, representing a gross margin of 8.6%. While gross profit excluding PPA amortization declined by $0.8 million year over year, gross margin improved by 0.7% from the same period last year due to a higher proportion of plus solutions, which now represents 30% to 40% of our total gross profit, up from 20% to 30% last year. As we scale up our plus solutions, which have gross margins that are three to four times higher than our base solutions, we expect our gross margin to continue to trend upwards. And our sensitivity to the short-term volatility to views will be reduced. BBTV share, which is revenue less content creator and third-party platform fees, was 8.6 million, down from 9.4 million in the same quarter of the prior year. And our adjusted gross margin was 95.2%, comparable to 95.6% in the third quarter last year. BBTV's share of revenue declined primarily due to a decline in base solutions revenue, which were partially offset by increases in plus solutions revenue. Operating expenses were $14 million for the quarter, which increased by $0.8 million year over year due to investments in ramping up our plus solutions, But importantly, operating expenses saw a sequential decline of 13%, or 2.2 million, compared to our Q2 operating expenses of 16.2 million. This reduction includes some sustainable cost savings identified through our previously announced cost optimization program that reduced headcount by 14%. And these cost savings are now starting to be achieved, along with some other seasonal expense reductions. The net result was an adjusted EBITDA loss of $3.2 million for the quarter, which while higher than our loss of $2 million last year, is $2.5 million improvement sequentially compared to a loss of $5.7 million recorded in Q2 of 2022. The sequential improvement in adjusted EBITDA performance is due to our cost optimization programs and the typical seasonal improvements. while the year-over-year decline is due to reductions in base solutions views and RPMs. We remain focused on attaining EBITDA profitability for the company, which we expect to achieve as our plus solutions continues to gain market traction. YouTube Shorts monetization scales and our multi-platform partnerships division begins to ramp up to generate higher margin revenue from Facebook and Snapchat. In terms of the balance sheet, we ended the quarter with 20.8 million in cash and utilized 10.6 million of our 15 million overdraft facility. After the 40% or 12.8 million debt forgiveness reduction on our convertible note with RTL Group, our long-term debt balance is now 45.3 million as of September 30th, with maturity substantially in 2026. Based on our current trends, forecasts, expected debt financing, and adjusted EBITDA breakeven timelines, we are comfortable that BBTV will have adequate liquidity for the foreseeable future. I will now turn it back to Sharzad.

Thanks, Ben. Looking forward to the remainder of 2022 and into 2023, we're continuing to make progress on a number of fronts that I would like to highlight. First, our pipeline for enterprise content management is the strongest that it has ever been in the history of BBTV. A lot of media companies and brands are coming to us because they're having issues managing their digital assets and connecting with the digital generation. Although they recognize that fan bases and communities generate brand and media ROI, they're struggling to build communities that drive strong direct-to-consumer values. At BBTV, we've seen great success in helping brands and media companies do just that, specifically from helping them with rights management, content development, channel management, in building fan communities and helping them to dramatically improve monetization of their digital content ecosystems through our 360 solutions. BBTV's 360 approach builds fan communities to connect brands with fans wherever they are and however they consume content. We have already done this with the MBA and Sony Pictures, and our pipeline is full of similar new enterprise clients with some existing clients that want to upgrade their agreements to include the 360 Content Management Plus solutions, as well as new clients. Ultimately, it is this 360 approach that is really appealing to new and existing clients. There is no other player in this space that has the technology, data, and reach to provide a comprehensive content management solution that combines the best of the creator economy and mainstream media. In October, we also announced the acquisition of Outlook Media Business, which immediately expands our growth and expertise in the area of multi-platform distribution and monetization. We've seen how incremental revenue on platforms like Facebook can be game changer for creators looking to propel themselves into the next level of monetization. And BBTV has cemented itself as a staple in their success. Acquiring Outlook Media Business will help us expedite our trajectory and grow our capabilities even more quickly across Meta, Snap, and other platforms. You can expect meaningful incremental revenues associated with this acquisition to be realized within a few quarters. Earlier I mentioned that over 26% of our views are now YouTube Shorts. We will continue to add more creators to our Shorts roster in preparation for monetization. Although there is some initial monetization occurring now, we anticipate that it will begin to take off in early 2023. Our first priority is to maximize our operating liquidity going forward. We're confident that a combination of cash generation, cash on hand, and our current and expedited debt facilities and our receivable factoring programs, we have sufficient liquidity to fund our operations for the foreseeable future. Going forward, management continues to be laser focused on improving margins and managing costs across the base and plus solutions to maximize cash flow and become profitable as quickly as possible. We have diversified revenue streams that help to protect us against the current recessionary environment, and our most profitable lines of business are growing the fastest. While Plus Solutions revenue has grown by 40% over the last 12 months, with the recessionary environment so far in the latter half of this year, management is revising its 2020-22 year-over-year revenue growth rate guidance for Plus Solutions to 30%. Management is confident that Plus Solutions will see more than 30% year-over-year revenue growth in 2023, driven by the strength of BBTV's content management division, particularly during the second half of next year. I want to conclude by saying that we have a uniquely comprehensive business model that is really valuable to creators and makes us a sticky. Our business model and technology are highly scalable and accessible, so we're able to continuously add new revenue streams at minimal expense. And we have proven that our business model can deliver meaningful cash flow. We're excited about the future. Our business is strong. And I believe that we're allocating capital in a way that maximizes the value of our company. We can now open it up for questions.

Thank you, ma'am. If you would like to ask a question, it is star one on your telephone keypad. If for any reason you'd like to remove that question, it is star two. We will pause here briefly. There are no questions at this time, so I'd like to pass the conference back over to the management for any closing remarks.

That's great. If there are no questions, we can wrap up the call. Thank you so much, everyone, for joining and look forward to the next quarter. Thank you so much.

And with that, we will conclude today's BBTV Holdings, Inc. conference call. Thank you for your participation. You may now disconnect your lines.