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spk00: Good morning, ladies and gentlemen, and welcome to Stingray Group Inc. Q1 2023 results call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star for zero for the operator. This call is being recorded on Wednesday, August 3rd, 2022. I would now like to turn the conference over to Mr. Matthew Peloquin. Please go ahead.
spk05: Thank you very much. Good morning, everyone. Thank you for joining us for Stingray's conference call for its first quarter results ended June 30th, 2022. Today, Eric Boyko, President and CEO, as well as Jean-Pierre Trahin, CFO, will be presenting Stingray's financial and operational highlights. Our press release reporting Stingray's first quarter results for fiscal 2023 was issued yesterday. After the market closed, our press release and DNA financial statements for the quarter are available on our investor website at stingray.com and also on CEDR. I will now provide you with the customary caution that today's discussion of the corporation's performance and its future prospects may include forward-looking statements. The corporation's future operation and performance are subject to risk and uncertainties, and actual results may differ materially. These risks and uncertainties include, but are not limited to, the risk factors identified in Stingray's Annual Information Form dated June 7, 2022, which is available on CETR. The Corporation specifically disclaims any intention or obligation to update these forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required by applicable law. Accordingly, you are advised not to place undue reliance on such forward-looking statements. Also, please be reminded that some of the financial measures discussed over the course of this conference call are non-IFRS. Please refer to Stingrays MD&A for a complete definition and reconciliation of such measures to IFRS financial measures. Finally, let me remind you that all amounts on this call are expressed in Canadian dollars unless otherwise indicated. With that, let me turn the call over to Eric.
spk02: Good morning, everyone, and welcome to our first quarter conference call, fiscal 2023, and also today is our AGM, so happy if you could join at our AGM at 11. Stingray's overall business continued to gain momentum in the first quarter of 23, with revenues increasing 21.6% to $78 million. On the strength of in-store audio network acquisition, improved radio sales, following a return to more normal commercial operations. As a result, we're happy to report another strong organic growth of 9.9% year-over-year for the broadcast and commercial division. The acquisition of iFAN, now Stingray Advertising, with more than 20,000 locations is proving to be a game changer for Stingray with an organic growth of 58.5% year over year. We anticipate robust traction for this business in the next 12 to 18 months, particularly in Canada where we are better positioned for retail media advertising budgets in calendar 2023. On the property side, We generated adjusted EBITDA growth of 8% to 26.1 million in the first quarter of 23, which is remarkable considering that we received no government subsidies related to the COVID-19 pandemic compared to the 2.9 million in the same period last year. Turning to our business segments, broadcast and commercial music revenue increased 31% to 46.2 million in the first quarter, again on the ISAN deal, higher subscription, and also increase in equipment and installation sales related to digital signage. Stingray is making a major push into fast channels, with streaming hours soaring 80% year-over-year to 12 million hours in the first quarter. Following the quarter end, we signed a distribution agreement with LG for a fast channel designed for smart TVs and webOS operating system worldwide. The increase follows the additional distribution of stigma music, other channels, and existing distribution of stigma naturescape and specialty channel. Clearly, FASH channel represents a high-growth vehicle for the corporation, as audience and viewing habits are rapidly evolving. On the SVOD front, our subscribers grew by 27% year-over-year to 730,000 at the end of Q1. In recent quarters, we have focused our efforts on more profitable SVOD products, and B2C to B2C, rather than consumer apps. For example, we're leveraging our relationship with established partners like Amazon, who have large installed customer base across countries to move the needle. In Q123, we expanded our penetration within Amazon India and Australia. As a result, we are steadily progressing towards our goal of reaching one million subscribers within the next couple of years. Moving into a radio business, revenues improved 9.5% to 32 million in the first quarter of 23, reflecting a better market environment than last year, but still below pre-pandemic levels. This revenue increase was locally driven as economic uncertainty and supply chain issues continue to affect national advertisers and key advertising categories like the automotive sector. We expect our radio segment to gradually recover from these short-term disruptions and continue to generate healthy cash flow. In closing, structured growth revenues have evolved from 31% in fiscal 2020 to 44% during the last 12 months, which demonstrates we are on the track for our long-term growth strategy. Along with sting re-advertising, fast channels, and growth, We are confident in our plan to secure in-car entertainment partners like the ones that we have with FinFast and Tesla. As we continue growing our high-margin digital business, we must remain prudent with our spending plans due to the uncertain microeconomic environment. As a result, our capital allocation strategy will prioritize debt reduction without sacrificing key initiative fiscal growth. in return, so we expect to increase our OPEX margin. I will now turn the call over to Jean-Pierre for a financial overview.
spk01: Merci, Eric. Good morning, everyone. Revenues reached 78.1 million in the first quarter of 2023, up 21.6% from 64.3 million in Q1 2022. The increase was mainly due to the acquisition of in-store audio networks growth in radio revenues based on the gradual easing of COVID-19 restrictions, and return to normal commercial operation, higher subscription revenues, as well as enhanced equipment and installation sales related to digital signage. Revenues in Canada improved 12.9% year-over-year to $46.6 million in the first quarter of 2023. This growth mainly reflects an increase in radio revenues due to the gradual easing of COVID-19 restrictions and return to normal commercial operations, as well as an enhanced equipment and installation sales related to digital signage. Revenues in the United States grew 94.6% to $19.1 million in Q1 2023, The year-over-year growth can be attributed to the acquisition of in-store audio networks and higher subscription revenues. Finally, revenues in other countries decreased 5.5% year-over-year to $12.4 million in the most recent quarter due to less B2C apps and in-store commercial revenues. Looking at our performance in business segments, broadcasting and commercial music revenues rose 31.7%, to 46.2 million in the first quarter of 2023. The increase was primarily due to the acquisition of in-store audio network, higher subscription revenues as well as enhanced equipment and installation sales related to digital signage. Radio revenues improved 9.5% year-over-year to 32 million in Q1 2023. The increase can be attributed to the gradual easing of COVID-19 restrictions and return to normal commercial operations. In terms of profitability, consolidated adjusted EBITDA improved 8% to $26.1 million in the first quarter of 2023 from $24.2 million in Q1 2022. As Eric pointed out earlier, we are quite pleased with this financial metric given that subsidies received from Canadian Emergency Wage Subsidy Program were immaterial in Q1 2023 compared to 2.9 million in the same period last year. The increase in adjusted EBITDA was mainly due to the acquisition of in-store audio network, partially offset by the SEWS program in Q1 2022. Of note, adjusted EBITDA was also up 24.1%, taken silly in Q1 2023. We expect continued margin improvement through cost controls and selective strategic investment priorities. By business segments, broadcasting and commercial music, adjusted BDA increased 14.4% to 16.8 million in the first quarter of 2023. The increase was mainly due to in-store audio network acquisition, partially offset by higher operating costs. Radio adjusted BDA mainly declined 2% year-over-year to 10.6 million in the first quarter of 2023. The slight decrease can be attributed to the issues program in C1 2022, partially offset by higher revenues in the most recent quarter related to the easing of COVID-19 restrictions and the return to normal commercial operation. In terms of corporate adjusted EBITDA, we represent head office operating expenses, less share-based compensation, as well as performance and deferred shared unit expenses. It remains relatively stable at a negative $1.3 million in Q1 2023. Stingray reported net income of $9.4 million, or $0.13 per dilated share, in the first quarter of 2023, compared to $4.2 million, or $0.06 per dilated share, in Q1 2022. Adjusted net income total $13.2 million, or $0.19 per dilated share, in Q1 2023, up from $11.2 million, or $0.16 per dilated share, in the same period of 2022. Turning to liquidity and capital resources, cash flow generated from operating activities remained stable at 16.3 million in the first quarter of 2023, as higher income tax paid were largely offset by improved operating results. Adjusted free cash flow amounted to 15.7 million in Q1 2023, compared to 15 million in the same period in 2022. The increase was mainly related to higher operating results and lower capital expenditures, partially offset by higher income tax paid. From a balance sheet standpoint, Stingray added cash and cash equivalent of $13.8 million at the end of the first quarter, supported debt at $25.5 million, and a credit facilities of $358.4 million, of which approximately $76.6 million was available. Total net debt at the quarter stood at $370,000,000.1 or 3.25 times growth of registered VDA. We believe that cash flow generated from operating activities and borrowing available under accredited facilities are sufficient to meet our liquidity needs for the foreseeable future. Finally, we repurchased 345,000 shares for a total of $2.2 million under our normal course of use your bid program in the first quarter. This ends my presentation for today. I will now turn the call back to Eric.
spk02: So this concludes our prepared remarks. At this point, Chantal and I are happy to answer questions. And again, sorry for these allergies. So I'm drinking a lot of tea, but hopefully my voice will be better. Operator? Thank you.
spk00: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the pulling process, please press the star followed by the two. One moment for your first question. And your first question comes from Matthew Lee from Canaccord. Please go ahead.
spk07: Hey, morning, guys. Congrats on the good quarter. So my first question is in terms of radio. You know, we took a little bit of a step back in terms of the recovery versus pre-COVID time. And I know you pointed out supply chain is a leading factor, but I just want to get your views as to what the recovery we should expect in 2023 is and, you know, whether we'll get the pre-COVID revenue level by the end of the year.
spk02: Yes, it's a good question, and we have the same question as the board. One of our big issues for all radio providers is that the car business, which was 10% to 12% of our business, and one of our shareholders and board members has many car dealerships, they're still at 70% inventory. So whatever they get, it's free sold. So it's coming back, but that's a key factor. The good news is during that period where we have a lot of new advertisers, as you know the example of Ontario legalizing the ads for sports betting. So that's helping us. There's a lot of new economy we're seeing coming back. And don't forget that we still cut costs roughly 10 to 12 million pre-pandemic. So we're well positioned with our new cost structure to come back to the same profitability than three years ago with lower sales.
spk07: That's great. And then, you know, on the advertising side, I know you've discussed $60 million in advertising inventory. You know, how should we contextualize that in terms of revenue opportunity? Does that translate to revenue one-to-one, or is that $60 million before the partner share with Metro and Walmart and such?
spk02: Yeah, so, you know, the inventory we have in Canada, it's going to take time. It's going to take time for us to sell it because we're just starting in Canada. But in Canada, the inventory rate now available is closer to $80 million. In the U.S., the inventory that we have available right now unsold is 80 million also. So we have a lot of unsold inventory, but it's going to take time to get the fill rate, to get the right CPM, the right partners. And I can tell you that we have the whole company focuses on selling the current inventory. So we're sitting with these muffins, so we've got to sell the muffins. But we're confident. As you saw, we went from a million in sales last year to almost 8.6 million. All of it is coming from retail, retail media. So our run rate right now is currently close to 38 million, and that should be increasing every quarter. We just started selling for the first time in April, May, June. It was our first time really selling ads, and the momentum for Canada, at least, is we should be doubling every quarter for the next few quarters. because we're seeing the new ad buys. So we're very excited about that. And also the big thing, in Canada we're measured. We're measured by Comm, and we finally are the first company to be approved measured with Geopat in the US. So that will be able to increase our CPM. Our CPMs in the US are 10 times smaller than what we have in Canada, because we're not measured. But that again, that will take a few quarters, but we're very confident.
spk07: Sorry, so when you say double, do you mean double in the Canadian business, you know, the $2.5 million you're doing in Canada right now?
spk02: Yeah, no, last quarter, Retail Media Canada, we did $400,000. This quarter, we should do $800,000. So I think you should set that type of growth in Canada over the next few quarters because we just started.
spk07: Okay, thanks. That's it for me.
spk00: Okay, thanks, Matt. Thank you. And your next question comes from Adam Schein from National Bank Financial. Please go ahead.
spk06: Thanks a lot. Eric, where are you in the process of growing the national sales team for Stingray Advertising, per your page and line of your slide deck?
spk02: Yeah, so in Canada we have a total of, I think we're six individuals. In the U.S. we're four, but right now we're adding, we just have a PO system and a recruiter. We're hiring five people in New York, in the States, to sell agencies. So hopefully we'll have these people by September. So we're going aggressively with recruiters, which I must say in the U.S. are very expensive. Maybe I should start a recruiting business in the U.S. But we really want to be in place. Now that we're measured, we can sell to agencies like we do in Canada. In Canada, our CPM is very high. We're getting a great CPM. I can't give all the numbers. And in the U.S., there's a lot of improvements. If we can double or triple our CPM in the U.S., double and triple yourselves. So I think we're in the right direction and we're excited to see what the next recruiters will be able to deliver to you guys.
spk06: Okay, when we look over at the digital signage business that you guys were exploring stateside over the past, let's call it, year and a half, can you talk about how that effort is going, or is that now being sort of more de-emphasized with a greater focus on this Stingray advertising opportunity?
spk02: Absolutely. Right now, part of the center of our focus is in the U.S. In Canada, we control, I don't know if the word control is maybe known, we have a big monopoly on all food, every grocery in Canada we have, every pharmacy we have, we have all the Walmarts, we have BMI, we have Rona, SAQL, CBO, all the stores that we can sell ads that are prominent, we already do the music, Giant Tiger, Best Buy. So that's our focus. Now our goal in the U.S. is to get those type of people so we can do the music and the ads.
spk06: Okay, and just turning to the radio business, are you seeing any improvement post the Q1 in terms of trend, or is it going the other way just because of some of the macro headlines?
spk02: Yeah, so far, in terms of budget, we hit 102% of our budget in Q1, so we're very happy. Right now, again, we're pacing at 96% of Q2, so again, Q1 and Q2 are looking very good. It's again, and one of the reasons that we're looking at OPEC savings, and we started the process, a pretty important OPEC saving plan that we explained to the board yesterday, is to really see what's gonna happen in Q3 and Q4. So for radio, radio is more volatile. The good news is for retail media, there is zero impact. When an announcer wants to make an ad to announce a Tacos Tuesday, they want to keep those ads. So we don't see an impact on retail media or stigma advertising. But again, we're being defensive for Q3 and Q4. Okay. Thank you very much.
spk00: Thank you. And your next question comes from Drew McReynolds from RBC. Please go ahead.
spk08: Yeah, thanks very much. Good morning. Eric, just to clarify that 96% that you just mentioned, what's the context there? I missed that. 96%? Radio pacing.
spk02: Budget, budget, a radio budget. So, so far our pacing is on our budget, so we're very happy. And same thing for Q3 and Q4. So, our pacing, that's the way we do it in the radio side, we're pacing to be on budget, and this year we had a good increase in our budget. Don't want to give you a forecast, but we had good numbers, and we're following our plans.
spk08: Okay, thanks for that. I think last quarter you were targeting double-digit organic growth in the broadcasting and recurring commercial music, all of that combined. Obviously, a lot of this will depend on the ad market as we go through the fiscal year, but just wondering where you think you are benchmarked against that at the moment.
spk02: Yeah, I think we can be confident that we'll stay double digits. The retail or advertising numbers, unless we get cancellations, are still very strong. So with the help of the retail advertising, which is all organic, because when you had zero last year, we're going to continue seeing an increase in organic sales. So very confident to deliver the 10%.
spk08: Okay, super. And just on the Stingray advertising, in your presentation, you do talk about a total addressable market of about 300,000 locations. Obviously, you're at 20,000. Any sense of just how kind of the roadmap looks in terms of that penetration over time?
spk02: Yeah, and... So for, one day we'll have to, the qualified market in Canada, like people that really, like for example, a corner store, we could sell ads, but you only stay a minute 20 in the corner store. So no, you would have to do an ad every two minutes. So it's not as much viable. I would say the market that we can attend here in Canada, it's about 20,000 location. In the US, probably closer to 200,000. But for now, our number one focus is we already have all the stores in Canada connected. So every grocery, pharmacy, big store, pet store, all those type of customers you can imagine that are our clients are being met and we're in negotiation. Some have contracts to convert them to the advertising model. And in the U.S., right now, our big one is we're approaching all the big guys. We're approaching all the big, the Kroger's, the Walgreens, and all the other. So a very aggressive plan to meet all the different companies to grow a network there, again, to be able to sell our ads.
spk08: Okay, super. And one last one from me, just in terms of the full fiscal year, in terms of, You mentioned in your press release, you expect margins to continue to trend well through the year. So presumably that consolidated 33% to 35% margin range is still intact. That's kind of the first question. And second, just maybe for you, JP, on the CapEx for the full year, just what should we consider?
spk02: Thank you. For the margin, I agree with you. I expect the margin to be at 35%. With the cost saving, there's also help there. And so the only negative part is don't forget that in retail media, we do have a split with the retailers. So that decreases our gross margin.
spk01: And on the CapEx side, I think it's going to be lower for the future to come because, you know, we're, you know, radio, we did the main station last year. And on our side here, I think we're, you know, the office is great and, you know, we all the staff, it's okay with the license, so we're going to be fine. So below, between two and four or less.
spk02: I think you'll see our CapEx also going down with more and more software, less equipment, less servers.
spk01: So we don't expect any surprise there.
spk02: And again, with the operational savings, it also helps slowing your CapEx. Got it. Okay. Thank you very much. Thanks, Drew.
spk00: Your next question comes from Scott Fletcher from CIBC. Please go ahead.
spk04: Good morning. I just wanted to ask a follow-up on the cost savings on the radio side. Could you help us maybe contextualize a little bit that in terms of what the margins, do you expect the margins to look like for the rest of the year maybe?
spk02: Yeah, I think, you know, before the pandemic in June of 2020, radio was running at 18.3 a quarter. And this quarter we finished at 57th. So it's $2.6 million. So it's $10 million a year in cost savings. That's going to be there to stay.
spk04: Okay. That's helpful.
spk02: And that's the $10 million that we told you, told the market two years ago that we feel would stay in radio. Okay.
spk04: Okay, great, thanks. I wanted to ask a follow-up question on GeoPath. You touched on it slightly and said that that's an area where you can really see CPMs improve in the U.S. Is that all it's going to take in terms of getting CPMs close to the Canadian side, or is there more partnerships and more work you need to do in the U.S. market to sort of enable that lift?
spk02: Yeah, you see our CPM in the U.S. is running around $2. In Canada, we're able to get up to $20. So there's a big gap, and the reason for that is one is measured, and we can guarantee the agency that the audio ad was done, and it's also, we did it Tuesday at four o'clock, so that's the advantage we have, is we can really deliver, and we can also deliver an ad in just 18 Walmarts, or I just want the locations in Toronto. So we're able to really have a lot of flexibility And every time we do something that is more precise, we charge more. So that's the big advantage. So our goal is to bring this to the U.S., to bring this level of expertise and to be really the dominant player in the audio ads and stores.
spk04: Okay, thanks. I'll ask one last one on the debt reduction. Is there a number that you're targeting for leverage, either as sort of either a leverage number or whether – and then on the paying down side as a percentage of free cash flow?
spk02: Absolutely. So I think, you know, at the last board and even now with the markets coming, our focus is on repaying the debt. You know, the NCIB, unless the stock really moves and there's a big, big down, so our full focus is going to be paying back the debt. Our goal is to be, will be below three by the end of this year, so by the end of March. And I, you know, we'd like to be, our goal is to be by 2.5 this time this year.
spk04: Okay, great, thank you.
spk02: And our goal now, our goal before was three. Now our goal is 2.5. And another point, unless there's an amazing acquisition, we have so much inventory to sell currently. We have so much organic sales that our focus is really how do we, like I was telling you before, sell all our muffins. So unless there's a real nice tuck-in at a very good price, We don't expect any big acquisition this year.
spk00: Thank you. Your next question comes from Tim Casey from BMO. Please go ahead.
spk03: Thanks. Eric, can we just go back to the path to optimizing Stingray advertising in the U.S.? You talk about how you're measured in Canada and you can provide data geo-targeting and whatnot and, you know, upsell opportunities effectively. So in the U.S. right now, can we just talk, go back, so are you measured? And if you're not, how long will it take you to be measured?
spk02: Good point. So now that we have the, so once we're measured, we need to install our boxes and our partner is HiveStack. So what we're doing right now is re-changing all the boxes of the people that we have, of our current customers, and so we have to deliver both. So I expect by September, we had the same question, by September we'll be able to deliver the first measured ads in the U.S.
spk03: And so that is just a function of you switching out technology. All other requirements in terms of affiliations you have to do with the measurement agencies and whatnot. That's all locked and loaded, ready to go. It's just a matter of the tech.
spk02: Yeah, and also what's interesting is, with Geo, by the way, it works is that they measure each store. We do about 1,000 stores a month. So we started with that. So it's going to take about, for every store to be measured, they do up to 1,000, 2,000. So I think that's eight months for all of our location to be rated. I don't know why you say that word, but to be And so there is time to deploy, but while we're deploying, there's a lot of stores to sell. So we don't need to wait until all.
spk03: But let's just go back. So by September, you're not going to be able to fully maximize this, going back to what I was saying.
spk02: No, no, and we're not going to be available in all 16,000 stores. But the honest is we don't have the sales team to sell agencies to all those stores right now. So we have to execute that plan. But on the technology side, we're done. It's more of the execution and getting the sales team.
spk03: But the cadence in terms of adding stores is we should think of about as roughly 1,000 a month?
spk02: 1,000 to 2,000 a month that will be able to sell targeted ads.
spk03: Right. So it's really by this time next year. that you'll have the same scale in the U.S. as you do in Canada. Is that the right way to think about it?
spk02: Exactly. The U.S. has 16,000 stores. In Canada, it's 4,000.
spk03: Tim? Yeah?
spk02: Tim?
spk00: Yeah?
spk02: Okay. Did I answer your question, Tim, or... Oh, my God. Robert, did we lose the line?
spk03: Hello?
spk02: Tim, I can hear you, but can you hear me?
spk03: Sorry. Yeah, I don't know. You cut out there for a while. Okay, sorry about that. I still don't understand. I don't understand the cadence of the stores in the U.S. relative to what It just seems it's going to take a while to get scale in the U.S., is what I'm trying to confirm.
spk02: Yeah, but during this time, we still keep on selling ads at different CPMs. So I'm happy to go on the technology side, Tim, and to take time with you to explain a bit of the difference. But all your questions are right on in terms of the right questions.
spk03: Right. Okay. All right. I'll leave it there. Thank you.
spk00: Thanks, Tim. Thanks, Jay. At this time, we have no further questions. Please proceed with closing remarks.
spk02: All right. Thank you, everybody, for joining the call. Appreciate the analysts. I always say I know you guys work very hard. I like your reports. It's great to have you guys as partners. And we have an AGM at 11. It's going to be virtual. So hopefully next year we can have a live AGM and invite all of our friends. So thank you, everybody, for your time again today. Merci.
spk00: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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