Stingray Group Inc.

Good morning, ladies and gentlemen, and welcome to the Stingray Group Inc. Q2 2025 results conference call. At this time, note that all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. And if at any time during this call you require immediate assistance, please press star zero for the operator. Also note that this call is being recorded on November 6, 2024. And I would like to turn the conference over to Mathieu Pellocquet. Please go ahead.

Thank you very much. Good morning, everyone, and thank you for joining us for Stingray's conference call for its second quarter, ended September 30, 2024. Today, Eric Boyko, President, CEO, and co-founder, as well as Jean-Pierre Trin, Chief Financial Officer, will be presenting Stingray's operational and financial highlights. Our press release reporting Stingray's second quarter results for fiscal 2025 was issued yesterday after the market closed. Our press release, MD&A, and financial statements for the quarter are available on our investor website at stingray.com and on Sitter Plus. I will now provide you with the customary caution that today's discussion of the corporation's performance and its future prospect 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 risk and uncertainties include, but are not limited to, the risk factors identified in Stingray's Annual Information Form dated June 4, 2024, which is available on CEDR+. 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. And please be reminded that some of the financial measures discussed over the course of this conference call are non-IFRS. 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.

Good morning, everyone, and welcome to our second quarter results conference call. We are pleased to report that the revenues for our broadcasting and commercial music business increased 22.2% to $60.9 million in the second quarter of 2015. while the EBITDA for that segment increased 25% to 25 million. Aside from those positive data points, we achieved organic growth, excluding radio, of 15.6% in the second quarter, making four consecutive reporting periods in a row, in which this segment has generated robust double-digit revenue increase year over year. This string of strong organic results in turn has an enhanced degree of predictability to our profitability, including maintaining a consolidated adjusted EBITDA margin of over 40% and the broadcast and commercial segment. The annual EBITDA run rate basis for that division now stands at 100 million. Stingrays, flash channels, and retail media segments continue to drive growth in the second quarter of fiscal 25, raising advertising revenues by 66% year over year. Our pilot project with Vizio on the fast channel side combined with increased penetration with other TV manufacturers largely contributed to the significant revenue growth. We also benefit from higher digital equipment installation revenues on new accounts across our North American in-store advertising platform and through our digital signage banking network of locations to boost revenues. On the retail media front, key customer wins at Sobeys, Shoppers Drug Mart, and Mordu within our Canadian network should deliver meaningful revenue contribution in the second half of the fiscal year and beyond. Today, our retail ad network truly covers all of Canada, allowing brands to maximize their national reach at point of sale. Moving on to in-car entertainment business, We richly launched karaoke in Ford Motor Company vehicles, beginning with all electric F-150 Lightning, Mustangs, Mackie, while further developments are expected across the Ford and Lincoln fleet. We also secured similar agreement with NIO for its smart electric vehicle across European countries and expanded our footprint at BYD with an updated version of our karaoke app. In addition, we created an all-new revenue stream within the in-car entertainment space through a partnership with Xperia TV by introducing eight new channels on video screens for backseat passengers on the BMW group vehicle. Key channels within the package include Stingray NatureScape, HolidayScape, Zen Life, Coelho Concerts, Stingray Classica, Stingray C-Music, and VJazz, as well as the Ultimate Trivia. This premium offering will be extended to our luxury car manufacturers in upcoming quarters as we position Stingray as the supplier of choice in this market. Consequently, the future looks bright for Stingray as most, if not all metrics on the management dashboard are pointing upwards. We fully intend to sustain this growth momentum based on an array of highly depreciated music, digital, and advertising solution that we provide to the global markets. I will now turn the call over to our friend, Jean-Pierre, for our financial review.

Merci. Merci, Eric. Good morning, everyone. Revenues reached 93.6 million in the second quarter of 25, up 13.4% from 82.5 million in 24. The year-over-year growth was mainly due to an increase in fast channel sales as well as higher equipment and installation sales related to digital signage. Revenues in Canada rose 1.1% to $48.9 million in the second quarter of 2025. Both reflect equipment and installation sales related to digital signage, partially offset by the decrease in audio channel revenues. Revenues in the United States grew 52.5% to $32.9 million in Q2 2025. on the strength of higher fast channel revenues along with NN's equipment and installation sales. Finally, revenues in other countries decreased 5.9% year-over-year to $11.8 million in the most recent quarter. The decline was mainly due to reduced business-to-customer subscriptions and less audio channel revenues. Looking at our results by Business segment broadcasting and commercial music revenues increased 22.2% to $60.9 million in the second quarter of 2025. The year-over-year growth was primarily driven by higher fast channel revenues and greater equipment and installation sales related to digital signage. Radio revenues, meanwhile, remained stable year-over-year at $32.7 million in the second quarter of 2025 as higher digital advertising sales were offset by slightly lower national airtime revenues. In terms of profitability, consolidated adjusted EBITDA improved 15.2% to $34 million in the second quarter of 2025 from $29.5 million in 2024 the BDA margin reached 36.3% in 2025 compared to 35.8% in 2024. The year-over-year growth in adjusted BDA and adjusted BDA margin can mainly be attributed to higher revenues. By business segment, broadcasting and commercial music, adjusted BDA increased 25.4% to $25 million in the second quarter of 2025, This growth was largely driven by higher revenues. For its part, adjusted EBDA for our radio segment remained flat year-over-year at 11 million. In terms of corporate adjusted EBDA, it amounted to a negative 2 million in the second quarter due to higher compensation paid compared to 24. Stingray reported a net income of 5.8 million or $0.08 per share in the second quarter of 25 compared to $9.4 million or $0.14 per share in 24. The decrease was mainly caused by an unrealized loss in the fair value of derivative financial instruments and to a negative foreign exchange impact partially offset by higher operating results. Adjusted net income totaled $16.7 million or $0.24 per share in 25 compared to 14.6 million or 21 cents per share in 24. The increase can be attributed to better operating results and in the most recent quarter, partial set by a foreign exchange loss. Turning to liquidity and capital resources, ash flow generated from operating activities totaled 19.2 million in 25 compared to 19.1 in 24. The year-over-year improvement was mainly due to better operating results, largely offset by foreign exchange loss and higher negative change in non-cash operating items. Adjusted free cash flow amounted to $21.1 million in Q2 2025 compared to $14.6 million in the same period of 2024. The increase was mainly due to higher operating results, From a balance sheet standpoint, Stingray added cash and cash equivalent of $8.6 million at the end of the second quarter, subordinate net debt at $25.6 million, and a credit facilities of $350.5 million, of which approximately $68 million was available. Total net debt at the quarter end stood at $367.5 million, or 2.72 times pro forma adjusted EBITDA, As a result, we remain comfortable with achieving a leverage ratio between 2 and 2.5 times by the end of fiscal 25. Finally, we repurchase and cancel 333,000 shares for $2.5 million the second quarter under our normal courses usury bid and 640,000 shares for $4.8 million at the same time. at the halfway mark of the fiscal year. Given Stingray's current valuation, we believe it's a good use of cash to repurchase a share to enhance shareholder value. This ends my presentation for today. I will now turn the call back to Eric.

Okay. Merci, JP. Thank you. So, yeah, happy also that, you know, a lot of times the analysts would ask us to show growth over multiple quarters. So, we were very pleased as management to be able to show to the market four strong double-digit growth in the last four quarters. So this concludes our prepared remarks. I think Jean-Pierre and I will be pleased to answer any questions that you may have.

Thank you, sir. Ladies and gentlemen, if you would like to ask a question at this time, please press star followed by 1 on your touch-tone phone. You will hear a prompt acknowledging that your hand has been raised. And if you would like to withdraw from the polling process, please press star followed by 2. and if using a speakerphone, please lift the handset before pressing any keys. And your first question will be from Adam Schein at National Bank Financial. Please go ahead.

Thanks a lot, good morning. Eric, can you share a little bit with us in terms of maybe quantifying those new contracts in retail media?

Yeah, so first one of the big issues we have, and mostly because the radio team sells ads in stores, and we call it from wheels to aisles. So we'll do a campaign, we'll say put 50,000 in radio and put 50,000 in retail media. The issue we have is our radio team is very much focused on the Maritimes because of our radio and out west. So for us, getting more Canadian-based retailers was important, so Sobeys, Perfect Fit, they're from the Maritimes, and also getting, for sure, Shoppers Drug Mart. We're adding both of them. of 1,200 to 1,400 locations across the country. So for the first time, we can say we have a strong Canadian presence, which also gives us access to all national brands.

But is this something, I mean, can you share it all? You know, is this like in the aggregate potentially, you know, $5 million of additional revenues, give or take, or maybe?

It's going to, you know, we see a growth that we're doing both in retail and fast. It's just going to give us more push in Canada. For sure for us, our biggest part of the market is the U.S., but officially now we can say that we have a national network across Canada. Nobody can say we don't have national presence. So it was an important milestone for us.

Okay. And then, you know, you talked in the press release about maintaining an EBITDA margin of 35%, but obviously, you know, you're tracking above that level so far in H1. And, you know, are you really characterizing

35 percent from the perspective of at least 35 percent it's not as though you're pointing to some margin compression in the second half of the year correct exactly and again this quarter you know at broadcasting commercial did 41 and the radio did the 30.8 so together you know we did the 33 so we did 36.3 but broadcasting and we had a lot in commercial we had a lot of enl If the annual would have been standard, our margin would have been even a point higher. So we would have been at 37%. So we're very comfortable with our EBITDA margins, both in broadcasting, commercial, and overall increasing.

Okay, and just one final one very quickly. Just in the context, we're seeing a lot of movement by the CRTC to try and figure out, A, what Google $100 million windfall can flow into the new system here in Canada. Additionally, there's this local radio news potential relief. Do you get a sense that you're lined up to get something material from some of these efforts?

No. We might get a bit of money, but it's not material. Usually, it's one-offs. But for now, we're not seeing anything on our side. that that makes a big difference. We're happy to see that there is, there's going to be an audio review next year. So audio review, including radio. So that gives us, for us, a big win would be to go to four radios per city. But at least that's back in the discussion. So I think there's no, I think the market and the CRTC, the government sees that a lot of people are shutting down their radio stations. They have to be more proactive. Hopefully the government and the CRTC gets the news.

Yeah, no, I agree with that. Okay, I'll queue up again. Appreciate it. Thanks. Thanks, Adam.

Next question will be from Aravinda Ganapetanj at Ganacord Genuity. Please go ahead.

Good morning. Thanks for taking my questions, and congrats on the quarter. I wanted to start in the in-car category. Obviously, you continue to show business development on the karaoke-led offering, but I was wondering, Eric, maybe you can talk a little bit about the broader positioning you hope to achieve in the in-car entertainment segment, particularly on the back of the partnership with TiVo and for BMW. Any thoughts on sort of the longer-term view here and maybe traction in that direction?

No, no, I think that's a key question. So I think the cars are realizing, just like TV manufacturers, that the days of giving away their media center to XM Sirius or to even AMFM for free, even as a cost center, because the cost of money to install are over. They want to control the media center. They want to be able to sell a premium Wi-Fi package like Tesla does at $20, they want to be able to get advertising revenue, subscription revenue, or even micropayments. So they're looking at any type of way to rake money from their media and not give it away, which is very smart. The good news is I don't think any company in the world is in a better position because right now most cars companies don't do much video on the front. They need audio. So what's audio? Audio is stinger music. Audio is calm radio. Audio is karaoke. So we're positioned to be in every car in the world. And I think that, you know, we'll see most car manufacturers will have karaoke in their cars. I think against all parents' wish, because the kids will be sitting in the car. And even mics. We're going to see a lot of orders of microphones in a car. So karaoke, music. One of our goals is to provide Stingray music with ads so we can both share money on the ads subscription-wise. So I think it's exciting times. But the car business, we're talking 26, 27, up to, you know, for the next 12 years, it's a long cycle. But it's a very interesting discussion, and there'll be a lot of changes. You know, I think there'll be interesting times to see what happens to XM Series and cars, with cars wanting to control their space. And also for us, if we can bring our fast channel for the back seats, which we did with these cars, is good. The more we get distribution on the fast channels on different platforms, the more that we can monetize with ads.

Thanks, Greg. And then maybe just quickly switching gears to radio, you continue to be quite stable there, well ahead of the competition or your peers, it seems. Maybe just talk about some of the dynamics there. Is it a case of maybe some of the auto segment coming back? Is it market share gains? Maybe just talk to where you're driving that stability.

Our radio station, we are outperforming our peers. Our peers are down 10% to 15%. We're stable almost. We still feel that we can be positive in the 2% range. The three things that we do very well, And with the team, we're investing a lot in the local sales team. We have the best local sales team. In most cities, we outperform our viewership in sales. So let's say we own 40% of the viewership in Halifax, but we'll get 60% of the advertising revenue. So for sure, we're winning. Second thing, we're very strong on a digital front to offer customers digital product. And third, like I was mentioning to our friend before, we're having our sales rep sell the audio in our stores, in the retail network, in Sobeys, in Metro. So that gives our reps in any city a unique selling proposition that nobody else can offer. So I think that slowly putting that together, radio can become and will become a positive organic sales business. Thank you. I'll pause the line. Okay. Thank you, sir.

Next question will be from Scott Fletcher at CIBC. Please go ahead.

Good morning. Really strong growth in the advertising businesses again. Hoping you might be able to provide a little bit of a breakdown between the contribution from FAST and retail media like you have in the past.

Yeah, you know what? That's something that is getting bigger and bigger. And it is, I agree with you, it is a bit confusing. You know, the FAST channels, because we get the revenues on a net basis, have a high, high EBITDA margin. because you're taking it from net. And by nature, retail media, we share a good percentage with the retailer. So that one is on, so one is on net and the other one's on gross. So it is, it's something that we're looking to on GP in the future. The numbers were small before to divide, but in the future we'll have to divide both because one is running at 80% EBITDA margin and the other one's at 40% EBITDA margin. So, but at this point, We did well so far this year in the first half. I think we're up 80%. Incredible. We usually tell the market we want to be up 40%. I don't think the 80% is sustainable for the rest of the year. Last year, we had a very, very strong retail media sales in the States with all the vaccines in Q3. Again, for the year, we're comfortable to keep on growing. above 40% for the year. Q3 might be a bit slower because last year was just an incredible quarter. I think we were up 70%. But again, the trends are good and the fast channels by itself, we can talk more, but the fast channels, we can, you know, it's Samsung reported, they now have 88 million active listeners in the US. They're growing by 50%. Now we're having dinner with Roku, Pluto, LG, Samsung, Vizio, and everybody's saying we're in a business that the lake is growing. Everybody is making more money. What's happening is we're getting the audience from the traditional cable side, and there was 70 billion US of ads in the US on the good old NBC, ABC, and those channels, and now all of that money is going. It's not new money. It's money that's going to the fast channels, and if you see on our launches, Stingray is launching with A lot of new partners in many new countries. We're going to monetize better. We're getting better at it. And we're also launching a lot of new products. So you'll see in the next press release. So it means more product, more launches, more platforms, and each of the platforms are doing better. So we see growth in the fast channel, and I said that to the board, for the next eight to 16 quarters. So this phenomenon is not going to go away.

All right, lots of good stuff in there. Is there anything, any update you can share on the run rate of the viewing hours? I think last quarter you said there were sort of, you exited at a 55 million hours.

Yeah, I think we had, again, a very good growth coming at about 59, 60 million. And we keep those numbers growing with more launches of products, like I said, and better monetization. And year over year, the number is huge. I mean, I think we can share that with you on a one-on-one or with the investor deck.

Okay. Thank you. Appreciate it.

Thank you, Scott.

Next question will be from Jerome Dubreuil at Desjardins. Please go ahead.

Thanks for taking my question. Another one on fast, good growth there it seems. I guess the question from a longer-term perspective is how sustainable is this business overall? You just shared numbers on the hours of listenership, which shows good growth, but maybe if you can talk about your ranking versus other content, whether there are emerging players in this market. Thank you.

It's interesting, Jerome. Stingray is probably right now the number one broadcaster on all fast platforms. If you take on Samsung, they have over 20 different channels including the audio channels. And I think we're going to be adding six to eight more channels before the holidays. We're launching more channels on Roku. We're launching more channels on LG. We're launching more channels on Pluto. We'll be launching three more new channels on Vizio before the end of the month. So it's tough. We don't get the information. Don't forget, they're the ones selling. They have the stats. They don't share with us the stats. We created a group of broadcasters to try to share information, but we don't have all the exact data. But for you as an analyst, as long as we can keep on adding channels, platform growing, adding new platforms, and adding new products, all that is there's a direct correlation with number of hours, and then they're able to sell better. Some of our partners, their fail rate is at 95%. So we're always impressed, but some of our partners are doing extremely well and are getting to be very effective at the waterfall. But the issue is we're B2B. The issue with B2B, it's not a B2C product. And for sure, you can imagine, Samsung will not share us who their customers are. So there'll be a bit of work there. Does that answer the question, Jerome, or a bit foggy?

It does, no, that's helpful, thanks. Second one for me, you know, we're getting close to the higher end of your leverage range objective. Does this mean you're starting to maybe change the way you think about capital allocation or we keep going at this point?

No, I think Q3, Q4, very focused. Discussions abroad, we want not only to bring down our debt-to-debt ratio, but we want also to deleverage our balance sheet So we want the debt ratio, the debt loan to come down nominally, and we'll see. We grew so fast this quarter. We have a lot of receivables coming. The Fast Channel partners do pay us in 120 to 180 days. So it's great. We all get paid, but we got to get into that cycle. Once that cycle comes in, then we'll see that cash flow. So that's why we feel very good in Q3 and Q4. And I think, you know, we're We're going to be well below 2.5, close to 2. Once we get to 2, then we'll sit down on another call when we speak one-on-one and establish what is the best strategy. We are looking at some acquisitions. The market is becoming more flexible. So I must say before, the market was a bit highly evaluated. One of our issues we have, Jerome, is our stock price increases, but our EBITDA increases faster than our stock price So our EBITDA to EV ratio keeps getting lower. So that hopefully one day you guys can work that out. But no, I think we're very confident about our debt and to be close to two times that EBITDA and from there we'll adjust.

We are noticing the EBITDA growth, thank you.

Merci, Jerome.

Once again, ladies and gentlemen, if you have any questions, please press star followed by one on your touchtone phone. Next is Tim Casey at BMO. Please go ahead.

Thanks, Eric. Could you talk a little bit about in-store audio in the U.S., how that business is going in the past? You've talked about how you really have to educate the market on that, and you didn't call it out as a a growth driver on the advertising line. It seems like it's all fast, so maybe just some color on what's happening with that business. Thanks.

Please unmute, Mr. Pellecain. Mr. Pellecain, can you please unmute your line? We are unable to hear you at this time.