Destiny Media Technologies - Earnings Call - Q2 2025

Transcript

Rebecca Collins (Head of Investor Relations)

Good afternoon, everyone. Thank you for joining us on today's webinar. Before we begin, I'd like to announce that we will be referring to today's earnings release, which was sent to the newswires earlier this afternoon. I'd also like to remind you that this conference call could contain forward-looking statements about Destiny Media Technologies within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon current beliefs and expectations of management and are subject to risks and uncertainties, which could cause actual results to differ materially from those forward-looking statements. Such risks are fully discussed in the company's filings with the SEC and CEDAR, and the company does not assume any obligation to update information contained in this call. During the webinar, we will discuss certain non-GAAP financial measures.

The non-GAAP financial measures are presented in the supplemental disclosures and should not be considered in isolation of, or as a substitute of, or superior to the financial information prepared in accordance with GAAP, and should be read in conjunction with the company's financial statements filed with the SEC and CEDAR. The non-GAAP financial measures used in the company's presentation may differ from similarly titled measures presented by other companies. A reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures can be found in the earnings press release. Also, I would like to mention that following the presentation, there will be a questions and answers session, during which you can submit questions by selecting the raise hand icon at the bottom of your screen.

Your question will be called in the order that they are received, and at which point you'll be prompted to unmute your microphone before speaking. With that, I'd like to turn your call over to your host, Fred Vandenberg, Chief Executive Officer.

Fred Vandenberg (CEO)

Hi, everyone. Welcome to Q2. Year-to-date revenue was up 4.9%. For the quarter, it was up 3.3%. This is a little bit less than the growth we've seen in the immediately preceding quarter or the growth over the last couple of years. We have seen some very positive signs for growth in our customer acquisition strategies, and we think this will result in positive long-term sustainable growth. Our independent customers represent about 50% of our revenue on average. In Q2, that's a little smaller of a percentage because of the seasonal demand. In that group, total customers are up by 4.4%. New customers are up 8%, and then there's a modest increase in the number of releases, and there's a 2.6% increase in customer retention. We have also seen an improvement in sales conversion rates and the speed of conversion.

What we have also seen is a 4% drop in the average spending per release. We think that the majority of that is caused by discounts that we've put in place. These discounts were part of our overall checkout feature that we're building, and we had to standardize those discounts across the platform. The demand in this context is pretty inelastic, relatively inelastic, so we're probably going to address this going forward and modify the adjustments and how they're calculated. Expenditures are up 18.2%. The majority of that increase is, well, more than actually that increase is due to one-time non-repeating legal expenses of $230,000 and some non-cash amortization expense increases. That's offset by some reductions in salaries and wages, the majority of which are long-term, repeatable. There's going to be some increases associated with as we add some more staff.

We've created this schedule in the slide to show kind of another non-GAAP measure where we've adjusted net income to remove all the, or sorry, deduct all the capitalized costs that we've incurred in the period, add back the amortization, add back the one-time cost of the litigations, and some other non-cash expenses, and just to show you what our real cash flow is, longer-term cash flow, and it shows a net margin of about 9%. That gives a sense of where we're at given the loss. Our long-term business strategy is really to achieve sustainable accelerated revenue growth through new market acquisition, gaining market share in new territories. To put that into real specific strategies, we're really trying to leverage our customers and users to grow Plan B. If you look at Plan B, it's akin to a social media platform, but in the music promotion space.

If we make the right investments in the platform, we can help get our users to drive growth. What we did in the quarter is we released a feature called Invited Connection. We plan to build on this and try different things to get recipients to drive that growth. If I was to draw a parallel here, it would be something like LinkedIn, where in the beginning of LinkedIn's existence, they were a platform to post your resume and that sort of thing. Now it's evolved into a lot more. We have a vision of doing similar things and building on the Invited Connection. Our priority here really is to drive revenue growth so we can invest more into revenue growth. The more users we have on the platform, the faster we can grow. We also added some new features into our list management process.

Our list management group really is actively maintaining our recipient lists, which is the products we sell. Our lists are really a significant driver of our overall value proposition. They are 200% more active than our best customer-owned lists. We do the job a lot better than our customers can. How we maintain these lists is through proprietary processes that we have developed over quite a number of years. This is just a change to help make that group a little bit more efficient. With this change, we are looking to leverage that group into adding more recipients and recipient types to essentially broaden our product line. As well, we made some SEO improvements. With those list and management improvements, we are working on acquiring new recipient types.

As far as our customer acquisition investments go, from a platform perspective, the main thing we're working on is self-service checkout. This will allow us to really scale. Earlier in this year, we released a self-sign-on. During Q2, we released full-service checkout. We split our independent customers into two types: full-service and self-service. The full-service customers require more staff involvement. Our staff prepared the release. We've added the checkout feature there. If done well, we think that this will open many doors to grow independent use in new territories. At the same time, concurrently, we're investing into a lot of marketing improvements. We restructured the website last year, and we continue to improve the site score. We get higher SEO rankings, so search terms that are relevant to us get higher and higher rankings. We're going to continue to do that.

The site speed is a lot higher. Now we're working on preparing for a global expansion with the website. MTR is the new radio tracking software. That is growing quite well. February was our, so the last month of the last quarter was our highest month in revenue. We continue to see really good improvements in customer acquisition, customer retention, revenue growth. It is still a small product because it's currently only tracking single songs. Where we'll see the real growth is when we can sell to larger customers that will track more songs. We have to build out the ability for those customers to pay, but also to add features that will allow them to manage multi-songs. We're looking towards later on in this year, this fiscal year, to add those features. With that, I will turn it over to questions.

Rebecca Collins (Head of Investor Relations)

Great. Thank you, Fred. If you do have a question, please use the raise hand option at the bottom of your screen, and your question will be pulled in the order that they are received. If you raise your hand, please ensure you have access to a microphone. If you wish to retract that question, please just click that raise hand icon again to lower your hand. Your camera will remain off once prompted, but please do unmute your microphone before speaking. Looks like we do have one raised hand from Larry Goldstein. Do you want to unmute your microphone and go ahead?

Fred Vandenberg (CEO)

Larry, I think you need to unmute your mic.

Rebecca Collins (Head of Investor Relations)

Okay. Maybe we can come back if you're just sorting that out. Tom, do you want to go ahead?

Hello?

Hi.

Hey, Fred.

Fred Vandenberg (CEO)

Hi.

My first question is regarding the contract with Universal. I think it's been expired for a year now, and you guys have been like on a month-to-month. Has there been any progress with them?

I would say there's been progress in the sense that we continue to grow their use. The contract is sort of a revolving month-to-month. It's a 30-day notice period. Right now, I mean, there hasn't been much in the ways of talks there. Quite frankly, I don't think that it's a problem that they're seeing for that. It's just rolling forward.

Okay. I thought it was like the point was to kind of sign a longer-term contract or something. Is that 30-day notice, does that current contract include any kinds of price hikes or not?

It does, an annual price hike, yeah. I mean, the best answer I would have for that is I think if it's not broke, don't fix it. I would prefer to have a longer-term deal, but that's just the hyper-risk aversion. I don't see that as a, I mean, their usage is growing. There's nothing that I would see as a problem. Our value continues to grow with them. We continue to develop the Plan B platform. Yeah, I don't see anything there to be concerned about.

Yeah, okay, cool. Yeah, I was thinking because of the last eight years regarding that last year meant like was talking about signing a longer-term contract, but now I understand that it's on a longer basis.

I mean, yeah.

Yeah.

I mean, who's getting to it? I would rather have a 10-year guaranteed contract, but.

Yeah, yeah, I know.

Everything's going well with them.

Thank you. Do you anticipate you guys to disclose the MTR revenue at some point, or just I know it's the first time you guys are disclosing some kind of growth measure in the press release, but.

It's currently less than 1% of our revenue. Until we launch the enterprise capabilities where we can capture a lot of customers with a lot more users, sorry, songs, I don't, I mean, I think our revenue continues to grow, and it's really nice to see. The percentages look great, but how it impacts our total revenue is not material until we can acquire larger customers.

Is it mostly customers that are currently using Plan B, or what's the?

Yeah, the majority of it is. Not all, though. I think we're making inroads into figuring out how we sell to customers that are not originally Plan B customers. What we found last year is that customers, we were marketing digitally, and customers were not really searching for what we provided because no one thought that even existed. You're not going to look for something that you don't think exists. Now I think we're making improvements in customer acquisition for that doesn't have a Plan B basis or origin. We're also seeing customers that we attract for MTR that are now becoming Plan B customers. We see a growth in our new customers. I think that in part is from having that second product.

Okay, thank you. I've read in the financials you were talking about marketing costs increasing. Is it like hiring other people? What kind of position are you looking to hire if it's related to that?

It's a bit of a combination of outside site expertise, consultants, and more staffing. Whether that's new staff or more reallocated staff is a different question, but there's more staff. I think going forward, we'll look at whether we get a return on that investment. I think with checkout, our plan for checkout really is essentially where we can sell to certain markets that are poised for acquisition. That means really where we have regular use by relevant industry professionals, but we have very little independent use or none. We want to get into those territories and sell. Sometimes selling to those territories is really more of a numbers game and where you sell where our full-service staff do not prepare that release so they can self-sign up, self-checkout.

The marketing costs associated with that, we expect to look at a positive ROI and we'll increase it where we see that.

Okay, thank you. Is there any plan to kind of do investor outreach? I know it's been touched a couple of times in the past few calls. I guess you were waiting for higher revenue growth to kind of launch that again. It feels like it's been on and off or talked about for a while, but it's not really happening. Is it like at some point you'll do it anyway, or?

I mean, I expect to see higher revenue growth soon. I think regardless of whether we see that, I believe we will have the capacity to be a bit more smart about our investor outreach very shortly.

Okay. Thank you. I don't want to take all the time. I think I had one more question. How is the board involved in either the use of cash balance or any types of strategic decision in the past couple of quarters? Are they the main driver of deciding to reshuffle, let's say, the marketing department or the direction of it, or are they more laid back and just taking it?

I would say the board's heavily involved in the overall strategy. That's influenced by our management group, of course. I mean, we just met with them for two days at the AGM in February. There's a lot of strategy discussions with the board.

Is the buyback? Yeah, sorry. Is the buyback considered in any fashion or not considering the stock price and how much accredited it could be? I know there's not tons of volume on the Canadian side, but there's been quite a lot of volume on the American side. Maybe not the last couple of weeks, but I don't know.

The volume on the Canadian side is hidden. What you see on Yahoo Finance or wherever you look for your volume numbers, they only disclose what's traded on the TSX, which is incomplete. In fact, it's traded on other exchanges in Canada. It is very, very difficult to get a whole picture of the volume. As far as the buyback goes, we do look at it. I'm not thrilled about the stock price where it's at, of course. I think until we do maybe a bit more investor outreach or show faster growth, you're going to, I mean, I think the stock price will reflect our growth as soon as we show it. I mean, I think we're undervalued as it is, but I can say that until I'm blue in the face, it doesn't do any good until you attract more investors.

Yeah. All right. Thanks for your time, Fred.

Yeah, no problem.

Rebecca Collins (Head of Investor Relations)

Thank you, Tom. Larry, if you want to try and go ahead and unmute your microphone, you can take your question.

Do you ever listen to past calls?

Fred Vandenberg (CEO)

I do, yeah.

I do too. What is recurrent are the same adjectives and really the same words. There is always something. It is now, what is it, two years since one of your big competitors went out of business?

Okay, you're talking about All Access?

I don't recall the name, but it was one of your bigger ones, I think, in Canada.

I think you're thinking of All Access, and All Access was acquired by, ended up being acquired. They were going to shut down, and they ended up being acquired by another company. They are still effectively in business.

What do you think is the size of your markets, plural?

For Plan B, I think it's very difficult to calculate that, but I would say it's at least the addressable markets, at least $40 million in radio-only promotion. Promotion itself is something where we can expand user types. Music supervisors, influencers, media, all sorts of.

I don't go into detail. Just what do you think of the size of your markets?

Again, the addressable market for Plan B is a lot bigger than 40 million. It's just calculating that and where we're at right now is a little bit challenging. But MTR, the.

Challenging in what way? How's it challenging?

It depends on where we go. I mean, to figure out the volume of what releases are going out and how much they'll pay for it is you can do that in two different ways, top-down or bottom-up. It's hard to figure out a number, pin me down to a number.

I mean, I'll shorten this and ask the question a different way. When we first met, or my colleague did, I think you suggested that the markets you were addressing were maybe $50 million. Does that sound right?

I mean, I said 40 million, at least 40 million right now. Again, I'm probably being hyper, well, I know I'm being hyper-conservative on what that really is. I would say Plan B in its ecosystem, if you're really looking at Plan B, what it does now is it's really a.

Excuse me, I'm not asking. I'm not looking at anything. I don't know what you're looking at. I'm asking what are the size of your markets? You don't need to explain this or that. What are the size of your markets? Maybe you don't know. Is that the answer?

I think the answer really depends on what market you're looking at and what we're doing right now.

Larry, Larry, Larry.

What do you look at?

Larry.

What your business?

Let me finish. I will answer your question, okay? The markets we're looking at right now is really solely a distribution market. You're looking at $40 million-$50 million for radio promotions itself. You're probably doubling that for music supervisors and doubling that again for influencers. You're looking at $120 million, roughly, say, for just the simple delivery of music. And MTR itself, you're probably looking at twice that as over. We have to get there. We have to build out the platform to be able to do those kinds of things. We're not there right now.

Where is the market that you are there right now?

For MTR, it's about, say, 200 million. For Plan B itself, it's 40-60.

You're looking at two sides of a market compared to the current volume, right?

Yeah.

Have those markets grown in the last four or five years or not?

No, they've grown. They've evolved. They've shifted in terms of their priorities, but they've grown. They continue to grow.

When are we going to grow? And when are we going to grow profitably? I'm thinking that it's going on five years that we became, since we first became a shareholder. And it's my fault, slap my wrist, but I thought that in five years, you'd be a much larger company. Top and a significant bottom line. But the case is different, right?

Yeah. I mean, I would have hoped that we would grow faster as well. We continue to make improvements in marketing and the platform. And we showed some growth. We've shown roughly 9% growth over the last year and a half, two years. It's just a little bit slower this quarter.

With no translation to the bottom line. Incidentally, what was the $200,000+ legal expense? What was that for?

That was for the former CEO. He sued us for wrongful dismissal. That went to court in December.

That all went to lawyers?

Yeah. Yeah.

Oh, so you won the battle and lost the war.

I don't know how you could have avoided the war, Larry. The last offer, you couldn't settle. We wanted to settle, and the settlement would have cost us five times as much or ten times as much.

He didn't have a leg to stand on. Why would you settle?

Why would he settle?

Why would you settle if he didn't have a leg to stand on? Maybe I misunderstood. I thought he didn't have a leg to stand on, and that's why you were confident about maintaining, initiating, and continuing the lawsuit. Am I wrong there?

I think you're misunderstanding what's happened, what's transpired. The case went to court. We're waiting for judgment right now. Those fees were for litigation. We expect to recover some of those when we get a positive judgment.

Does he get money to enable you to recover?

Yeah.

Recover some of what it just cost you?

That's right.

Which was the total of all the years?

Pardon me?

Were you paying the bill for all these years, or was this the bill for this year?

What was expensed right in the quarter was just in the quarter. I mean, there's more legal fees than that, for sure.

I don't know if you're jogging or running or racing, but we'll get nowhere.

We're increasing our cost as we grow our revenue so we can grow faster. I mean, that's the whole point of what we're doing. If we wanted to be a value stock and not invest for growth, we could do that as well.

You're not a stock. You're a company. You're running a business. You're not running the stock market. What do you call about faster? What is faster? What's your definition of faster?

I mean, I expect to grow by more than 25% annually if we do things properly. But that's what I'm targeting.

Why aren't you doing things properly?

I'm talking about longer-term. I do believe we're doing things properly. We're investing as we can to grow faster. We're a small company. We have limited resources. We just built out the platform for Universal so they can grow globally. And now we're investing in things that we think will grow our platform organically.

How much have you spent on buying in stock in the last five years?

$800,000, say. I'm guessing a little bit.

I think you're probably about right. $800,000 would have been a lot of money to invest in the business rather than in the stock, it seems to me. It sounds like a mistake was made. Do you agree or not?

I mean, I'm not sure that it's a mistake, no. If you look at expenses, you would be spending on things that are repetitive. So buying back stock is, I think, something that will pay off longer-term. You're buying at a price now that is lower than what you think it will be in the future.

The business has grown a lot slower than you had hoped for it to be in the future. No? Yes?

I would think I would wish things had moved faster. We wish we had.

Oh, wait a minute. Wishes. Wishes.

You asked me what I thought, Larry. So I'm answering what I thought. I thought that things would move faster. I thought we would have moved our development faster, but that didn't happen. I think we're building out the platform to grow organically, and we're trying our best. I think if we do that well, we will grow faster.

How much longer do you think you will need to grow faster?

Like I said, we're building out the checkout feature, which we'll release this year. We think that that'll have a palpable impact on the revenue growth.

What does palpable mean?

You'll be able to see the difference in the revenue growth. You'll be able to see an inflection point. That's what I mean by palpable.

When do you envision doing this 25% growth that you cited a moment ago?

I would hope that between 2025 and 2026, we'll achieve that. That's what we're targeting. We will have the checkout feature launched, and I think we can acquire new markets.

Okay. Like they say in church, let us pray. Yeah. I'm thinking back to a comment that's been firm in our brains after three years and a promise you made, which has turned out not to be a promise. Do you recall that? You don't have to state what it was, but do you recall?

I don't know what you're referring to, Larry.

I was reticent to talk publicly, but at this point, I don't know that it makes any difference. You said if in three years you didn't make serious money, you would sell the business, or I think you said you'd sell the business. Look, it's so obvious that you've got this wonderful gross profit. If you stopped developing new products and whatever else you're doing, you'd make a lot of money. Since you mentioned the stock so frequently, the stock would be a whole lot higher. You did say in three years. In the fourth year, and we're going on the fifth year, seems like it's the same as the first year.

I think you might be getting confused, Larry. I believe that we can grow. If not, if we do not have success in that growth, we can ramp down expenses and become a cash generator and do that. Maybe that is what we will do. I would not have committed to a timeframe on that.

Oh, you did, whether you remember or not. I do. Okay. I got it. It just seems like every year, if you go back and listen to the calls, every one of them is following the same script. You say the same thing. It depends. The bottom line is, the way you've shown us the revenues, you haven't even grown at the inflation rate.

Our growth has exceeded inflation, but that's splitting hairs.

Okay. I'm disappointed. I hope you are. Yeah. We're patient. We're patient. We're probably even more patient than your board, but it doesn't seem obvious that the board is patient either. Okay. Thank you for your responses. Appreciate it.

Okay.

I will say one more thing. You just talked about huge numbers relative to the size of your market. If you include this market or that market, there you are up above 100 million. And you're doing what? What are you going to do this year? $2 million a quarter or something? Excuse me. $1 million a quarter?

Yeah. We're a small company. Small market share, yeah.

Looking at what the whole market is, it seems like nothing's happening. Doesn't it seem that way to you? Or does it?

I mean, I think.

We're going nowhere fast in terms of share of market.

Yeah. We're.

Particularly when, was it last year that that firm went out of business? Back in business, you're saying. We didn't see any pickup from that.

Like I said, Larry, they didn't go out of business. They were announcing that they were going out of business, and then they were acquired.

They had a period there where they were not attending to business with the same point of view that they presumably had been. The same zeal or the same abilities. No hay was made. That happened.

Okay. Okay. Thanks, Larry. We're going to grow as fast as we can.

Rebecca Collins (Head of Investor Relations)

Okay. Thank you for all your questions. It doesn't look like we have any more today. Yeah, looks like we can wrap it up.

Fred Vandenberg (CEO)

Okay. Thanks, everyone. We'll look forward to the next call. Thanks.