Destiny Media Technologies - Q3 2024
July 15, 2024
Transcript
Rebecca Collins (Operations Manager)
Good afternoon, everyone. Thank you for joining us on today's webinar. Before we begin, I'd like to announce that we'll 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 SEDAR, 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 SEDAR+. The non-GAAP financial measures used in the company's presentation may differ slightly 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'd like to mention that following the presentation, there will be a questions and answer session, during which you can submit questions by selecting the Raise Hand icon at the bottom of your screen.
Your question will be pulled in the order that they're received, and at which point, you'll be prompted to unmute your microphone before speaking. With that, I'd like to turn the call over to your host, Fred Vandenberg, Chief Executive Officer.
Fred Vandenberg (CEO)
Thanks, Rebecca. Good afternoon, everyone. I'll go through our Q3 results very briefly, and turn it over to questions. Revenue for Q3 grew by 8.2% and 10.3% for the three quarters period ending. We believe this shows a small inflection point in our revenue growth that began about 5 quarters ago. I'll talk more about our organic growth strategy shortly, but we've seen growth that's around 9% over that period, compared to what is about 3.5% for the several years prior to that.
There is a slight positive net income and a slight positive EBITDA, and that would be we put the capitalized software development costs on here just to show you that the EBITDA would be positive even if we hadn't capitalized any software development costs. I've added a graph to this slide to show our global independent revenue through the first three quarters of the year. This growth is around 9% for the last four years. This is a yearly year-to-date graph, versus about 7% through the years prior to that. We think this is, you know, again, a bit of an inflection point, but you'll see it a little bit more dramatically in fiscal 2024.
As global independent revenue becomes a larger portion of our total revenue, this should impact our results a little bit more strongly. Oops! Sorry. The organic growth strategy is really to grow Play MPE's market share and then add products and services that can grow our addressable market. So how do we do that? We're really trying to invest in the platform to really organically grow, have our users market our platform. The main thrust is to create an ecosystem where customers stay in platform longer, get more done, drive more marketing for us, drive more revenue growth organically. This organic growth is really just a shot in the arm to our growth strategy.
These investments are just beginning. Many of you will recall that we had a years-long effort to build out global administration for our largest customer, and we just moved them over to the online platform in March of this year. We also want to complement that with marketing and business development. The product updates for the quarter was the one that you'll probably be most interested in is the MTR launch. That didn't launch until following the quarter, but it was nearing the end of the quarter. The other product updates are really that we continue to work on the customer sign-on and paying platform.
These are things that are gonna allow us to scale, and there's a number of other things that are gonna help that organic growth that reinforces the activity within the platform. Also in Q3, we had a change in our marketing leadership. There's a bit of a restructure that began in late Q2 to move the leadership over to somebody new. And we began to restructure the business development group that continued throughout Q3. There's been a lot of work here that's really exciting, but they're really involved a lot of, you know, block-and-tackle marketing activities. We rebranded the website. You'll see the logos that we've added here. We created the logos. We added the tracking platform into Play MPE, so that's Meter.
There's a lot of site optimization. We are tracking lead flows, all the, you know, the basic block-and-tackling of marketing, but it's probably too much detail, but it's really quite exciting for us. The new website actually didn't launch until the beginning of Q4. Lastly, the Meter. You'll see. You've seen a press release about Meter, MTR, Music Tracking Radar. We call it different things, but Meter is really the name that it goes by. Its core functionality is that we listen to music and then identify that music, what that music is, and report on when it's played and by whom and how often, what time of day. Our first customer type is an artist or a small label looking to track a song or a few songs.
Our Play MPE customers have expressed a desire to obtain this information. What we have found is that our customers have found this type of information to be expensive and/or doesn't have the coverage that we can provide, or in real time, with a connection to Play MPE. Sorry, we segment this information. We segment this market from those that want to track a single, so you'll see that first segment up there, and those that want to track several songs, many songs. There's a remarkable amount of music produced every day. There's something like 98,000 songs a day produced and sent to DSPs, like Spotify or something like that.
But we think that the market here that we will be attacking is around about 35,000 songs monthly, so quite a small fraction of that, or about 420,000 songs per year. In the U.S., which is our first market, we think this number is closer to about 5,500 per month, or about 66,000 songs annually. Our base price now is around $20-$25, depending on how many months are purchased. But that's per month of tracking, so we have experienced that the average person wanting to track is around 3-3.5 months of tracking. But that doesn't include renewals or things like that, 'cause we just don't have enough experience yet.
So if you do the math to figure out what we're attacking here, you would, you'd multiply the 66,000 songs, this is in the U.S., 66,000 songs, times the monthly price, times the number of months they wish to track. We think this analysis is fairly conservative and does not include older songs, and like I said, it's a very small portion of the total songs produced. We don't know now what the split is between customers that want the single and those that would want to track a number of songs. And there's some functionality differences between the two that we have to build out yet. So our first market to attack is the singles, the artists or record labels that wanna track a single.
As far as costs go, there's really a fixed monthly cost with a variable component that grows with the number of songs, the number of detections, the number of stations that we cover. The number of stations is really the upfront cost, 'cause we have to, you know, present a number of stations. We think that the price point, our price point, is high enough that we can cover our investment with a reasonably small market share, and then we have to figure out how quickly do we grow into new markets and that sort of thing. So our immediate goal with MTR is to really to figure out the marketing, improve the marketing, reiterate, figure out what an enterprise customer looks like.
I mean, we're already doing that, but really to figure out and build that out and grow from there. But this is really MTR is really the first part of that organic growth, that's totally new, a totally new addressable market, and it's something that internally we're really excited about. And with that, I will turn it over to questions.
Rebecca Collins (Operations Manager)
Great. Thank you, Fred. Yes, so we'll now begin our questions and answer session. If you 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 do raise your hand, please just ensure that you have access to a microphone, and if you wish to retract that question, you can also just click the Raise Hand option again to lower your hand. Your camera will remain off, but once prompted, please unmute your microphone before asking your question. So the first question today is from Gary. Gary, you can go ahead and unmute your microphone.
Gary Fuges (Senior VP of Investor Relations)
Can you hear me?
Fred Vandenberg (CEO)
Yep.
Rebecca Collins (Operations Manager)
Yes.
Fred Vandenberg (CEO)
Hi, Gary.
Gary Fuges (Senior VP of Investor Relations)
Hey, how's it going?
Fred Vandenberg (CEO)
Good.
Gary Fuges (Senior VP of Investor Relations)
I just have a couple of questions, Fred. First of all, I think you were, maybe you have renewed the Universal deal. Has that been done for another two years?
Fred Vandenberg (CEO)
We have renewed it until the end of September. We are currently in talks with them. I think they're going quite well, positive. We moved them over to the online platform in March, like I said, and it's been going very well.
Gary Fuges (Senior VP of Investor Relations)
Okay. So if you think you'll have them signed in September, is that gonna be retroactive to January, or does it go for two years from that September point, or is it an annual deal?
Fred Vandenberg (CEO)
The term is yet to be decided. I think it probably depends on a number of things, I suppose, but it will be from October first onwards.
Gary Fuges (Senior VP of Investor Relations)
Would you expect increases?
Fred Vandenberg (CEO)
That really depends on what they are interested in purchasing. I mean, we built out the global administration features that they require. I don't think there's anybody else that does it, and they find it very useful, but as far as increases go, I don't wanna speculate on that right now.
Gary Fuges (Senior VP of Investor Relations)
Okay, fair enough. In the press release, two things, one's a comment. You should denote all the figures as US dollars, 'cause some media outlets pick it up and denote it as Canadian dollars. They don't say US dollars.
Fred Vandenberg (CEO)
Okay.
Gary Fuges (Senior VP of Investor Relations)
I'm just saying, there were headlines saying you had $1.2 million in income or whatever, or $0.01 in earnings. They denoted that in Canadian. The media who pick it up, because they didn't see it was denoted U.S. dollars on the press release. Just a comment.
Fred Vandenberg (CEO)
Okay, I will do that.
Gary Fuges (Senior VP of Investor Relations)
Yeah. Second of all, you talk about the buyback. Up until early May, you were rather active in the buyback over the last 12 months, even in the last quarter. But the buyback wasn't renewed, so I just wanted to understand why you were so active, and now it wasn't even renewed? Thought we just continued.
Fred Vandenberg (CEO)
Yeah, I think there's a couple things there. It's really a function of our wanting to see where it goes with meter. Meter is a really interesting new product for us, and it does come with some costs, like I said, and it. We are looking at marketing for it, and I think, depending on the results of our market acquisition, we might decide to grow that, our segments a little bit faster, and so we just wanted to pause on the buyback for just a bit, a period of time. We'll revisit that at some point, I'm sure, but we have a lot to invest in organic growth and potentially inorganic growth. I talk a lot about our strategy to grow organically on these calls.
I don't really talk too much about inorganic growth, but we do, we do spend a bit of time seeing how we can grow faster, but-
Gary Fuges (Senior VP of Investor Relations)
You're saying that your capital allocation plans have changed as of.
Fred Vandenberg (CEO)
Mm.
Gary Fuges (Senior VP of Investor Relations)
As of the expiry of your buyback?
Fred Vandenberg (CEO)
That's a confusing question to answer. I wouldn't say our capital allocations have changed. I would say that we've put a pause on it to see if they will change. If I really wanted to answer your question precisely, I mean, there's two sides to this. We still see the stock price pretty low, but that's really a function of demand and supply. We're not really well known, and we're pretty small. We're a micro-cap company. So, you know, awareness in the market just kinda dictates our stock price, so we see our stock really low, but we also see a lot of potential to invest.
I think we just wanna spend a few months figuring out where we put that capital now, next.
Gary Fuges (Senior VP of Investor Relations)
Okay. Are you expecting your OpEx to, you know, jump a little more significantly, 'cause you talked about investment in the MTR marketing?
Fred Vandenberg (CEO)
Right. We are currently cash flow positive, slightly, marginally. I think we will make progress generally with revenue and positive margins, which gives us a little bit more opportunities to expand spending, if we choose to, and if we see a lot of areas for growth that are really promising. But I think we just wanna have a little bit of run rate before we decide to do that.
Gary Fuges (Senior VP of Investor Relations)
Okay. Coming back to the MTR, so you piloted the product in Canada, from a functionality standpoint, not a market test standpoint? Or, is the product rolled out in Canada and generating revenues in Canada?
Fred Vandenberg (CEO)
It is rolled out-
Gary Fuges (Senior VP of Investor Relations)
In Canada?
Fred Vandenberg (CEO)
It is out in Canada and generating revenue. We, when we were in Canada, we were monitoring a select group of stations. We charged a price that was so low that it wouldn't impact our revenue. It would just. It was just to get some skin in the game to see if people actually would pay for it. That's essentially what we did in Canada. Now we've moved the price up to, which is still a screaming deal at $25 a month. One of the things I don't think we highlighted is, or potentially highlighted enough, is that artists, the...
Our first target market, the smaller artists that wanna track a single or a few singles, they don't really have a way to capture this information easily, from a company like us. So they, there's options out there, but... And this is something that our customers have asked for, that we want to provide, but we don't know what the real adoption rate will be. So we will monitor that. We do see customers in Canada buying it. It's just now that they have to pay a little bit more. But now we're tracking stations throughout the United States.
Gary Fuges (Senior VP of Investor Relations)
And do you, do you envision this product being, lack of a better word, more successful at the artist level or at the enterprise level?
Fred Vandenberg (CEO)
I don't know. The reason I showed it, showed this pyramid, is the... I don't know the split between singles and enterprise. We have a sense. We don't—it's not like it's a complete blank slate to us, but we think that there's gonna be an interesting amount of single tracking. Enterprise will require some additional functionality, but in terms of the market split there, I don't really know. With enterprise, you'll get a smaller price per month tracked, but you'll get a lot more songs tracking, so it'll be interesting to see the split. The reason why we show-
Gary Fuges (Senior VP of Investor Relations)
Was it-
Fred Vandenberg (CEO)
Sorry.
Gary Fuges (Senior VP of Investor Relations)
Was it piloted in Canada at both enterprises and artists or not?
Fred Vandenberg (CEO)
No, no, no, just a single, just a single tracking. And we were even missing things in Canada that we added during the year that are, I wouldn't say they're required, but they make the platform just a little bit more usable.
Gary Fuges (Senior VP of Investor Relations)
Okay.
Fred Vandenberg (CEO)
The reason why we show this in a pyramid is, even the singles and the enterprise tracking that I've talked about, those are sort of the, you know, really interesting, compelling markets that we want to adopt. But, there's a lot of blue sky that's associated with MTR that I just don't wanna talk about until we're further down the road of product development.
Gary Fuges (Senior VP of Investor Relations)
When do you envision MTR being a meaningful contribution, revenue contribution to Destiny? Is this a 12-, 24-month, 36-month period, or give a little color on that?
Fred Vandenberg (CEO)
I suppose it depends on what you mean by meaningful.
Gary Fuges (Senior VP of Investor Relations)
Well, more, more than 10%, I guess, would be the first level of meaningful.
Fred Vandenberg (CEO)
Yeah. I don't know, Jerry. I don't wanna predict that.
Gary Fuges (Senior VP of Investor Relations)
Mm.
Fred Vandenberg (CEO)
We, when we look at our revenue curve, we, we sort of look at a we expect to see a slower adoption and then an inflection point where our rate of, of customer acquisition grows faster. A lot will depend on what the split is between those wanting singles and those wanting a, a more enterprise-level agreement. We think we can build out the enterprise functionality reasonably quickly, and I, when I say reasonably quickly, it's, it's, it's not a few months. It's probably more than a few months to, to build. It depends on what we find we, we need. So it really depends on what the split is and how much more work we have to do. I just...
I wanna give a sense of what the initial market in the United States would look like with a, you know, big market share.
Gary Fuges (Senior VP of Investor Relations)
Who would an enterprise use if it isn't Destiny, too, for the service today? Or what's the competitive environment in the enterprise or on the single today?
Fred Vandenberg (CEO)
When it comes to enterprise type things in the United States, they're really—you're really looking at what's called a charting platform. And there's a few different providers, and depends on the genre, but they are much larger companies that what they provide is a smaller number of radio stations monitored. It tends to be not in real-time, or is not in real-time as what Meter would provide. And instead of providing information about the songs that you're the person buying the information, they provide a more complete repertoire of music. So in contrast to, as you know, fewer stations, they have greater number of songs. So you'll get information about songs that you're not asking about, and this is desired by some of our enterprise-level customers.
So, some of those will, we won't be able to sell to, at least at first.
Gary Fuges (Senior VP of Investor Relations)
So what would be your-
Fred Vandenberg (CEO)
But it tends to be much, much more expensive.
Gary Fuges (Senior VP of Investor Relations)
So today, what's your key competitive advantage in this segment? And is it defensible?
Fred Vandenberg (CEO)
It's an excellent question. We're substantially cheaper, like a fraction of the price. Then we're in real time, and we have more stations, so you'll see a much larger number of stations in the United States that we track.
Gary Fuges (Senior VP of Investor Relations)
And is this defensible, your competitive advantage? Is there anything proprietary that other than being a first mover?
Fred Vandenberg (CEO)
Well, it's not easy to do what we're doing. There's a lot that went into building out the watermarking, the fingerprinting rather. You have to build out a fingerprint, you have to generate that fingerprint in real time. You have to match it in real time. You have to manage false positives and false negatives. It's not the easiest thing to do. You have to maintain connections. So, I think it's defensible. It's... The barriers to entry are, you know, the technical barriers to entry are not insignificant, and so we're really, I'm really proud of our team to have built this.
I think the market defensive part of this is that this is selling to our own Play MPE customers, so they're already engaging with us, and they're already aware of us. And I think that's a really compelling, you know, there's customer trust, there's, you know, awareness, there's all sorts of, really good advantages for synergies for Meter.
Gary Fuges (Senior VP of Investor Relations)
When you renegotiate a Universal contract, will the MTR be part of that?
Fred Vandenberg (CEO)
I don't know. Certainly not, it's not something we've discussed yet. You know, I think one of the things that MTR could do that I don't believe exists is monitor stations for Universal worldwide in real time. And are they interested in that? I don't know why they wouldn't be, especially at the price points that I think we could offer. It would likely change how they do this, but at this stage, I don't know. I don't really know anything about what they do to get that information now. I don't know how they could do it more cheaply than what we could do it, but.
Gary Fuges (Senior VP of Investor Relations)
And if all things go well, generally, what, you know, what-- how much of your, of your total business do you think MTR could generate? Like 20% of your total business going forward, or, is it bigger than that? Or how big is the market opportunity here?
Fred Vandenberg (CEO)
I think if you just look at the song tracking, the very first components of this pyramid that we think, then you're starting to look at an addressable market that would certainly exceed what Play MPE has right now. But we really think that we can grow Play MPE organically. As long as we're smart in what we develop, we can reinvest in that platform, and that can be the core on which to build more functionalities like Meter. You know, there's unique aspects of Meter that don't really exist with... I guess I should probably say it in the opposite way, but when it comes to Play MPE, some of the hard part of growing is when, if you go to a new market, you have to grow activity first.
You have to put content in, then you grow activity at the rec, the radio stations, then you can start selling to the, to the record labels. There's no such thing with MTR. There's no resistance. So if we wanted to expand into new territories, we're just tracking songs. It's just a matter of where we, where we go next, which, which our next market is. Because if we, we discover that, it's much easier to sell to an existing Play MPE customer than a non-Play MPE customer, then maybe we, we figure out, our, our market expansion for Meter that, that, that involves, either building out Play MPE first or, or changing our marketing or, you know, staying within the, the confines of the Play MPE market.
Gary Fuges (Senior VP of Investor Relations)
Okay, and final question, are you looking at any acquisitions?
Fred Vandenberg (CEO)
Always consider it. From what we've seen, they seem to be a little bit expensive so far. But we continue to look at them, yes.
Gary Fuges (Senior VP of Investor Relations)
Okay. Thank you. Thank you. There are no further questions.
Fred Vandenberg (CEO)
Okay. Thanks, Gary.
Rebecca Collins (Operations Manager)
Thanks, Gary. So we've got no more raised hands right now, but, got a couple in the Q&A box for you, Fred. The first one is: How many users have signed up for Meter so far?
Fred Vandenberg (CEO)
Oh boy, I don't know precisely the number of users that have signed up, but it's going above our projections. It is. We are getting adoption. You know, our projections were, again, very, very conservative, so it's - that's not saying much, I guess, but we are seeing really nice, positive signs with people signing up. I don't want to give - I don't wanna put a number on it because we'll disclose that when we disclose our financial results.
Rebecca Collins (Operations Manager)
Thank you. Next question is: If NCIB is not to be renewed, what are we thinking in terms of capital allocation, mostly R&D?
Fred Vandenberg (CEO)
Okay, well, I think I covered some of that off with Jerry's questions. What we, what we-- where we spend our existing capital is depends on what we see in the next little while. We continue to invest in the core Play MPE platform. We think we can do that with our ongoing operating revenue. As far as expanding capital allocation, there's really a distinction between software development for Meter or market expansion activities. So we typically, what we're seeing is that we would go into a market like United States, and we absorb a bit of an operating loss for a period of time while we grow that revenue, and that would probably be true with every new market we add on.
So these are the two main distinctions of where we would spend our money. And I don't know, though, I don't know what we're gonna do yet until we learn a little bit more.
Rebecca Collins (Operations Manager)
Great. Thank you. Another question, this one came from Kelly. I've noticed you buy back shares. Which of the stock exchanges do you use to buy back shares?
Fred Vandenberg (CEO)
All of our purchases are done on the TSX Venture.
Rebecca Collins (Operations Manager)
And then we've got a question from Harry. "Congratulations on your results today. I would like to know more about who the Meter customer is, and why do they buy?
Fred Vandenberg (CEO)
Oh! The PlayMP customer is really the Meter customer is really artists and labels. Our initial market is, you know, probably the smaller labels or artists that want to see where their song is getting played. And these reasons they buy are really a function of, they're mostly marketing. There's some curiosity there, but it's really to figure out where their marketing spend should be. The other potential customers for Meter is radio themselves. So radio wants to see essentially what other radio stations are playing, but that they would need to see a larger repertoire of music before they would be interested in Meter.
You know, depending on how many customers we get from Meter, that it might be useful information for them. I think the last one, last grouping there would be promoters. We have quite a number of promoters that are customers of us, and they want to know... They use PlayMP as a tool to promote in their promotion activities, and they wanna know how many tracks, how many spins they're getting. They can see how successful they are in terms of getting downloads and where the downloads are coming from through PlayMP, but the next step in that is where they're getting spins. I think that's really a useful data set for them to help market their own business. I think I've answered that question.
Rebecca Collins (Operations Manager)
Great, thank you. Got one more from Harry. What are the synergies between M- Meter and PlayMP?
Fred Vandenberg (CEO)
There's quite a number. Well, first of all, they're the same customers, generally. The customers for Meter are the same users of PlayMP, whether it's radio or the actual artist and the promoter. So you're selling to people that are already your customers. There's a lot of data analytics that are... can help cross-marketing. There's a lot of operating costs that would overlap. So in PlayMP, we tend to, we distribute to people, so on the recipient side, you have users that are people, which in turn manage radio stations, among other things. There's, you know, they... We get music supervisors and media and press and all that.
But in terms of where we distribute, it's our lists anyway, are primarily radio. And so we manage the person in PlayMP that manages the radio, and then on the Meter side, we manage the radio station, which includes... When we talk about radio, we tend to have a broader definition than what potentially is typically understood, but it would include internet, satellite, terrestrial broadcast, but also some in-store programming that there's not a clean line between those. But, but, you know, there's quite a lot of overlap, and certainly, I think the thing that gets us most excited is the information that we'll get, is the data that we'll get.
I think, there's a lot of potentially, cross-selling where potentially a Meter customer now becomes a PlayMP customer, you know, and, and vice versa, obviously.
Rebecca Collins (Operations Manager)
Okay, great. Thank you. It looks like that is all of our questions for today.
Fred Vandenberg (CEO)
Okay, great. Thanks, Rebecca, and thanks for everyone who joined the call. Speak to you soon.