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DESTINY MEDIA TECHNOLOGIES INC (DSNY)·Q3 2020 Earnings Summary

Executive Summary

  • Q3 2020 revenue was $0.94M, down approximately 2.4% year over year, with EPS of $0.01; softness reflected a renegotiated pricing agreement and FX headwinds, partially offset by independent label growth .
  • Management highlighted accelerating product cadence (engineering stack update, recipient authentication, localization) and strong traction in Canada and Latin Latin initiatives, positioning for trial-to-paid conversions in fall 2020 .
  • EBITDA was approximately $0.10M; operating income returned to positive ($0.05M) after Q2’s seasonal and contract-renewal-related dip, and A/R collections normalized post-quarter (82% collected by July 8) .
  • Capital allocation remained shareholder-friendly: the NCIB repurchased 550,140 shares (~5%) for $0.53M since Sep-2019; further actions under review in FY21 planning .

What Went Well and What Went Wrong

What Went Well

  • “We saw very encouraging results from our Canadian and Latin Music initiatives,” including new trials with Sony Music Canada and major independents; U.S. Latin lists launched and seeding commenced .
  • USA independent label revenue increased to ~$0.361M from ~$0.273M sequentially (+32%) and was +6.6% year over year for Q3; global independent revenue rose to ~$0.421M (+10.4% YoY) .
  • Product momentum: updated architecture and languages, recipient authentication, and a beta program to support self-checkout and scaled onboarding—“these investments will increase the cadence of product additions” .

What Went Wrong

  • Play MPE revenue declined ~2.4% YoY; pricing adjustments to a longstanding customer and FX pressure drove the decline despite indie growth .
  • Operating expenses remained elevated due to restructuring and increased investment in product and business development; six-month OpEx +23% with ~$170k one-time items through Q2 .
  • Q2 seasonal trough and renewal timing reduced revenue; management cautioned renewed pricing would embed a modest decline, though expected to be offset over time by growth initiatives .

Financial Results

Quarterly Snapshot

MetricQ1 2020Q2 2020Q3 2020
Revenue ($USD)$1,045,856 $806,729 $939,873
Gross Margin ($USD)$960,574 $737,609 $852,889
Operating Income ($USD)$105,269 $(164,115) $50,310
Net Income ($USD)$111,658 $(155,331) $54,899
EPS (Basic & Diluted, $USD)$0.01 $(0.01) $0.01
Gross Margin %91.9% 91.4% 90.8%
Operating Margin %10.1% (20.3%) 5.4%
Net Income Margin %10.7% (19.2%) 5.8%

Notes: Margin percentages are computed from reported revenue and profit metrics in the cited documents .

Year-over-Year (Q3)

MetricQ3 2019Q3 2020
Revenue ($USD)$970,435 $939,873
Gross Margin ($USD)$897,889 $852,889
Operating Income ($USD)$185,934 $50,310
Net Income ($USD)$195,712 $54,899
EPS (Basic & Diluted, $USD)$0.02 $0.01

Segment/Geographic (nearest available, Q2)

Segment/RegionQ2 2019Q2 2020
Play MPE – North America ($USD)$345,556 $305,697
Play MPE – Europe ($USD)$439,269 $447,967
Play MPE – Australasia ($USD)$73,963 $48,259
Clipstream – North America ($USD)$20,577 $4,806
Total Revenue ($USD)$879,364 $806,729

KPIs

KPIPrior QuarterCurrent QuarterYoY
USA independent label revenue ($USD)~$273,000 ~$361,000 +6.6%
Global independent revenue ($USD)$381,000 (Q3’19) $421,000 +10.4%
Leads (growth %)—+4.2% vs Q3’19 +10.98% YTD
Releases (growth %)—+8.17% vs Q3’19 +4.2% YTD
Distributions (growth %)——+13.34% YTD
UMG distributions (growth %)——+23.8% YoY
EBITDA ($USD)—~$98,100 —
A/R collections post-quarter—82% by Jul 8 —
NCIB buyback (cumulative)—550,140 shares; $533,223 —

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2020None disclosed No formal guidance; management expects trial conversions in Canada/Latin to commence revenue in fall 2020 N/A
Margins/OpExFY 2020None disclosed Continued investment in product/dev; prior six months include ~$170k one-time restructuring; expect structural OpEx benefits from hosting changes N/A
Capital returnsFY 2021 planNCIB active through FY20 (~5%) Board to review buyback/dividend options in FY21 plan (July/August timing) Maintained (decision pending)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1, Q2)Current Period (Q3)Trend
Product cadence/stackNew Director of Engineering; recipient auth and player upgrade; localization announced (languages on sender side) Holistic architecture review; beta program launched; self-checkout path; left-side navigation Caster update Accelerating feature delivery
Market expansion – CanadaEarly adoption; UMC distributing; trials with majors and independents; expected revenue within fiscal year Trials broadened to Sony Canada and major independents; recipients include Bell, Rogers, Corus, Stingray, Pattison; UMG albums hosted exclusively; conversion targeted for fall Strong traction, nearing monetization
Market expansion – Latin (US/MX)US Latin lists; trials with major independents; COVID slowed trials US & Mexico Latin lists launched; seeding commenced; trials with Azteca, Dell Records, Empire, BMG; push south planned Building foundation; pipeline deepening
Pricing/contract renewalsQ2 decline tied to expired agreement under renewal; renewed pricing to embed modest decline Q3 decline from pricing adjustments and FX; strategy to leverage features and usage for better terms Near-term pressure; long-term leverage
Capital allocationBuyback executed; limits under TSX rules 550,140 shares repurchased ($533k); FY21 plan review for continued buyback Ongoing shareholder returns
Legal/regulatoryFormer CEO claim noted Trial delayed by COVID; management “very confident” No operational impact

Management Commentary

  • “We saw very encouraging results from our Canadian and Latin Music initiatives… usage expanded to include Sony Music Canada and several major independent record labels. We also launched our Latin lists in the United States and Mexico and commenced seeding those networks” — Fred Vandenberg, CEO .
  • “Adjustments in pricing… and negative impacts of foreign exchange resulted in a small decline to revenue… offset by continued growth in usage by independent music labels” — Sam Ritchie, CFO .
  • “These investments will increase the cadence of product additions… added functionality… and a superior user experience will complement business development activities” — Fred Vandenberg, CEO .
  • “Under six months we’ve established ourselves as a primary source for content in Canada… we expect to be converting these trials to revenue in the fall of this year” — Glenn Mattern, Director of Business Development .

Q&A Highlights

  • Pricing strategy and contracts: Management aims to leverage new features and increased usage to negotiate better fixed-fee terms and/or feature-based toggles; UMG expansion across departments under review .
  • Scaling costs vs. revenue: Plan is to leverage SaaS and self-checkout to scale with minimal headcount; incremental costs expected in bandwidth, translations, and reseller support .
  • COVID impact on collections/operations: A/R spike due to payment method changes; 82% collected by Jul 8; no major operational downturn noted .
  • Legal proceedings: Former CEO case delayed; management confident and not concerned about adverse impact .
  • Buyback continuation: FY21 capital plan under review; decisions to be announced after board deliberations .

Estimates Context

  • Wall Street consensus (S&P Global) for Q3 2020 EPS and revenue was unavailable in our environment; request attempts encountered a daily limit error. As a result, no estimate comparison is provided for this quarter [GetEstimates error].
  • Given limited microcap coverage, consensus may be sparse; investors should anchor on company-reported figures and monitor sell-side initiation/updates .

Key Takeaways for Investors

  • Near-term revenue pressure from pricing reset and FX, but independent label usage is accelerating and Canada/Latin initiatives are approaching paid conversions in fall 2020, a potential inflection catalyst .
  • Operating performance improved sequentially (Q3 operating income $0.05M vs. Q2 operating loss), with EBITDA positive and margin profile stabilizing after Q2’s seasonal trough and renewal timing effects .
  • Product velocity and user experience upgrades (authentication, localization, beta/self-checkout) are strategic levers to drive adoption and pricing power over time—watch feature releases and user metrics .
  • Capital returns are tangible (NCIB ~5% retired), with further actions under FY21 review; this provides downside support while growth transitions from trials to monetization .
  • Concentration and contract renegotiations remain a risk (large-customer exposure), but management’s strategy to broaden usage across majors and independents should gradually diversify revenue .
  • Monitor Canada conversion milestones (Sony/UMG/major independents) and Latin pipeline (Azteca, Dell, Empire, BMG) as leading indicators for revenue snowballing in FY21 .
  • Legal overhang appears manageable and non-operational; resolution timing uncertain due to COVID delays, but management confidence suggests low risk to fundamentals .