Destiny Media Technologies Inc. (DSNY) Earnings Call Transcript & Summary

Hi, 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 everyone that this conference call could contain forward-thinking 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 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 similarly 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 earnings press release. [Operator Instructions] With that, I'd like to turn the call over to your host, Fred Vandenberg, Chief Executive Officer.

Thanks, Rebecca. Good afternoon, everyone. Today, we have myself, Fred Vandenberg, and Allan Benedict, who leads our business development and marketing teams. I will take you briefly through the summary of operations and financial results for the quarter and some revenue driver discussions. And then I'll turn it over to Allan to talk about business development efforts. We're going to follow a format that's similar to what we did at year-end with a slight simplification and modification to just how we form the narrative on growth. And then I'll -- Allan, when Allan has done the conversation on business development. He'll turn it back over to myself to talk about things looking forward. For the quarter -- sorry, I missed the slide there. For the quarter, revenue fell by 10%. The majority of this decline is the decline in the value of the euro. It hit us a little bit hard there. It's starting to come back towards the end of the quarter. The secondarily independent revenue from sales fell generally, we think that this is a function of government funding associated with COVID that impacted smaller artists running out post pandemic. But I think Allan will touch on that a little bit more. On the positive side, our major label revenue is up 5% after adjusting for FX. We think this is a sign of the growing value that we're providing. This is really on the strength of solid growth with both Warner and Universal globally. EBITDA for the quarter is $324,000, about 32% net EBITDA margin. Now one thing I want to mention here is the capitalization of software development costs, which was about $248,000 for the quarter. These are -- this is really for new products and services that we're developing, and we think it will provide long-term additional value. We're really investing for growth in the core Play MPE platform and with new services. Income similarly was up to 56 --up 56% from previous quarter. The overall expenditures have declined by 25% in part because of favorable FX. If you look at the P&L solely, salary and wages are down 22%, and that's by far our largest component of costs. Some of that is favorable FX. When it comes to FX, the euro is down relative to the U.S. dollar affecting our disclosed revenue. Similarly, the U.S. dollar is higher relative to Canadian dollar, which is impacting our costs. So salary and wages going back is down 22% for the quarter. Some of that's FX, some of it's lower staffing. We're not cutting costs here. We're just trying to make sure we're spending where we get a return. Overall, if you include capitalized software development costs, salaries and wages were up 4%. And again, this is because we're making a significant investment in new products and product development generally. One thing I think people have noticed is the drop in sales and marketing costs. This is associated with salaries and wages. I'll touch on it lightly. There were real reductions in staffing as I described a little bit before. But there's a lot of movement of resources over to product development, and there's the FX impact as well. So that's the overall expenditures plus capitalized investments is actually down 3% -- that's just including all P&L items. We've discussed business development or product development in the past as something that can really heavily influence our ability to grow. And that's by new products or services or by adding things that facilitate growth within the platform. The difference makers here are really platform changes, improvements, product development is the platform development is something that really is something that I think we can -- that can heavily influence our ability to grow. Recently, over the recent few years, we've really focused on things to make the platform easy to use. That's really moving it from a PC-based platform over to a web-based platform. And then more recently, it's building out the global admin features for Universal. These global admin features really don't impact our ability to grow at least directly, but they were to grow within Universal, I would say. When we talked about our platform in the past and I can refer to you to Q4. The platform itself has really 4 main components. And I think I went into that to describe how the platform works and how we're going to grow. But it's -- what I wanted to do this quarter is really talk about it from a very simplified way. And I think if you look at the things that will influence our ability to grow with Play MPE, you look at these 3 main things. Releases -- and if you want to draw a metaphor -- think of us as like a FedEx or a post office or something and releases are the package. So the more packages we send, the more revenue we'll get. And then similarly, the more destinations you send that package to, you will drive up revenue. The third one, the value-added component is really where the metaphor might not be perfect or where it breaks down a little bit. But it's really just things that enhance the overall effectiveness of the delivery with FedEx, it's either it gets there or it doesn't, maybe it has insurance or something like that or read receipts on the other end or something. But this is where Play MPE probably has a bigger impact when it comes to things that we can add there. So what I wanted to do is spend a little bit of time discussing how these components, what things we're working on, how these components can influence our revenue growth -- the first -- in the first section, there's really a bunch of things here, the self-sign-up, self-checkout, that's really an ability for a customer to sign in and select their list, prepare release and check out and pay. We don't currently have that and it's a bit of a bottleneck to sales right now. Lead conversion, lead automation, growth in new markets, Allan will talk about these a little bit more in depth, but these are things that are improving -- helping us improve our growth. Recipient sourced content requests, that's, again, more of a product in platform communication, where if you get a song from an artist and you want more from that artist or more similar to things like that, then you can generate the recipient sourced content request. We do get those, but they are -- right now, they are word of mouth -- where a program or something like that will tell the artist to send it through Play MPE. That's our -- actually our best source of leads, but we want to do that in a more technical manner. The -- there's other things here, archive releases, that's really a feature that we added, not this current year, like this -- but we added it last year and it's really a way to send more content that you don't want to spend the same amount of money on you do the bulk distributions. And then the reporting, there's certain things that I think we can do without getting into a tremendous amount of detail here, the reporting, we can structure it in a way that reinforces the sale. So that's improves client retention or resending content or resending more from that same artist, that sort of thing. And the second leg of this stool, we'll talk about destinations. Now -- the biggest parts here are expand our list offering and recipients. We -- I believe we provide the most expansive recipient lists in the world by any competitor that we have by far. But we also have a lot of recipients that even are using Play MPE that we don't know who they are, and they're not on our list. And we think that if there are certain things we can work on within the platform, technical solutions that will expand our recipient base, at least the ones we facilitate distributions for. This is really something that I want to spend just a bit more time on because it's important. Recipient lists providing recipient list is critical to our -- much of our independent sales. And I mentioned this at the year-end, where the majority of our distributions are -- use our lists. And that's because a lot of times customers don't know who to send to. And quite frankly, our lists are great. They're current, they're updated. They're accurate. But it is a bottleneck to growth. The faster we can expand our recipient list base, we can grow revenue. And that's -- we think that's a technical solution within the platform. Also in there is list selection improvements. So there's a few things that we've already been working on descriptions of our list. They tell you who we're sending to making those lists easier to select in the platform. Right now, it's not particularly easy. It's not easy to select an international list. If you have a country distribution, for example, you got a hunting search through it. We are -- we've just designed an improvement there. We've got to build it out yet. Last quarter, we mentioned international lists. We have started providing those international lists for certain genres of music. We think we can keep building those out. Recipient feedback things, there's like you can use feedback within the platform to generate larger distributions. That's like people requesting content, that sort of thing. Automated list expansion reports, that's something where if a release is doing well, maybe you want to consider sending that more broadly around the world. We've already generated those reports. It's -- once that report is generated, it then becomes a manual process for sales to follow up, but we can automate that. And then list management efficiencies, that's really just doing things that help our list management services department manage more lists. Value-added services, this is -- when we talk about the global administration functions for Universal, this is really where they would lie. For the most part, that's a little bit oversimplification, but there's lots of things we can do here that will enhance the distributions for smaller clients as well. International e-mails, what I mean by that is languages. Right now, the player and the distribution software is translated, but the e-mails aren't. And I think I'll mention only Quick Share here. Quick Share is a -- kind of exactly what it sounds like. It's an ability to share a piece of content really quickly. And we see that it's more for one-off sending. Like if you're standing next to somebody and they want to receive a piece of content, you just can quickly share it. We've -- we're in beta starting -- well, probably next week for that. We're just testing it internally right now. We think that's going to provide some incremental revenue for people who want to do that and then re-enhance the platform as it is. I'll leave it there because it's a little bit long-winded, but there's just a tremendous amount of things that you can see that we're working on. And I think what's probably obvious is that a lot of these things are within platform improvements. And that's why we're spending up more and more on product development. We've -- we're kind of focusing in on the self-sign-up self-checkout, so that's getting more customers with an easier ability to sign up and then sending -- making it easier for that -- those customers to send to more recipients. So those are sort of the 2 main thrusts there. And to deliver faster, we've made a change in our product development group to restructure it. So we think we're going to be able to deliver updates faster and in the right priority. Basically, we're focusing in on the quickest way to cash basically to focusing on in revenue generating things. With that, and I'll turn it over to Allan.

Thanks, Fred. Good afternoon, everyone. Happy New Year. Before I get into wider updates and some of our territory strategies for things like the Latin market in Canada. I wanted to expand a bit on the independent revenue that Fred touched on earlier. So generally, we look at independent revenue as any client that isn't a part of 1 of the 3 major label systems. So this covers everyone from independent artists up to labels of essentially any size that aren't affiliated with either Universal, Sony or Warner. Due to this classification, there's some extra content -- or contacts excuse me, on the revenue that's really helpful to understand. Going through the revenue at a very granular level shows that, as Fred mentioned, this quarter's decline has almost exclusively been from independent artists and very small operations, such as management firms with 1 client or "labels" that have 1 or very, very few artists on their rosters. And this decline is not seen with our label and promotion agency clientele that consistently put through releases on a weekly or biweekly or sometimes monthly level. The reason for the change with artists in these very small operations is somewhat an after effect of the pandemic and the hit that the music industry took during it. Over the last year, 1.5 years, there's been a large amount of federal relief funding, 3 things such as PPP loans in the U.S., some grants in other territories as well. And all of that funding has been available to artists for the first time in some situations. So while they weren't able to tour much of their spend and this budget that they had was reallocated from going out on the road to either creating new content or marketing pass content that they haven't sent out wide before. Essentially, artists had 2 pivots to any avenue that could generate revenue for them, which was off in radio or press or music supervision or something like that. So these artists essentially had more to spend than ever in the past. We've seen quite a few examples of this. For instance, 1 management company who I call it a management company, it's really 1 artist team. They took their federal funding and decided to put out all of that artist past content globally in September, October of last year. And that resulted in a single spend of nearly $10,000. Similarly, many other artists had, the sudden budget to send their release internationally as opposed to keeping it in within their usual territory, their home territory. And this past fall, without additional federal funding coming in and some of those programs kind of dwindling many artists and small operations needed to become a bit more budget-conscious and their total spend per release declined from the year prior. And I'm sure the next logical question as well, if the funding slowed, but touring began to open up as the world kind of opened up, then that revenue would have replaced the funding. That's not exactly the case with these smaller artists. So with touring shutdown for so long, many of the opportunities coming out of the pandemic when venues and tour agencies reopened, they were given to the larger artists with more support behind them, either as a following or just the team behind them. So independents ran into almost a bit of a catch-22, where they didn't have the additional funding that they did during the pandemic, but also couldn't book the tours that they were hoping for. For instance, we've been speaking to our partners in Australia, and this hit their almost more than any other territory. Many of the opportunities when Australia began to open the borders were given to international touring acts that had to cancel tours in 2020 or early 2021, and the independents had trouble securing these routings. Another after effect of COVID was just a general kind of lighter release schedule for some labels. Even labels with larger rosters and larger teams, they saw fewer releases this past fall as much of their roster had released that new content in early 2022, and we're now essentially off album cycle, while they record new content for this year and next. We discussed with numerous of our clients, and we're very confident that we'll see a return to the norm very shortly. We've also made advances internally that we believe will improve revenue from individual artists as well as those label clients. One of these advances is our new marketing website that we launched publicly on November 1. We basically stripped everything away from the old site and redesigned it from the ground up with the key point of making sure it's SEO optimized, making sure they flow from getting to the website to requesting that demo and requesting more information was easier and smoother for the artists. And we also gave more detail to the value prop that Play MPE offers. Lead flow through the website has never been greater. We saw a roughly 20%, 22% increase already in this quarter compared to last fiscal, with still, obviously, 1.5 months ago, lag time in lead conversion and kind of the sales process sometimes appears due to the onboarding process and things like artists planning ahead for a release that's actually coming out a month or 2 down the line or maybe they're just kind of getting their head around the process and trying to plan it with their team. But with these new generated leads and some of the other [ optimization ] we've done, we've seen conversions begin to increase and pick up. It's this -- so far in January alone, it's up nearly 30% compared to last January. And towards the end of October, we did have a team member depart the business development team, which put us in a bit of a short staff situation over the holidays -- which also contributed slightly to the prolonged onboarding process. We've since made sure that we have the right team in place for our goals and our priorities moving forward that Fred will touch on. And as of this week, we're again, fully staffed, and we don't see -- foresee this as an issue moving forward for a number of reasons. One of them being the new lead response automation that I think we've touched on in past calls as well. So the automation, we fully launched it this past December, and it was designed to really try to dig in and optimize our onboarding process. We know that, that Play MPE is a somewhat complicated business for some independent artists and small teams to understand. So we took a magnifying glass to the process and the information to make sure that everything they need is delivered very clearly and concisely from their initial contacts and hopefully, that it kind of advances the conversion conversation as it goes. This has been a collaboration between both our business development teams and our operations team, and we're very excited for what even further synergy there can mean for the future. Digging into some specific territories in the Latin sector. As you know from previous quarters and previous versions of this call, we spent the last year or so growing our presence and lists offerings in Central and South America and the greater Latin market. The majority of our efforts have been around growing recipient lists and providing a distribution outlet to clients looking to target those territories. Now that we've built operational lists in 19 territories as of late last year, we're going to be focusing our efforts on growing the business in key territories in much of the same way that we've expanded in new territories in the past. I know Fred, has gone through this process on past calls. But in short, we look at finding strategic content partners to grow our release catalog and thus encourage increased activity from these new recipients. It's a little bit of a chicken and the egg of how do we get activity numbers without content and vice versa. So we always start with making sure content is there when new users log in to player for the first time. This strategy also adds values to the list and the higher activity rates we can achieve the more value there is for artists and labels trying to get into the market. We believe focusing on Mexico is the best path forward, not only due to its size and slightly more sophisticated music industry compared to some other territories in the region. But also there is a connection and a bit of a crossover between the Mexican industry and the U.S. Latin market. Given the size of Mexico as well, we're confident that success here will encourage greater use in other territories as well, kind of having the staple tentpole user in Mexico and then expand that to you to other countries like Argentina and Colombia and such like that. I also wanted to review progress we've seen in Canada. As you know, we began commercially charging in Canada in mid- to late last year, and we have seen progress here. Prior to commercially charging, our Canadian revenue was mainly artist within the country exporting their releases to our other global list. These artists and small labels were hit by many of the same hurdles that I discussed earlier, whether it be touring, diminishing funding, the same things that any other artists in any other territory we're going into. So these specific hurdles in that independent artist sector has contributed to the decline we saw in Canada this quarter. However, digging deeper paints a much more positive outlook. Similarly to how we're approaching Mexico moving forward, we focused on key partnerships with large independent labels and promotion agencies. And through these efforts this past quarter, we saw substantial increases in both releases and revenue from some now consistent clients such as long-standing Canadian independent labels such as Arts & Crafts and Flying Colours as well as one of the most well-respected independent Canadian promoters, a company called With A Bullet. We're also having continuing ongoing discussions with some other additional key partners, and we expect to have some more successes to talk about on future calls there as well. Speaking of the future, with that, I'll hand it back over to Fred to discuss the path moving forward. Fred, I think you're on mute.

Yes. Looking forward, so as I said earlier, product development, I think, is a really important way for us to accelerate revenue growth. We've talked about the growth in users, both in terms of growing customers and then growing recipients on those. And those are really the 2 main drivers that we're going to be focusing our product development around. We did -- we are expecting to see a few press releases in the short term on things that we're developing and starting to deliver the first being Quick Share. And then the second is really a new product. We've talked about a little bit before, and that's radio monitoring. We have -- we're working through a couple of technical challenges. Contextually, detections are high and then in some areas where there we're missing something we're just working through a technical challenge there. But that's moving forward, and we're just working out our business plan on how to launch that. To do all of these things, we've -- again, we've made a change internally in that department, and I expect things to be producing at a quicker cadence. With that, I will turn it over to questions.

Thanks, Fred and Allan. So yes, I will begin our questions-and-answer session. [Operator Instructions] It looks like we do have one that was written into the Q&A chat, if you guys want to touch on that one?

Sure. I would prefer people actually put their hand up and ask the question verbally. It's easier for us to keep on top of those rather than reading them. So everyone else can see the question. The first question we received is global revenue from Universal Group grew by 8.7%. How much of that is just price increase? Well, I don't know what that means by just price increase. The Universal's agreement is a flat global agreement that covers all of their use. We think we approach that in that way for specific reasons, but essentially covers all of their global use. And with growing use, growing platform capabilities, we negotiate increases. The -- we agreed on a 10% increase effective April 1, I think it was of last year. And the 8.7% is really just a revenue recognition issue. Their monthly fees are 10% higher than they were last year. And that's really a function of all the custom development that we've done and the growing use of the platform. The second year of that agreement starts I think April 1, 2023. The second question is about activity metrics. And I assume that means within the platform. Activity metrics are which activity metrics would you disclose? There's all sorts of things we track releases and distributions, active recipients, activities with by recipients. And I think if you start producing those and we look at them internally, it has to come with a narrative about explaining how they relate to revenue. And it gets overly complex, I think, to do that.

I think that, that might be all that we have.

Okay. Thanks, everyone. We look forward to speaking to you next quarter.