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

Good afternoon, everyone. Thank you for joining us o 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 Newswire's earlier this afternoon. I'd also like to remind everyone that this conference call could contain forward-looking statements of 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 the 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 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. [Operator Instructions] With that, I'd like to turn the call over to your host, Fred Vandenberg, Chief Executive Officer.

Thanks, Rebecca. Today, we have myself and Allan, as usual, on the call. I'm the CEO, and Allan heads up our business development group. Today, we're going to talk a little bit of an overview of what we do and what we're trying to do. Then I will talk about our results of the quarter, and then I'll pass it over to Allan, who will talk a little bit more about our specific business development efforts. So an overview of Play MPE. Play MPE is in the business of connecting artists and content creators with promotional destinations. The value that we provide really is maximizing the chance that an artist or a song gains popularity through broadcast or media review. So we provide an engaged audience and in connecting the two, the content owners and the audience, in many cases, our customers don't know where to start, they don't know who to contact and so, our distribution channels are critical. In other cases, we provide -- our platform provides an engaged audience and the results of that improve our customers' marketing activities. I often talk about broadcast and radio because I think it's the easiest way to understand what we do. It's the easiest way for me to communicate what exactly we do. But it's really a variety of destination types that help market a song. And so, we grow our revenue by sending more content to more people. So it's really more customers, more songs, more recipients on the other side. And recently, so up until about the end of Q2 of fiscal 2022, so almost 2 years ago, we were really making huge investments in our global distribution platform to help Universal Music in their processes for our international distribution. So real gigantic investment, took years to do and that really forms the core of our use. It's quite complex, but it provides a lot of efficiencies and competitive advantages to Universal. It was that time that we made a shift in our ability to invest in things that would make it easier for our customers to grow outside Universal. It was quite an exciting time for us, it is an exciting time for us. I should qualify it a little bit here. We have a decent size engineering team, and it's still a fair amount of effort in managing that global infrastructure. But we now have some capacity to work on things that are going to make it easier for us to sell both in our own backyard and to acquire new markets. So these things are really designed to accelerate revenue growth and they complement each other. And I really want to focus in on one thing today. We're working on a bunch of things, but I think it's better for me to communicate to our investors about one thing, so it gives you a flavor of what we're working on. That is our international lists. It's had a probable impact on our quarter and here we really have two competitive advantages that help us in that endeavor. One is that we had a presence in several countries. We have active recipients in several countries and active content flow. The other is because we invest more than any platform that I'm aware of in this business, we have developed ways for our list management group to efficiently manage lists. And that sort of helps us grow our lists holistically, and then when we have active recipients in many countries, we combine these efforts and create and we did this last year, create international list. So oftentimes, we talk about markets, and it's easy to think about when we enter, say, a market -- well, we have active use in the United States from American content creators that go to U.S. recipients. So if you're a country record label in the United States, you can send to country music stations in the United States. But early last year, we launched a series of -- we started launching a series of international lists that we continue that throughout the year, but Allan will talk more about that. But when we look at growth, we look at labels that want to send to outside of their existing territory. So with our recent expansion of acquisition of territories like Canada and South Africa that have been developing over the last few years, we can start growing and growing our international list and selling them. So that's essentially what we did beginning of last year. So how did that impact our financial results? Well, this last quarter was our highest Play MPE revenue to-date, the highest Q1 revenue to-date. And that revenue is in part influenced by this international lists expansion. We grew our revenue by 10.6% when you adjust for foreign exchange. We had some favorable foreign exchange in the quarter. Unadjusted, we grew by 13%, a little over 13%. And that growth is split from new market acquisition, which is about a 1/4 to 1/3 of that 10% growth, a 1/4 to 1/3 of our traditional customer retention growth in our own backyard is -- sorry, 1/4 to 1/3 of that 10% is from that growth. And between 1/3 and about 1/2 of that growth, so almost 5%, roughly 5%, I should say, is from the provision of these international lists. Independent record label is up almost 20% globally and the EBITDA is about $300,000. This is a chart of our Play MPE revenue since almost day 1. If you look before pre-2006, we were working on developing the market for Play MPE, which didn't have any revenue. So there's a lot of time where you do that chicken and egg, grow content and grow recipient activity. But this gives you a sense of how we've grown revenue over the entire history of the company. And I hope it gives you a sense of what we're trying to do. In the last few quarters, our revenue growth with independents has really started to -- it shows signs of a little bit more of a steeper trend there, and we're going to continue to work on steepening that curve. The bottom line, I guess, you would say is their net income was about consistent with last year, but once you carve out the amount we capitalized for software development, we're growing our cash flow. EBITDA is roughly the same growing over time. That's not our primary concern. We're investing a lot into growth. With that, I'll turn it over to Allan.

Thank you, Fred, and good afternoon, everyone. To continue on with the international genre bundles. As Fred mentioned, we first introduced our international genre list in the first quarter of 2023. And we started out with 9 options for clients looking to take their release to a global scale. In the third quarter of 2023, we introduced an international noncommercial genre list and that was to meet a demand from independent artists that wanted to tackle public and community radio stations globally. These are the noncommercial stations that are typically more open to supporting independent artists and smaller labels as they're not funded primarily by commercial revenues. So a lot of our indie artists were looking to tackle this market, not only in their home territory but across borders from there. Then in the first quarter of this year, we introduced our international holiday list. As many of you may know, holiday and Christmas releases are always a popular genre for both our label and independent clientele. And this is the first year we were able to offer a worldwide holiday distribution option. The usage in revenue of these lists has grown steadily quarter-over-quarter since their launch, but we're updating our analytics to improve our assessment of that growth and adjust our marketing processes accordingly. Speaking of growth, on previous calls, we've spoken about the changing competitive landscape across some new genres for us in the United States. At the start of the quarter, a competitor primarily operating in the rock and pop space closed their doors. And we had anticipated absorbing a portion of that business. Like Fred mentioned a portion of this quarter's revenue growth is driven by an increase in sends amongst existing or returning customers. And those customers are sending to these new genres definitely contributed to that growth. If we look at distribution lists with an increase in generated revenue quarter-over-quarter, five of these seven lists showing the largest percentage increase come from U.S. list in that rock and pop space. The same growth can be seen when looking at releases delivered to those lists as well. We're working to continue this growth with improvements to our marketing strategy and the changes made to our business development team that we mentioned during our last call. Looking at two other target markets as well. In Canada, we continue to grow among independent customers and competitive advantage that Fred had mentioned the Play MPE's unique ability to get global reach to our release is a large contributing factor there. We see this factoring in when looking at the average size of our release coming from a Canadian client, which has grown period-over-period, meaning that more distribution options or larger distribution lists aren't being selected when they're looking to get their releases out. In the Latin market, we continue to see growth period-over-period when looking at the usage of our distribution lists in both Central and South America as well as our U.S. Latin list that covers Latin stations within the United States and Puerto Rico. In the previous call, we detailed how we go about growing into a territory, one step there being pilot agreements with strategic clients in the market in order to help facilitate growth. And towards the end of the first quarter, we were able to sign another new pilot agreement for the region, and we're excited to leverage that growth or leverage that agreement for future growth. In the Latin market, specifically, our progress has been slower than expected, and we're currently making assessments on how to change that moving forward and grow in the future. With that, I believe we'll move into our question-and-answer period. So I'll hand it over to Rebecca to get started with that.

[Operator Instructions] I'm not seeing any raised hands, but I do see one message in the Q&A section. So it reads any updates on the progress of Meters since Q4?

Yes. I guess I haven't talked too much about that. I wanted to simplify what we're talking about to really communicate what our growth strategy is with Play MPE. Meter, we continue to work on technical aspects to add features that are probably necessary to grow that business. It's still in beta in Canada and everything is working very well. We just need to build out a strategy to market and grow that business and make an assessment of where we grow and how fast we grow. So it's not very specific answer, I guess, but where it's still going well, and we are optimistic about its impact in the future.

It doesn't look like we have any other questions right now?

Just give a couple of seconds.

If anybody has any last minute questions, please raise your hand.

I did have an e-mail question this morning, and that was where do we see our revenue growth coming in the future. I hesitated to get too much into that because I really wanted to make it dead simple on what we're communicating. If I answer where do I see our revenue growth coming in the future that really to -- I think if I communicate that, you have to split the where, the when and the why of where our revenue growth is going to come from. So the why or what we're going to do to grow revenue is really about product investments. I think there's -- we talked about one today, but we're working on lots of them. For example, we launched a feature called commenting in the quarter we're just talking about and that is really designed to solicit recipient-generated content requests, and that's one of our best lead generation things. We also launched a feature that allows our clients to essentially do the marketing for us where they can easily do social media posts of how successful their release is. We know that they do this. We just made it easy for them to do this. So hopefully, that improves. But there's a lot of product investments, and I think we have to work on things that are going to maximize our revenue. And we balance that between the complexity of the feature or the cost of the feature with the betas and the impact of how the quantum of the impact to our revenue. The second, why or what we're going to do is a lot of marketing improvements. We added some resources almost a year ago and then more recently in the last quarter that I think are really going to help improve our marketing efforts so we can sell in our own backyard. And I think that will have a more immediate impact. The where we're going to grow, I did mention this earlier in the call that we can sell in our own backyard in existing markets, we can do a better job of that reengaging current customers or prior customers but there's new market acquisition. I think that's a big area of growth. And then the more we do both of those things, the more we can leverage that into more international type sends. And the when is really -- it really depends on which area you're talking about, like the international stuff we've talked about today where I really wanted to simplify what we're talking about, that's likely to continue, and I think grow over time as we add new territories as we add more recipients, we are actively building things to build our recipient lists, that's one of our, I think, our competitive advantage is right now. We have a lot of features that make it easy for us to facilitate recipient list, but also the acquisition of more recipients we're working on things to help with that. I think one of the bigger things we're working on is a full checkout feature that really probably won't impact revenue starting for another 18 months, I think. There's features along the way that I know are going to impact revenue positively. But that's a feature that I think should, and we believe, will have a real significant impact on revenue and we're coordinating that with marketing efforts. May be that's all that question, I think.

Thank you, Fred. We think we do have one other question. So a question from Sanya if you want to unmute your microphone and ask your question.

Is the 10% growth for the quarter, is that -- do you think that's sustainable for the other quarters going forward?

That's a good question. I mean, our target is to grow faster than that. It's just a matter of when and where. I think Allan hinted at this, it might be not as explicit, but part of the growth, the 10% growth in the quarter was from an international holiday list. That's kind of a seasonal thing. So that will only impact the Q1 generally. But again, I think also Allan talked about that these international lists are making progress in every quarter since they were launched. They didn't have -- it wasn't like turning on a light switch. So all of a sudden, we have international list and the growth was there. So that, I think, will continue to improve as we add more features and improve our marketing. I think the most immediate impacts will be improvements in marketing and selling in our own backyard. But the new market acquisition, I think, over the breadth of time will have a bigger impact on revenue. So I wouldn't get too excited or too disappointed if our revenue growth is not 10% every quarter, but over the breadth of time, I would be disappointed if we're not growing at substantially more than 10%.

I think we did just get one more in the Q&A section. What data are you able to share to give new investors the incentive to invest now?

What data? That's a good question. I mean, I think generally, what's going to attract new investors is talking about revenue growth and projections. And we have been more head down working on things to grow revenue to adjust to make improvements internally. We are working on -- last year, my biggest concern last year was product development, aligning product development to maximize the growth, whether that's immediate growth that fuels our ability to hire resources to grow faster and do that in a way that really is strategically sound. So that last year, that was my biggest concern. This year, I would say, it's probably more in the improvements in our own analytics, the data that you're talking about probably and the marketing that results from it. Ultimately, I think attracting investors is really talking about our own business and revenue projections and how we're going to go out and do that. But I think there maybe is a little bit of demonstrating that first. I think if you consistently see growth in revenue and profitability, again, we are really investing for long-term high-margin growth. The -- so the profitability is really not my concern at the moment. It's more revenue growth, which I think ultimately will be the best return for investors. So in terms of data, I mean, building up our own credibility in terms of revenue growth is probably the biggest single thing, and I think that will show soon -- starting to show already.

Right. Thank you. If there's any final questions, we can take them now. Doesn't look like we have.

Thanks, Rebecca. Thanks, everyone.