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

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 contain -- 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 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 question-and-answer session. [Operator Instructions] With that, I'd like to turn your call -- the call over to your host, Fred Vandenberg, Chief Executive Officer.

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. But we've 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 demand -- seasonal demand. But 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've 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 onetime nonrepeating legal expenses of $230,000 and some noncash amortization expense increases. That's offset by some reductions in salaries and wages that the majority of which are long-term, repeatable. There's going to be some increases associated with the -- 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 onetime cost of the litigations and some other noncash 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. And to put that into real specific strategies, we're really trying to leverage our customers -- users to grow Play MPE. The -- if you look at Play MPE, it's akin to a social media platform, but in the music promotion space. And if we make the right investments in the platform, we can help get our users to drive growth. Now what we did in the quarter is we released a feature called Invite a 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 what -- in LinkedIn's existence, they were a platform to post your resume and that sort of thing. It's evolved -- and now it's evolved into a lot more. We have a vision of doing similar things and building on the Invite a 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 list, which is the products we sell. Our list is -- our lists are really a significant driver of our overall value proposition. They are 200% more active than our best customer-owned lists. So we do the job a lot better than our customers can. And now we maintain these lists as proprietary -- through proprietary processes that we've developed over quite a number of years. This is just a change to help make that group a little bit more efficient. And 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. And with those list and management improvements, we're 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. So this will allow us to really scale. And earlier in this year, we released self-sign-on. During Q2, we released full-service checkout. So really, we split our independent customers into 2 types, full-service and self-service. The full-service customers require more staff involvement. We -- our staff prepared the release and that -- 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. And at the same time or 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. And we're going to continue to do that. The site speed is a lot higher. And 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 and that -- we continue to see really good improvements in customer acquisition, customer retention, revenue growth. But it's still a small product because it's currently only tracking single songs. And where we'll see the real growth is when we can sell to larger customers that will track more songs. And 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. And that we're looking towards later on in this year -- this fiscal year to add those features. And with that, I will turn it over to questions.

Great. Thank you, Fred. [Operator Instructions] Looks like we do have 1 raised hand from [ LJ Goldstein ].

[ Larry ], I think you may need to unmute your mic.

Okay. Maybe we can come back if you just check -- sorting that out. [ Tom ], do you want to go ahead?

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?

Well, 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 way of the talks there. And quite frankly, I don't think that it's a problem that they're seeing for that. So it's just rolling forward.

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

It does, an annual price hike, yes. 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 hyper risk aversion. I don't see that as a -- I mean, their use is growing. There's nothing that would -- I would see as a problem. Our value continues to grow with them. We continue to develop the Play MPE platform. And I don't -- yes, I don't see anything there to be concerned about.

Yes. Okay. Cool. I was thinking because of the last 8-K regarding that last year meant like -- was talking about signing a longer-term contract. But now I understand that it's on...

Yes. Who's kidding who? I would rather have a 10-year guaranteed contract, but everything is going well with them.

And do you anticipate you guys to like disclose the Meter 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. And 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. But the percentages look great, but the -- how it impacts our total revenue is not material until we can acquire larger customers.

And is it mostly customers that are currently using Play MPE? Or like what's the...

Yes. The majority of it is, not all though. And I think we're making inroads into figuring out how we sell to customers that are not originally Play MPE customers. What we found last year is that customers -- we were marketing digitally, and customers were not really searching for what we're providing because no one thought we had -- that even existed. So you're not going to look for something that you don't think exists. But now I think we're making improvements in customer acquisition for that, that doesn't have a Play MPE basis or origin. And we're also seeing customers that we attract for Meter that are now becoming Play MPE customers. And we see a growth in our new customers. And I think that in part is from having that second product.

Okay. I've read like 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 reallocated staff is a different question, but there's more staff. And I think going forward, we'll look at whether we get a return on that investment. But I think with checkout, our plan for checkout really is essentially where we can sell to certain markets that are poised for acquisitions. So that means really where we have regular use by relevant industry professionals, but we have very little independent use or none. And so we want to get into those territories and sell. And sometimes selling to those territories is really more of a numbers game and where you sell -- where our full-service staff don't prepare that release so they can self-sign up, self-checkout. And so the marketing costs associated with that are -- we expect to look at a positive ROI, and we'll increase it where we see that.

And then is there any plan to kind of like 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 like 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. But I think regardless of whether we see that, we will -- I believe we will have the capacity to be a bit more smart about our investor outreach very shortly.

I don't want to take all the time. I think I had one more question. Like 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 like driver of like deciding to reshuffle, let's say, the marketing department or like the direction of it? Or are they more laid back and just...

I would say the Board is heavily involved in the overall strategy. That's influenced by our management group, of course. We -- I mean we just met with them for 2 days at the AGM in February. So there's a lot of strategy discussions with the Board and...

Is the buyback considered in any fashion or not considering the stock price and how much accretive 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 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. So you -- it's very, very difficult to get a whole picture of the volume. But 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. But there's a -- 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.

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

Do you ever listen to past calls?

I do, yes.

I do, too. And what is the current -- the same adjectives and really the same words is always something. And it's now -- what is it, 2 years since your -- 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. So they're still effectively in business.

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

So for Play MPE, I think very difficult to calculate that, but I would say it's at least -- the addressable market is at least $40 million in radio-only promotion. But promotion itself is something where we can expand user types. So music supervisors, influencers, media...

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

Well, again, the addressable market for Play MPE 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...

Challenging in what way? How is it challenging?

Well, it depends on where we go. And 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 2 different ways, but top down or bottom up. And I -- it's hard to figure out a number, pin me down for a number.

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

Well, I mean, I said $40 million -- at least $40 million right now. But that's -- again, that's -- I'm probably being hyper -- well, I know I'm being hyper conservative on what that really is. I would say Play MPE in its ecosystem, if you're really looking at Play MPE, what it does now is it's really...

Excuse me, I'm not -- 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 is it really depends on what market you're looking at. And what we're doing right now -- [ Larry, Larry, Larry ]...

I'm asking you what you look at, what your business...

[ Larry ], if you let me finish, I will answer your question, okay? The markets we're looking at right now is really solely a distribution market. And you're looking at $40 million to $50 million for radio promotions itself. You're looking -- you're probably doubling that for music supervisors and doubling that again for influencers. So you're looking at $120 million roughly, say, for just the simple delivery of music. And Meter itself, you're probably looking at twice that as over. And -- but 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 Meter, it's about, say, $200 million. For Play MPE itself, it's $40 million to $60 million.

So you're looking at 2 sizable markets [indiscernible], right?

Yes.

And those markets have grown in the last 4, 5 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.

So when are we going to grow? And when are we going to grow profitably? I'm thinking that it's going on 5 years that we became -- since we first became a shareholder. And it's my fault, my risk, but I thought that in 5 years, you'd be a much larger company, a top and a significant bottom line. But the case is different, right?

Yes. I mean -- yes, I mean, I would have hoped that we would grow faster as well. The -- we continue to make improvements in marketing in the platform, and we showed some growth. We've shown roughly 9% growth over the last 1.5 years, 2 years. It's just a little bit slower this quarter.

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

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

And that all went to lawyers?

Yes, yes.

So you won the battle and lost the war.

Well, 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 5x as much or 10x as much.

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

Why would he settle?

No, 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 are confident about maintaining, having -- initiating and continuing a lawsuit. Am I wrong there?

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

Would you get money to enable you to recover?

Yes.

Recover some of what it just cost you.

That's right.

Which is the total of all the years?

Pardon me?

Was the -- were you paying the bill for all these years or just the bill for this year?

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

So I don't know if you're jogging or running or racing, but we're getting nowhere. And...

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. And what do you call about faster? What is faster? What's your definition of faster?

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

And why aren't you doing things properly?

Well, 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 5 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 the stock, seems to me. It sounds like a mistake. Do you agree or not?

I mean it's -- I'm not sure that it's a mistake, no. If you look at expenses, you would be buying -- you'd 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.

But the business has grown a lot slower than you would hope for it to be in the future. No? Yes?

Well, I would think that I would be -- wish things had moved faster. We wish we had...

Wait a minute, which is...

Well, 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. And I think we're building out the platform to grow organically, and we're trying our best. And I think if we do that well, we will grow faster.

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

Well, like I said, we're building out the checkout feature, which we'll release this year. And we think that, that will 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?

Well, 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. Yes. I'm thinking back to a comment that's been firm in our brains after 3 years and a promise you made, which has turned out not to be a promise. Do you recall that? You don't have to say what it was. But do you recall?

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

Well, I was reticent to talk publicly. But at this point, I don't know that it makes any difference. You said if in 3 years, you didn't make serious money, you would sell the business or -- I think you said you'd sell the business. But look, it's so obvious that you've got this wonderful gross profit. And if you stopped developing new products and whatever else you're doing, you'd make a lot of money. And since you mention the stock so frequently, the stock could be a whole lot higher. And -- but you did say in 3 years. And in the fourth year and we're going on the fifth year, it seems like it's the same as the first year.

I think you might be being confused, [ Larry ]. The -- I believe that we can grow. And if not -- if we don't have success in that growth, we can ramp down expenses and become a cash generator and do that. And maybe that's what we'll do. But I wouldn't have committed to a time frame on that.

You did, whether you remember 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. And it depends, but the bottom line is the way you've shown us the revenues, you haven't even grown at the inflation rate. And...

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

Yes. Okay. Well, I'm disappointed. I hope you are. And yes, we're patient. We're patient. We're probably even more patient than your Board, but there's no -- it doesn't seem obvious that the Board is patient either. 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 are you going to do this year? $2 million a quarter or something? $1 million a quarter?

Yes. We're a small company, small market share, yes.

So looking at what the whole market is, it seems like nothing is 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 and market.

Yes. Well, we're...

Particularly when was it, last year that, that firm went out of business. It's back in business, you say. So 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. So...

Well, they had a period there where they weren't attending to business with the same point of view. Let's say presumably, you had the same [ deals with the same abilities ]. No hay was made.

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

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

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