YANGAROO Inc. (YOO) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to today's YANGAROO Fourth Quarter 2021 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Dom Kizek, Chief Financial Officer. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to YANGAROO's Q4 2021 Earnings Conference Call. Joining me today are Grant Schuetrumpf, YANGAROO's Chief Executive Officer; and Rich Klosa, YANGAROO's Chief Technology Officer. After the prepared remarks, we will go -- open it up for questions. During this call, we will be making forward-looking statements that are based on assumptions and, therefore, subject to risks and uncertainties that could cause actual results to differ materially from those that we projected. We undertake no obligation to update these statements, except as required by law. You can read about these risks and uncertainties in our Q4 2021 earnings press release issued last night as well as in our filings with Canadian Securities Regulators. With that, I will now turn it over to Grant.

Yes. Thanks, Dom, and thank you, everyone, for joining today. We're excited to continue our regular quarter earnings conference calls with investors and to provide regular updates with question-and-answer periods. With that said, I'm going to dive right into our update for the fourth quarter of 2021. As we continue to drive strategic growth opportunities, we have made some significant advances that are valuable to enhancing and further developing our core services. Let's walk through those advancements and what we have made for our advertising division. Firstly, YANGAROO announced a partnership with INNOVID, expanding on our TV broadcast destinations to now include Connected TV, or CTV, and digital video publishers. The partnership streamlines our customers' TV advertising across media and efficiently delivers advertising to all required TV and video campaign destinations for on-time airing and no required ad serving. These benefits drive efficiencies when advertising across traditional TV and advertising supported video-on-demand streaming services and where -- and also digital publishers. We are now exploring how these efficiencies learned can be integrated into other ad serving technologies and related services beyond the event. Also as Analytics is becoming an increasingly important element within our industry, we are keenly focused on increasing our value proposition for our clients. our new analytics serving service offering measuring advertising impact and results across linear TV, CTV and video publishing networks, supports advertisers with their understanding of advertising performance. This solution can be integrated within our traditional delivery service package and presented to the client in an easy-to-understand dashboard within our DMDS platform. YANGAROO also completed a strategic alliance with TEAMS or what is called The TEAMS Company, a company owned by Cast & Crew, adding the ability to connect talent and rights management usage to YANGAROO's TV advertising deliveries. This relationship aims to improve the advertisers' ability to track and analyze their talent and rights management obligations. Finally, we also debuted our new TV Clearance platform, offering both fully managed and self-serve capabilities to simplify and expedite the workflows associated with broadcast TV legal clearances. The platform provides enhanced workflow and collaboration tools, seamlessly connecting advertisers with broadcast legal departments, expediting the approval of incoming spots. These new features and integrations for advertising aim to improve more powerful and comprehensive solution, furthering our unique selling proposition in the highly competitive advertising delivery industry. So let's move over to Music. Regarding our Music division, we announced the signing of a multiyear agreement with Universal Music Canada. Continuing our leading music promotion services across Canada, the U.S. and also the Latin American markets. The long-term service agreement formalizes a long-term or long-standing business relationship with Universal Music Canada. YANGAROO's Music performance remains relatively consistent on a month-to-month basis. We experienced some post-COVID softening within the segment of independent music artists and who have been focusing their energies on live performances. However, we are expecting to return to a more normal revenue patterns throughout 2022. Now on to award. YANGAROO Awards shows platform has also gone through review and is in its early days as a significant upgrade. We are focusing firstly on a new judging functionality of the platform, which we expect to be completed in Q2 of 2022, then the submission functionality thereafter. The technology investment is expected to provide a refreshed and contemporary platform that provides a much improved user experience, faster award shows customizations for our customers and the ability to quickly scale and grow this service. Okay. Next, I will pass it on to Rich, who will provide us with more details on our technology development during the quarter.

That's great. Thanks, Grant. Our team has been busy working on both systems integrations, new features and the evolution of some of the core tools and technologies that we built. One of our core goals is always to find efficiencies in automating video postproduction and management services. And to that end, the acquisition of DMS gave us a chance to apply some of our previous expertise as well as integrate some new skill sets into our team is critical for us that we really wanted to make sure that there will be a seamless transition for DMS customers and their existing SaaS and users over to our platform. And so as a result, we've made some key performance and platform improvements in reporting and workflow updates as well as some other specific requirements in certain areas. We also continued the evolution of the DMDS platform for both advertising and music through the systematic implementation of a single-page application design. While we've already completed updates to the media library, advertising orders and the notification services, we're continuing our efforts for release creation and reporting, and we're expecting to release that later this year. This approach will expedite future development. It's also going to enrich user experience, and it's going to modernize both the security posture and the design of the application overall. In the fourth quarter, as Grant mentioned, we've also initiated efforts on the construction of a new version of the Awards platform. This third version or third iteration is going to be built in a multi-tenant environment, which is going to allow us improve scalability and advance self-administration and management utilities designed to reduce the current focus that we have on very customized development specific to our customers. So we're going to start with the adjudication side of the platform and the YANGAROO team obviously builds upon the expertise that we bring in media and entertainment, and we're going to use that to improve and add additional functionality, increase the reliability and security of the platform and work to transition customers to these tools overall. When we start with the adjudication side, as we start to transition people over our next step, obviously, is going to be moving to the submission side and get people transitioned over for that as well. Next, I pass over to Dom, who will provide us some color on the financial performance during the quarter.

All right. Thanks, Rich, and thanks, Grant. So next, we'll just give some further updates and color on the financial performance during the quarter as well as an update on DMS acquisition. Revenue in Q4 2021 was $2,923,261 compared to $2,067,026 and $3,059,383 in the fourth quarter of 2020 and the third quarter of 2021, respectively. The increase versus Q4 2020 was primarily attributed to the acquisition of DMS and the inclusion of related customer revenue, while the quarter-over-quarter decrease versus Q3 2021 is primarily attributed to seasonality with annual recurring customers. On the operating expenses side, in Q4 2021, we incurred $3,261,105 compared to $1,945,118 in the fourth quarter of 2020 and $3,051,164 in the fourth quarter of 2020 -- I'm sorry, in the third quarter of 2020. The increase of $1.3 million versus Q4 2020 is primarily attributed to the acquisition of DMS and the inclusion of all those overheads and direct payroll expenses that we acquired as a result of the acquisition. It also included increased investment in our [ technology stack ] higher marketing expenditures related to promotion and sales activity as we prepared to exit the COVID-19 pandemic and all higher salaries and consulting fees related to some [indiscernible] that we issued during the quarter. We did carry slightly our operating expenses in the quarter than we had originally planned. However, we can expect significant cost savings and synergies that are expected to be realized in the second half of 2022. On the normalized EBITDA side of the business, our normalized EBITDA for Q4 2021 was a loss of $204,812. This is in comparison to normalized EBITDA $817,000 in the fourth quarter of 2020 and normalized EBITDA of $433,000 in the third quarter of 2021. The decrease in normalized EBITDA relative to the prior quarters and the prior year is primarily attributed to those higher operating expenses that we carry as a result of the DMS acquisition as well as we had efforts to better position our DMDS the platform to compete in the post-COVID marketplace and related investment expenses. Finally, on the DMS integration, I pretty much like to report that we finalized the completion of the DMS integration. Since acquiring the business of DMS on May 21, 2021, we continue to finalize the remaining items required to fully integrate the business into our Advertising division. We completed the transition of all customers on to our platform. We discontinued and terminated the agreement related to DMS's previous technology platform, and that was with a third-party provider. That alone is expected to save us over USD 250,000 per year, and we'll see -- we'll start to see the full effect of that in Q2 and Q3 of this year. And as I mentioned previously, we expect to further rationalize -- and realize synergies which we'll see in Q2 and Q3 of this year as we finalize as we complete the transition. Finally, just a couple more updates. During 2021, we completed a change in functional currency. So that functional currency in this report and in this Q4 earnings report was the U.S. dollar. Although we presented in Canadian dollars to be consistent with prior years and prior periods, we have now moved over to a functional currency U.S. dollar. So that means beginning in the first quarter of 2022, with our report coming out later this month, we will plan to report in U.S. dollars with the final Canadian dollar reporting being the fourth quarter of 2021 and like to congratulate one of the company as this was a pretty significant project and really shows that we're focused on the U.S. market and U.S. shareholders and the DMS acquisition last year really was a big they move forward on that asset. So that's it for me. And thanks to Richard and Grant. And back to you.

All right. Thanks, Dom. Okay, everyone, that marks the end of our scripted discussion. So let's now open it up for our Q&A.

[Operator Instructions] Our first question comes from Colin a Private Investor.

Just a few questions here. First, in terms of expenses, you're alluding to these cost savings because the expenses have trended up. So you're alluding to Q2, Q3, that should start to go down, does that mean quarter 1, there was higher investment as well?

That's correct. So we continue to -- we've continued with our investment into the business. And through the course of 2022, we expect to, obviously, as reported, rationalized and normalize those expenses, Colin.

Okay. Is there going to be like emphasis on bringing that down? Or is it more about kind of capital investments right now are investing in the technology?

Well, yes, -- it is all of the above, but we will bring -- we'll put everything in line. So we'll rationalize the business, bring the costs down, and we -- and obviously, where we continue with the march of growing this business. So that means that we've got software, we've got development improvements that we've got to complete and conclude with. So that's an effort that continues into 2022. And at the same time, other areas of normal operating sort of areas of the businesses that we will look at rationalizing through -- now that we've got a full handle and we've settled down the DMS acquisition and as we move forward.

And just a question out a few of the technology, I guess, improvements on the Analytics side. Is that like -- is that something that's already generating revenue? Is it like a subscription type model where it's like a software cost per month for like an ad agency? Is that accurate?

Yes. You're absolutely right. Yes. So we now -- ad delivery is a very -- ad delivery is very transactional business. So we charge transactional fees. It's not so much subscription. It's transactional fees. The analytics solution that we've brought in overlaying our ad delivery transactional model is essentially doing the same thing. We're offering a transactional model, which is the core functional piece of integrating analytics into the platform. And that helps with our service of that delivery, adding value back into the customers and then enhancing our current pricing model. Now we haven't walked away from looking at subscription models for new services in the business, and that's something that we're investigating and we're obviously mindful of. And as this is a new service, we're testing the market where you're getting that client feedback, we're looking what's existing, what's available in the market and we're moving forward. We're just moving forward to what's best for the customer. At this time, though, Colin, it is very much a transactional fee on top of the delivery fee that we -- that customers use for their ad delivery.

Okay. So it is being used now? Or is it just like a testing fees?

No. Yes, we've gone through testing. We will continue testing and refining, but we have pilot customers on at the moment. So those pilot customers are using it -- yes, are using it through sort of like discounted or free basis for the interim until the model settles in, and then we'll move straight into that recurring transactional fee-based arrangement with the clients.

Okay. And also the clearance that was outlined clearance improvement, that's been something that you outlined for many quarters now and I see that a new -- something else new was launched. Is that some new service or that's going to generate revenue as well?

Yes, good up. It is something we've talked about for a long, long time. When we really kicked off market research and then we brought -- this is really just per-COVID sort of like 6 months before COVID hit that we announced that we were doing a lot of market research. We have a dependency with the broadcasters to connect them up directly to enable the service. When we keep COVID, the broadcasters required for TV clearance, both national and local or stop and said, no, we need to put this project into hiatus. So they put that project into hiatus during the whole cover period. And in the meantime, we continue to report on it because we were -- we continue to develop it. We were running our development to get that product ready and the missing piece was the connectivity with the broadcasters. Now I'm happy to say that as now all the broadcasters are back. They've opened up their doors. We've connected maybe 95% of the -- well, we've connected all broadcasters bar 1 at the time at this time, but we are now in deep discussions in finalizing that. Now that's through the technology integration. We have an interim offering at the moment, where we have 95% broadcast is connected. The last broadcaster were acquired, we work with them on a manual basis, but we seem to have that little piece completed shortly. Once that's done, we're off and running in a complete self-served arrangement. We are receiving -- we are now charging and receiving fees for service, which is good news for us. It's new, and we are now ramping that up and making some nice -- I think, some pretty good results in getting that service out there and our customers and prospects valuing what we've actually put the way we're bringing to market.

And just one more question. Also, as mentioned, the Awards platform, was talking about growing the business. But my understanding is that a lot of the award shows are -- or most of the award shows are signed up. Is there like some new direction you're taking that? Or is it just...

Yes. Yes. Good. That's another good point. We have -- Yes, we have the entertainment award shows connected up. So we have all entertainment award shows in the North American market apart from the -- apart from the Oscars, of course, it's only award show that we don't look after. Now the platform architectural change that Rich is putting through at the moment is now giving us an ability to open up our opportunity to look after other award shows within the entertainment market and outside of the entertainment market. What our previous -- what prohibited us previously was probably 2 factors. One, the customization of an award show is a lot of work. So a lot of time and effort, and we do a lot of in order to customize the product to meet the award shows means. And the second thing is the price point. In order to do all that customization that fees are generally reasonably high. through the advancements and with this technology change, we are improving those 2 factors. We are looking at the deployment of these award shows and reducing the complexity of the ability to release the award shows to market, and we're also doing it at a much lower cost point. So we can actually now scale up and offer this service to and this platform to a lot of prospects and customers -- sorry, a lot of prospects that have not previously been able to afford our product.

Okay. So kind of like smaller players, basically?

Yes. And there's many of them, Colin. There's a lot of here.

[Operator Instructions] Our next question comes from Dean Avrahami of Aurum Capital.

I have a few questions here. My first one is, I guess, maybe if you could help me understand -- I assume the advertising business is pretty seasonal. And because I was a little surprised that there was only like 1% quarter-over-quarter increase between Q4 and Q3, there's only like a 1% increase in advertising revenue. And I'm wondering if you could speak to that, shouldn't Q4 be a much bigger quarter for you?

Yes, typically, Dean, it is. And what we experienced is some softening in the advertising market. We put that down -- we didn't lose any customers. We actually signed up a healthy amount of new customers. But what we found is that the creative spend within campaign budgets hedge was softening. So we just had less create spend. So advertising agencies have already made a precommitment to their broadcast ad time. What we found with the broadcasters is that they committed to the air times, but they just simply recycled old creative. So the existing ads that we were sending out in November just got pushed and they were reused for December as opposed to new [ crush creative ] coming through from the agencies. So we followed that trend. We keep -- we're keeping an extremely close eye on it, and we're looking at the fact that, that will improve throughout 2022, and that is really due to economic conditions. That's what we believe, obviously, with the reported inflation and COVID and obviously, [ war ] news at the moment. So we -- so yes, so that's typically the reason why Q4 ended up the way that it is at a revenue level.

And your MD&A didn't break things down by geography, not at least that I saw. Can you tell me the Music business -- the decline in your Music revenue, was that mostly in Canada or in the U.S.?

It was across the Canada and the U.S. So it typically is the same, and we report -- we don't have a lot of revenue coming out of Latin America at the moment, that's really a developing market for us. But it was really just trending right across -- that trended right across the whole -- both markets that we operate in.

And I'm just wondering, do you guys feel comfortable with your current cash position? You guys have about like $1 million, I think, on the balance sheet. Is that, tell me guys you are comfortable with? Or do you think you might have to raise money in the future? You're not burning cash. I know that. So I'm just wondering what -- of thoughts?

Yes. Good point, very conscious of our cash position, where you just continue to monitor it. And whether we need to raise money in the future whether or not, it really comes back down to the growth and the revenue results in the business. And if we got this trajectory that we're all hoping for, and we start to ramp -- we start to ramp at a faster rate or not, then we may -- that means that we need to put more investment into the business usually through personnel. And so we have to be really, really conscious of what our expenditure is on a month-to-month basis.

Okay. And help me, as an outsider understand, the investments you're making into your products, I think it was something like 700-something thousand in 2021. Are these investments you feel are necessary just to keep your market share? Or do you think these investments do you think are necessary to grow and expand? I know it's hard to significantly understand.

No, that's. No, I'll put it this Dean. Yes, it is really hard, right, because the market and advertising, which is the primary source of our revenue moved so quickly with technology evolution and obviously, where people -- where advertisers are actually spending their money, we have to obviously chase that down. And so there's 2 things. We can't remain stagnant. If we want to keep our customers, we've got to continue to invest and improve on our technology and within our platform to meet the needs of the customers' expectations. So that's first and foremost. If we stand and do nothing, we will go -- we will have customer decline. If we -- now on the basis and the exciting thing is there is a lot to do out in the market to provide efficiency improvement for the advertisers, build like service-related -- services that we do at the moment. So we're a very service-based organization underpinned by our own technology. But we are now moving into more of a solution type sell, which means we are doing more under the pitch on the proposals that we're providing to our prospects. Now we know that we do that, and we are evolving and we have to invest to get there in order to grow our market share and to look after more of our prospects needs. So we've sort of -- as we grow, we hit certain [indiscernible] with customers because of their expectations. We're trying and working really hard to get into the Fortune 100 brand base or cash clients and corporations and to be able to answer sort of broader campaign and advertising management needs. And on the other 2 fronts, it's no different for Music and Awards. Awards, we've got a strategy there for expansion. For Music, we have to continue to look at how our solution for radio broadcast is further enhanced and expanded into digital so -- and how do we look at expanding our capabilities really to meet client expectations as a solution-based sell rather than just the service lines that we are historically offered.

Okay. So I guess, -- are these -- are most of these new features? Are these things that are new in the industry or things your competitors aren't necessarily offering yet or things your -- sorry, go on.

Yes, you're right, Dean. So they're existing. So there are -- those services around the market. They've been out of the market for a long, long time. We're looking at better ways of doing it. So cheaper, faster, more efficiently, putting a proposition together that is providing really true value to customers that already value those services. So clearance has been around forever for TV broadcasting, rules and regulations have always been around for like liquor advertising, advertising in children segments on TV, certain claims and statements made by pharmaceutical companies. So we -- so that's always been around. We're looking at automating and driving efficiency and collaboration, really using the latest technology to be able to say to the stakeholders. There's simply a better way of doing it. We can drive efficiency in your business for you guys to better run your organizations, and we take the advantage of presenting something of value that we can get a nice return for -- no different from. Analytics is pretty hot. That's come around and is really running fast about of how that market is opening up and what the types of measurements that we can actually get from the performance of TV advertising and then what marketing departments and advertising folks can do to better gauge the performance of ads and how they make their decision or how they improve on their decision-making campaign management. So that's been around for a while once again where we're providing a proposition that is providing some unique selling points and we're packaging all that up. And whether it a solution, which other customers can't -- or sorry, other competitors can't do today. So we're really improving on that solution-based sell again and what we can actually provide through very, very clever technology and some great service to create that value proposition that customers are always looking for.

Okay. Two more questions. I guess now that with your U.S. focus and our DMS acquisition, you guys still have this large NOL and tax credit balance in Canada. Are these still I guess, in play? Is there any way that these ever become useful for should I say as investors just like write them off kind of.

Dom, would you like to answer that question?

Yes. No, absolutely. No, you're right, Dean. We have large tax pools in Canada and in the U.S. Fortunately, in the Canadian tax pools, we have until -- we start to expire about 10 years from now until 20 years from now. So we definitely have a lot of time to use those up. And absolutely, look, I mean, -- the U.S. market is the current focus for our small company, if we can grow significantly and we can grow from [indiscernible] business. And we'll be able to use those in the next 10 to 20 years.

Okay. I guess I just don't understand is there's no way to like shifting around and use these and offset income from the U.S. Is there or...

Unfortunately, the tax pools are in our Canadian entity. And although we can use the U.S. tax pools in our Canadian entity, we can't do the other way around. At least not to my knowledge at this point in time.

Okay. And lastly, Q1 ended a month ago and we're amounted to Q2. Can you guys give us any color into what 2022 looks like at all?

General market today is that with all the economic conditions that we're all dealing with at the moment, inflation really goes back to my point about like the investment, the money that brands are spending on fresh creative, which is a big part of the reason why we have ad delivery cycling on a recurring monthly basis where we're closely watching that. There is obviously some signs of the December or the last quarter softening in '21 and how that ramp continues to refresh, reset itself and recover through 2022. So we're reasonably confident that there's going to be improvements there. The other areas of business and market really comes back down to like what I was saying before, Dean, is we are -- we're going through an evolution. We've had to invest in this business to get to that next stage in life for this company, and that's what we committed to do in '21 and we're hoping to see the results of that throughout 2022. And obviously, that and other opportunities that are presented to us in the industry, both locally and abroad sort of things that we can take advantage of as well.

This concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.