Stingray Group Inc. (RAY-A.TO) Earnings Call Transcript & Summary

[Foreign Language]. Good morning, and welcome to the Annual Meeting of Shareholders of Stingray Group Inc. [Foreign Language]. My name is Mark Pathy, I'm the Chairman of the Board of the Corporation, and I will preside at the meeting as Chairman. [Foreign Language]. The meeting will consist of 2 parts: The first of which I will conduct will be the legal part. After this, there will be a much more interesting presentation by Eric Boyko, the President and Chief Executive Officer of Stingray Group; and Marie-Helene Fournier, the Interim Chief Financial Officer of the Corporation. Before we start the legal portion of the meeting, I would like to present the other current Board members in addition to Eric Boyko and myself, those being Claudine Blondin; Karinne Bouchard; Mélanie Dunn; Ian Lurie; Gary Rich; François-Charles Sirois; Robert Steele; and Pascal Tremblay. Mr. Sirois is not standing for reelection as a director today, and Stingray wishes to thank him for his dedication and contribution to the corporation over the many years, he has served on it. And instead, we are very excited to introduce the Honorable Jean Charest as a new nominee to Stingray's Board of Directors. Stingray's management team consists of Eric Boyko, Mario Dubois, Lloyd Feldman, Marie-Helene Fournier, Valérie Héroux, Steve Jones, Ratha Khuong, Mathieu Péloquin, David Purdy and Jean-Pierre Trahan. our CFO. Mr. Trahan is currently on a medical leave of absence. We wish him a speed of recovery. Now let's begin with the legal portion of the meeting. As this meeting is held virtually via live webcast, it is helpful to set out a few rules for the orderly conduct of the meeting. Registered shareholders and duly appointed proxy holders wishing to participate and vote today on the various motions, should have received prior to the meeting their respective control number in order to access it. Questions in respect of a motion can be submitted in writing using the instant messaging service of the virtual interface. Questions will generally appear shortly after they are submitted, but will only be addressed during the question period at the end of the meeting, provided that questions regarding procedural matters or directly related to the motions before the meeting may be addressed during the meeting. For the purposes of the meeting today, voting on all matters will be conducted by electronic ballot. Registered shareholders and duly appointed proxy holders will be asked to vote on each motion after the presentation of all motions in this legal portion of the meeting. When you are asked to vote, you will be able to access the electronic ballot from the voting icon at the top of your screen on the virtual interface. You will only have a certain amount of time to do so when the polls are open. To expedite the formal part of the meeting, I will move and second all motions. I now ask that the Annual Meeting of Shareholders of Stingray Group Inc. come to order. I hereby appoint Lloyd Feldman, Corporate Secretary of the corporation, to act as Secretary of the meeting. For the purposes of this meeting, I hereby appoint Francine Beauséjour and Isabelle Vachon of TSX Trust Company as scrutineers to compute the votes of any polls taken at this meeting and to report thereon to the Chairman. Purposes of today's meeting are set out in the management information circular dated June 26, 2025. The notice calling this meeting and the form of proxy were mailed to shareholders on or around July 7, 2025, along with the audited consolidated financial statements of the corporation for the fiscal period ended March 31, 2025, and related MD&A to the shareholders of the corporation who requested such documents. Unless there is any objection, I will dispense with the reading of the notice of meeting. Copies of the meeting -- of the management information circular and other meeting materials are available under the corporation's profile on the SEDAR+ website as well as on the corporation's website. Our transfer agent, TSX Trust Company, has attested to the proper mailing of the notice of this meeting, that has been filed with me prior to this meeting, proof of service of such mailing provided by the corporation's transfer agent, and I direct that a copy of such proof of service be annexed to the minutes of this meeting. I've been advised that there are at least 2 individuals present, each of whom is a shareholder or a proxy holder representing a shareholder and who hold or represent by proxy together more than 90.02% of the total number of votes attached to the outstanding voting shares of the corporation, and therefore, a quorum of shareholders of the corporation is present, and the meeting is properly called and duly constituted for the transaction of business. I have received the scrutineer's report, and I direct that their formal report be annexed to the meeting -- to the minutes of this meeting. The first item on the agenda is to receive the consolidated financial statements of the corporation for the fiscal year ended March 31, 2025, together with the auditor's report thereon. Copies of such documents have been mailed to the shareholders who requested such financial statements, and it is not proposed to read them to the meeting. I direct that a copy of the consolidated financial statements of Stingray Group, Inc. for the fiscal year ended March 31, 2025, together with the auditor's report thereon as both appear in the annual report of the corporation be annexed to the minutes of this meeting. The meeting will now proceed with the election of the directors of the corporation. The 10 directors to be elected by the shareholders of the corporation shall hold office until the close of business of the first Annual Meeting of Shareholders of the corporation following election or until their successors are elected or appointed. Claudine Blondin, Karinne Bouchard, Eric Boyko, Jean Charest, Mélanie Dunn, Ian Lurie, Gary Rich, Robert Steele, Pascal Tremblay and myself, Mark Pathy, have been nominated as directors of the ensuing year or until their successors are elected or appointed. Each of the persons nominated has confirmed that he or she is prepared to serve as a director. Since there are no other nominations, I move and second a motion to elect the directors. Unless there are any questions, I will move to the next item of business. Okay. The second and final item of business for the meeting is the appointment of KPMG LLP, Chartered Professional Accountants as auditor of Stingray Group for the ensuing year at such remuneration as may be fixed by the Board of Directors of Stingray Group. I move and second that KPMG LLP, Chartered Professional Accountants be appointed as auditor of Stingray Group until the close of the next annual meeting and that the directors be authorized to fix their remuneration. Unless there are any questions, we will now proceed with voting. As we mentioned, voting today will be conducted by electronic ballot. I will now take a moment to ask that the balloting be open to registered shareholders and duly appointed proxy holders. The polls are now open. And at this point, all registered shareholders and duly appointed proxy holders who have properly logged in with their control number and wish to vote will be able to see on the screen all motions being brought forth at this meeting. Please register your votes by accessing the voting page and selecting the for or against button next to the name of each proposed director and selecting the for or withhold button next to the resolution with respect to the appointment of KPMG LLP, Chartered Professional Accountants as the corporation's auditor. We will provide registered shareholders and duly appointed proxy holders approximately 1 more minute to complete the electronic ballots. Once the electronic balloting closes, the voting page will disappear and your votes will automatically be submitted. We will start the 1-minute pause now. [Voting]

Okay. That felt long. I think next year, we should fill it with music. I've been advised by the scrutineers that the ballots and proxies deposited for the meeting have been voted in favor for each of the resolutions. Each of the 10 nominees have been elected as directors of the corporation to serve until the next Annual Meeting of Shareholders or until their successors are elected or appointed. The appointment of KPMG LLP, Chartered Professional Accountants as the auditor of the corporation has been approved, and the Board of Directors has been authorized to fix their remuneration. I direct that the results of the polls be included with the minutes of this meeting, and the results of the voting for the election of directors will be announced in a news release in accordance with the policies of the TSX and filed on SEDAR+. The formal items of business as set out in the notice of meeting have now been dealt with. I move and second that this meeting now terminate. As there is no further business to come before the meeting, I declare the formal part of the meeting to be concluded. And now I will turn the meeting over to Marie-Helene Fournier, interim CFO. After that -- and then after that, Eric Boyko, will speak, following which there will be a question period. Please hold off on your questions until after the presentation.

Thank you, Mark. Good morning, everyone. [Foreign Language]. We released our first quarter '26 results yesterday after the markets closed. We have delivered a strong and resilient start to fiscal 2026, which reflects the disciplined execution of our strategy and the strength of our diversified business model. We started the year with strong top line momentum. Revenues for the first quarter reached $95.6 million, an increase of 7.4% over last year. More importantly, organic growth reached an impressive 12.5%. In terms of profitability, consolidated adjusted EBITDA rose 8.3% to $33.7 million in the first quarter of '26. Adjusted EBITDA margin reached 35.2% compared to 34.9% for the same period in 2025. Stingray reported net income of $16.8 million or $0.24 per diluted share in the first quarter of 2026 compared to $7.3 million or $0.11 in Q1 2025. Adjusted net income totaled $21.3 million or $0.31 per diluted share in Q1 2026 compared to $13.9 million or $0.20 in the same period in 2025. Cash flow from operating activities totaled $19 million in Q1 '26 compared to $10.8 million in Q1 last year. Adjusted free cash flow amounted to $18.8 million in Q1 2026 compared to $15.5 million in the same period last year. I will now present the key financial highlights for fiscal 2025. We delivered impressive growth on both the top and bottom lines. Total revenues climbed 12% to nearly $387 million, driven by our FAST channels and consolidated adjusted EBITDA grew 13% to $142.2 million. Our strong operational performance translated directly into powerful cash flow generation. We generated over $100 million in cash flow from operations, which resulted in $83.6 million of adjusted free cash flow or $1.22 for adjusted free cash flow. This robust cash flow is the cornerstone of our financial strategy providing the capital to fund our growth initiatives and maintain a strong balance sheet. The story of our revenue performance over the last several years is one of successful and deliberate transformation. We have strategically shifted our focus towards high-growth and higher-margin business lines, and that strategy is delivering clear results. The strategic growth revenues now represent 60% of the total revenues. The most powerful example of this is the rapid emergence of our advertising division. What was a smaller part of our business just a few years ago has become a primary engine of our overall revenue growth. This successful diversification has created a more resilient and dynamic revenue base for the entire company. The takeaway is clear. Stingray has evolved. We are a more diversified company today with a revenue profile that is increasingly driven by strategic and high-growth initiatives and positions us perfectly for sustainable long-term growth. Additionally, we have successfully expanded our business while improving our profitability and cash flow. Our focus has always been on profitable and sustainable expansion. Our adjusted EBITDA has remained consistently strong and has grown over this period, demonstrating that our strategic initiatives have been managed with rigorous financial discipline. This is not growth at any cost. It is high-quality, sustainable growth that protects our margin structure. Furthermore, this growth has been self-funded through our powerful cash generation. Our ability to consistently generate significant cash flow from operations and free cash flow is a core strength of our business model. It provides the fuel for our strategic investments without compromising our financial position. This disciplined approach has built a resilient financial foundation that position us exceptionally well for the future. Our strong financial performance provides the fuel for our clear and disciplined capital allocation strategy. First, we are committed to maintaining a strong and flexible balance sheet. We have a clear target range of 2.25 to 2 for net leverage ratio, which ensures we operate from a position of financial strength and can weather any market condition. Second, we believe in directly returning capital to our shareholders through 2 key mechanisms. We provide a consistent annual dividend, and we actively use our NCIB to repurchase shares, which enhances long-term value for all shareholders. And third, we have a long and successful track record of using strategic acquisitions to accelerate our growth and enter new markets. That concludes my financial review. I will now turn the presentation back to Eric.

All right. [Foreign Language]. But -- can you believe it 10 years IPO? I remember when we did the IPO that some of our bankers said, this is great. The IPO is fantastic. I'm so happy to privatize the company in the next 5 years. So I think we've proven some of our bankers wrong. So I'll go back to a bit of a description of how the last 10 years have been. So we were aggressively launched SVOD products in 2017, 2018. I want to remind when we did our IPO, we were doing $90 million of sales, $27 million EBITDA and 90% of our business was CPS based on the cable industry. So what a pivot we've done in the last 10 years. So launching SVOD in 2017, 2018 was a big pivot for us for sure, with our friends at Amazon. Then we did the fantastic acquisition of Radio in 2018. And now we can see the results in Q1 at plus 6%. We have, by far, the best management team. We're very happy with the diversity of our stations. Then we launched In-Cars with Tesla, with Karaoke, the play on words, Karaoke, very excited. And from then, we've launched with 10 more companies, Ford, the Hyundai, [ friends ] at Mercedes, Audi, BYD, so a very global reach. Then we were aggressively, we got into the Retail Media business. So before 2021, we were doing 0 in sales. So you can imagine the growth now we're at $84 million this year. What a fantastic growth in advertising. So Retail Media, we got the acquisition. We launched in Canada. Then finally, we launched the FAST channels in 2022, so not even 3 years ago. The FAST channel, great vector for us. And finally, right now, we started in April with what we call the backfilling. My team doesn't like the word backfilling, but the premium advertising. But we're very excited to start that in April. We talked about it during the analyst call, a lot of potential there. It's in the infancy. We are only 3 months old, but we're learning quickly. So if we go to market and divisional updates. So one thing I want to share with you is Stingray has always been -- we decided early in 2010, so 15 years ago, do we compete? Do we go compete against Spotify? Do we go compete against those days was Napster or [ friend ] Deezers, or do we go in the B2B space. And we decided in 2010 that our best attribute is B2B or stronger relationship. And what happened to Stingray is all of our contacts on the cable industry. We are in 142 countries. All those contacts started moving around and going to the over-the-tops, going to Samsung, LG, different retailers. So we've always been able to leverage those relationships. So if you look at this page, which we're very proud, Connected TV, it's Samsung, Vizio, Xumo, Pluto, Roku, LG, retail media, you can see the biggest names in Canada. We have about 90% control of retail media in Canada and a very strong presence in the U.S. And after that, you look at our advertisers. It's big names, Procter & Gamble, Pfizer, GSK, again, very well diversified. In-cars, like I said to you, Ford, Neo, Xperi, Audi, BYD, Tesla. So -- and more to launch. We feel we'll talk about it later, but very excited about Karaoke, which was by fun, our first acquisition in 2007. So still growing strong. And finally, on the SVOD and CBS side, we have all the major cable operators in North America, again, Comcast, Bell, Cox, Cliq, Rogers, Roku to name them all. And finally, on the commercial business, we're happy to provide music to all of our big customers with BMO, Sports Experts, Circle K, Sobeys, Scotiabank and a lot more coming up. So always a very strong B2B team, and thank you to the sales team, marketing team, content team, legal team that helps support to have all these great partners. Okay. So if we go to the first segment, advertising. Advertising, about even 5 years ago, we said, Stingray, do we want to be in advertising or not? We were questioning ourselves. Now advertising, if you take our $84 million plus the $130 million of radio, it's $210 million. So it's more than almost 55% of our sales come from advertising, 60%. So what a switch that we've done and what a pivot. So advertising has been growing by 47%. Last year, it grew by 40% over the last 2 years, incredible growth. You saw the line from Marie. Our goal is to continue to solidify our North American footprint. We are the largest audio footprint in North America by far. So happy about that, and we will continue to expand that footprint via more tuck-ins and also via more retailers. And finally, we're happy that the FAST channels plus Retail Media are high growth, high gross margin and EBITDA margin. And we're also leveraging the channels that we always had on TV. So we're leveraging the same product and putting it on Samsung, Vizio and other products. So we really developed a great core business. Okay. So if we go into a bit more detail, FAST channels. The FAST channels, which we call also the connected TVs. So the FAST channels and playAWARD here are growing very fast. So again, the listership of ours grew by 58%, so we're very excited by that. We've launched a lot of new channels. Our sweet spot is music channels, which is people love to listen and the ambience channel. So we have Naturescape that we always had. That's a key product. But we launched this year Cozy Cafe that I must -- if you have a chance, very relaxing, Cityscape, Stargate. We have Zen Life, which is about -- you can imagine the name and our famous Naturescape and we'll be launching more channels. Our customers are very happy with these products and the music that we contribute. Okay. We are, again, deeply established with Vizio, Samsung TV+, LG. We just launched on Pluto. We just launched on Roku. We launched on Xumo. We're in about 20 different partners. I think we're one of the broadcasters that is the most established around the world, no other broadcaster. One of the reason is for a lot of our competitors, if you think about CNN or Warner Bros, or these players, going on FAST channel is a bit of cannibalization because you're cannibalizing your cable sector. We didn't have that limit on us in the U.S. So we were able to be aggressive and first movers, and we see the advantage we have now, and we expect a lot more growth from these, including us starting selling the ads, which is very exciting. And I talked about at the analyst call about a lot of potential. Retail Media, we have a great list of retailers across Canada. Right now, we have 30,000 accessible locations that we can do audio ads, and we're also looking to do video ads in retail stores. I think we've been upgrading our list of retailers. And if you see here, we reached over 925 million monthly visitors. So incredible reach, over 30,000 locations. Our big challenge here is a fill rate. It's a new product. It's audio in stores. We have -- we still are evangelizing the market. People are getting used to audio ads in stores and that segment, people are used to TV, people are used to radio, people are used to out-of-home, and now they're getting slowly customized to making ads in retail stores. Well, In cars. In-cars, we had a good interview this week with some of the papers. And the journalist said, Eric, you seem excited about the car business. The car business is going to be a 10- to 20-year cycle. Once you go with the OEMs, once you get in the cars, you're there for 10 to 15 to 20 years. And it started with Tesla. It started with Elon Musk setting a tweet 5 years ago saying, "hey, I'd like to have karaoke in my car. " And since we are the largest catalog, we started karaoke with Tesla. Since then, we've launched with multiple cars. As you can see here, we're with BYD, great partner, CARIAD, which is the German group, Hyundai, LG, Tesla, Ford and a lot more coming up. People love playing Karaoke. If you think about it, it's the good old sing along. And we added also the acquisition of Singing Machine. Every car manufacturer is looking for microphones. So when you get your car, you'll be able to sing karaoke and get scoring. So good luck for parents, but I think the family will be very happy. And like I said, we're very excited. And now we're looking to enter music in cars. So we're excited to also offer Stingray music. And we're also looking to enter some more radio player style and podcast to really be the OEM radio for every car manufacturer in the world. And that for us is very exciting because it is unique to be in control of the audio in the car while you still need to drive the car now is a great position to be. Next is Stingray business. So you can see here one of the photos, one of our screens in Toronto. We really expanded that -- we're happy with the new partners we have, aggressive going after banks, unmatched scale of 140,000 locations worldwide. Very happy with the new partnership we announced with Samsung today in VXT. We have 3 products out of 4 on all the new Samsung TV that are being deployed worldwide commercially. So a great deal, a great partnership. And again, leveraging these partners to launch retail media to also help us with the FAST channel. So everything is coming together and using the radio team to help us monetize retail media. So it's a nice -- it's a beautiful virtual circle of life. Finally, Radio, what can we say more? Radio outperforming its peers in Canada. I must say that every time we announce our numbers, all of our competition call us to ask us how we're doing it. So I'm very proud of the team. The team is here today in Montreal. So I told them revenue in Q1 grew by 6%, outstanding, never seen in many years, EBITDA by 11%, driven by 17% growth in digital revenue. Our advertising is grocery stores, gambling, casino in Ontario, federal provincial government, medical. So we're doing great there. Again, Q1 was exceptional. Do not expect to have 6% growth forever. But still, we're showing that radio is a great cash flow and also is able to have growth because we're selling digital and we're selling retail media. And soon, we're also -- we're going to be in the fast space, selling some FAST channels also. So very happy to work on that. And finally, I think that radio continues to deliver strong cash flow to fuel our expansion, which helped our EBITDA. Like we said today, we feel our EBITDA will be below 2x by December. So we'll have to evaluate what do we do with capital allocation when we get to December. Finally, look ahead. So our goal is to deliver value creation for our shareholders. Number one is I think we've seen it, financial strength fuels strategic growth, a very robust free cash flow, very -- and EBITDA ratio that's low. We have over $200 million of free cash flow available for acquisitions tuck-in. So very well positioned. Happy about that. I think that was one of the questions with the market when our debt EBITDA was closer to 3. We're committed to return shareholder returns. So very -- I think we're disciplined on our dividend. We're disciplined on our buyback, and we're disciplined in our acquisitions, and we will continue to return capital. And again, if you look at our free cash flow, we still have double-digit free cash flow percentage. So I think Stingray has a lot of place to grow. And our EPS last year was $1.10. So our multiple on EPS is still very low compared to our peers. And hopefully, that would also continue to grow. And finally, I think Marie is right. We've really diversified the business. There are so many segments. I think we're building a long-term business with the retail media, the FAST channels are really there for an extra 5 to 10 years and the car business is a 10- to 20-year model. Average American keeps their cars 12 years. So if you can be in their cars and do advertising, it's a great market to be. And with the connectivity of all cars right now, it's an incredible market. So very happy about our results. Again, I know the Board doesn't like when I say this, but last year was a record year of sales, record year of cash flow, record year of EPS. So almost everything had double digits. So very impressive. And again, another strong Q1 with 12% organic growth despite the economy, the tariff, trades, the volatility, we've been able to be secured and maintain long-term growth. So very proud of the team. Thank you all. And with this in mind, I will now hand it over to our Chairman to Mark, who will lead our Q&A questions. [Foreign Language]. Thank you for your confidence in Stingray.

Thank you, Eric, and congratulations on another great quarter and clearly, an exciting year ahead. We will now get into the question period. I ask that anyone who would like to ask a question do so in writing by using the instant messaging feature of the virtual interface. We will answer as many questions as time permits. When asking your question, please state your name, the entity you represent, if any, and confirm whether you are a shareholder, a duly appointed proxy holder or a guest. Please limit your questions to topics relating to today's subject matter and keep your questions short and to the point. We'll now give attendees a moment to type in their questions. For each question we answer, we will summarize the question and read out loud the name of the person who asked such question and if applicable, the entity such person represents. We would like to remind you that questions which were already answered or that are redundant or repetitive may not be published or answered. Please go ahead and take your questions now. Okay. As it seems there are no questions. We've obviously done a good job of covering our material thoroughly. This now concludes the question period and also concludes this year's Annual Meeting of Stingray Group shareholders. On behalf of the corporation's Board of Directors and executive team, I wish to thank Stingray employees and stakeholders for their hard work and dedication.