YANGAROO Inc. (YOO) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to today's YANGAROO's Q2 2021 Earnings 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 morning, everyone. Welcome to YANGAROO's Q2 2021 Earnings Conference. 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 open it up for questions. During this call, we will make 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 projected. We undertake no obligation to update these statements, except as required by law. You can read about these risks and uncertainties in our Q2 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 -- turn over the call over to Grant. Thank you.

Thanks, Dom, and thank you, everyone, for joining today. We're really excited to have started our regular earnings conference calls with investors and to provide regular updates in questions and answer period. With that said, I'll dive right in to have our update for the second quarter of 2021. On May 23, 2021, YANGAROO closed a milestone acquisition of Digital Media Solutions services, I should say, which we refer to as DMS. For everyone on the call, I'll remind everyone a little about the detail of the transaction. DMS is an advertising and content management delivery business based in New York City. The total consideration for the transaction is USD 5.5 million, which includes USD 2.5 million paid on closing plus customary closing adjustments and expenses, and an additional $3.5 million to be paid over 3 years contingent on the DMS us hitting certain revenue targets based on its 2019 fiscal year revenue. To date, we have not paid anything in respect to the USD 3.5 million earn out, and it is too early to determine how much we'll be paying. The DMS acquisition has performed tremendously for us today. We are successfully integrating the customers onto our platform and their employees in their existing company culture. We are generating some significant revenue and cash flow from this acquisition and are excited to further enhance these new client relationships on a go-forward basis. Rich will talk to our latest software development and innovation strategies and achievements shortly. I will next discuss our consolidated results for the second quarter of 2021, although, delivery volumes have improved incrementally from the first quarter of 2021. Our advertising division's existing customers continued with suppressed volumes as compared to pre-COVID period. Our new customers from DMS acquisition have been performing tremendously and higher than our initial expectations. We are forecasting existing customer volumes to return to pre-COVID levels at some point near the end of the COVID-19 pandemic, although, our precise timing of that return is still an unknown to us. New customer revenue is expected to have a significant positive contribution to advertising revenue on a go-forward basis and will be discussed by Dom later on. I'll next focus on our all-alliance business, Music and Awards management. Our awards showed strong revenue growth of 19% quarter-over-quarter, and this is attributed to underlying work related to our recurring contractual agreements with customers ahead of the launch of their respective award show program. In addition to completing new award submission platform for a global streaming company and also signing an extended agreement to provide a mobile and streaming device app for one of our existing award clients. Next is the performance of the Music division. Music had a relatively flat quarter-over-quarter and year-over-year performance. However, the mix of revenues showed a reduction in the platform used by major music labels. That was offset by the continual increase by independent music artists. Independent music artists have provided good historical double-digit growth over the past year now. Overall, the strength provided by our diversified business and multiline revenue has and it continues to be the key to YANGAROO's resilience during the COVID-19 pandemic. I'm also very proud of that how our team has performed during the last 18 months, both from a diversified revenue generation perspective and also from a corporate execution perspective. I'll next pass it back to Dom to provide some further financial insight on the quarter and other financial highlights.

Thanks, Grant. As Grant had mentioned, Q2 2021 was a really transformative quarter for the company. And I think we're all proud of how the entire team and how we were able to execute and deliver on that acquisition. Next, I will provide some additional guidance on our balance sheet strength and some of our financial performance during the second quarter of 2021. We had used a substantial portion of our cash and treasury to execute on the DMS acquisition. In addition to fully drawing down on our new term facility with National Bank, which resulted in lower cash and cash equivalents as of June 30, 2021. However, subsequent to quarter end and post acquisition, we have been able to generate some significant positive cash flow. We expect to continue to generate positive cash flow and expect to finish fiscal 2021 with strong cash, working capital and liquidity positions, primarily driven by strong revenue and normalized EBITDA growth due to the DMS acquisition and an organic growth in our existing music awards and advertising customers. Although, the exact timing and nature of an advertising recovery in the television space is difficult to forecast, we are expecting the advertising space challenges we've seen over the past 12 to 15 months to be transitory in nature, and as such, we expect a recovery once it occurs to drive revenue and cash flow generation to be quite substantial over the next 12 to 18 months. Finally, the second quarter marked a period of continued investment in our technology platform, DMDS and upgrading some significant features that we forecast to generate near-term higher volume usage of the platform and related revenues. The investment in technology improvements are expected to significantly benefit our customers in the analytics and digital API space, which could result in significantly higher volume usage in the platform. Finally, I will allow Rich, our CTO, to speak in respect to our technology investments and new features we are developing.

Thanks, Dom, and thanks as well, Grant. We're continuing on the path that we articulated at the Annual General Meeting that we had earlier in June, namely growing the size of our team and improving our ability to work in unison across the multiple lines of business. Besides investing in team size and growth, we're also implementing additional project management tools and processes. This has facilitated a marked improvement in our release cadence. We've been able to release DMDS specific updates on a 4-week cycle, which more than cut in half our typical deployment timelines for the previous year. This performance improvement is critical because it allows us to remain highly responsive to the evolving needs of the business. YANGAROO advertising remains our busiest project, of course. Now we're focused on a number of key integrations with new partners that will improve access to the platform and the transition of media from linear to digital. Phase 1 of our integration with DMS is complete, and we're actively working on a number of internal workflow tools to improve collaboration with the post-production portions of the business. This also includes alterations to billing and accounting to alleviate some tedious and time-consuming coalition activities. The clearance platform is undergoing a number of key updates prior to its public release. That evolution is based on feedback received during our beta program and includes an improved user interface and a number of other time-saving tools. These improvements will be circled back into the main YANGAROO advertising platform as we are confident it will assist in further streamlining our customer interactions. We're also actively evolving the implementation of our new analytics tools. It's going to provide a dashboard for customers to visualize media performance across multiple platforms. The primary goal is always the same though that we want to enhance the core services to provide our customers with the most robust ad workflow and the most comprehensive management tools and solutions in the industry. Of course, not on the heels of improvements to the broadcast library interface, YANGAROO music had also had a number of key updates. This includes improvements to our broadcaster feedback tools, the integration of our new audio-to-video visualization application and updates to the notification engine of the platform. For YANGAROO awards, we're right in the middle of the busiest time. We're prepping various sites with annual platform updates as well as show rule updates. And we're also working on expanding the functionality of the viewing rooms that we built last year, and it will include accessibility across OTT applications such as Fire TV, Apple TV and other devices. As it's probably apparent and we have pretty aggressive objectives overall across all 3 product lines, and this is going to continue to facilitate our growth and lay a strong foundation for us for future acquisitions. Grant, over to you.

Great. Thank you, everyone. And that marks the end of our scripted discussion. Next, we'll open up for our Q&A session.

[Operator Instructions] The first question is from Dean Avrahami from Aurum Capital.

I just have a few here because I read your filings and I couldn't find answers like, for example, do you guys have the breakdown of organic growth in your advertising division for the quarter?

Sorry, it's Dom here. At this point, we do not provide that breakout in our financials and our filings, but we'll definitely consider that on a go-forward basis.

Okay. What about the quarter-over-quarter growth in the Music division? You guys just had it for 6 months. I mean, I could calculate myself, but you guys have that number handy?

Just -- sorry, I'll just have been on that ever. Just off the top of my head, the growth on a quarter-over-quarter basis is fairly flat without -- sorry, without jumping into the financial statements as flat up quarter-over-quarter.

Okay. So it said that in the filing, they were flat, and it said that it was flat because you had a less -- sorry, you had less volume from your labels and more from independent users. I'm wondering, if you could just describe what's behind that? Why are the music labels using less? Are you going to your competitors or something is to industry-wide? Could you just take on that for us?

Thanks, Yes, it's interesting. Yes, it's an interesting question. I mean, I think it could be somewhat just trend related where it's our first time that we've seen that occur. Certainly, organic labels still using the service and everyone's still having sort of enjoying the experience that they've always had. So there's no known or like obvious that point to say that, that trend happened except that they have occurred. On the brighter side, what we're seeing is the independent music artists are continuing to grow. And I think that could be an ongoing trend is that we'll see independent music artist continue to grow. We'll see that, that exceeds the use from the music labels and as our services and applications and the new features that we're bringing into that platform in place sort of more independent artists becoming and use the service, then we'll probably see that trend continue. But it's probably too early to see. We'll wait and see what happens probably over the next quarter or next 2 quarters to see if the trend continues to feel confident that we're finding that there's a lot more relevancy with the independent new artists using our service.

Okay. Dom here again. So I wanted to jump back in and give you that number. It is in our financial statement disclosure. Q2 music was 471,000 and Q1 music was 485,000. So we were down slightly just over 2.5%.

And I just want to end with a comment. I hope and if you could guys do include the organic growth numbers because as an outsider, it is hard for me to gauge the health of the business, if I'm comparing apples to oranges. So just -- I'll leave you and I'll go back in the queue.

Yes, it's a good point, Dean. Thanks for that. It's certainly something that we can take into consideration.

[Operator Instructions] There are no more questions in the queue. I would like to turn the conference back over to Grant Schuetrumpf for any closing remarks.

Okay. Thank you, everyone. I appreciate your time this morning. I hope you have a enjoyable rest of the summer, and we look forward to talk -- updating you again in the next quarter.

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