YANGAROO Inc. (YOO) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to today's YANGAROO's Q3 2021 Earnings Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the call over to Dom Kizek, Chief Financial Officer. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Welcome to YANGAROO's Q3 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 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 Q3 2021 earnings press release issued last night as well as in filings with the Canadian securities regulators. With that said, I will now turn the call over to Grant.

Thanks, Dom, and thank you, everyone, for joining today. We're really excited to continue our regular quarterly earnings conference calls with investors and to provide regular updates in questions and answer periods. With that said, I'll dive right into our update for the third quarter of 2021. As you -- as many of you may know, on May 21, 2021, YANGAROO closed the milestone acquisition of Digital Media Services, which we refer to as DMS. This DMS acquisition has performed very well for us to date. We are successfully integrating the customers onto our platform and also the employees into our existing company culture and structure. We are generating some significant revenue and cash flow from the 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'll next discuss our financial results for the third quarter of 2021. With respect to our advertising delivery, we really saw a turnaround in volumes and usage of our platform towards the end of the third quarter and into the fourth quarter of 2021. While lingering issues related to COVID have continued to have a negative effect on our business year-to-date, it is our belief that the advertising industry is now on track to rebound to pre-pandemic volumes and revenues, trends are moving forward. I'd also like to add some commentary on the ad tech workflow industry as a whole. The advertising industry has seen tremendous consolidation over the past year, and I'm proud to say that YANGAROO is now one of the top players in this niche industry. With the closing of the DMS acquisition, we have now seen as a legitimate or we are now seen as a legitimate and full-service player. And with that, a lot more opportunities are appearing in the industry with significant customers, which is reflected in our internal sales metrics and the potential sales targets. We, as a company, believe that developing our advertising platform is a key priority in our differentiating -- in differentiating ourselves in what is now a small or a much smaller competitive landscape. Our organic growth initiatives include platform enhancements; growing the broader omnichannel sales solution, including our analytics platform; and finally, looking at nonorganic grade solutions. I'll pass it now on to Dom, who will provide us with some more color on our financial performance during this quarter.

Thank you, Grant. I will next provide some additional guidance on our balance sheet strength and our financial performance during the third quarter of 2021. Revenue in the third quarter was $3,059,383 compared to $1,921,312 and $2,152,833 in the third quarter of 2020 and the second quarter of 2021, respectively. The increase in revenue in third quarter is primarily attributed to the acquisition of DMS in May of 2021, which had a direct positive contribution to our advertising business. During the third quarter of 2021, YANGAROO recognized 59% year-over-year revenue growth. The majority of the increase is attributable to the inclusion of the DMS business lines assets into our advertising division's operating results for the entire period. In addition, the company continued to observe sales trends across all its overall operations on a year-over-year basis, in line with groups within the industry. As Grant mentioned, while lingering issues related to COVID-19 have continued to have a negative effect on our business year-to-date, it is our belief that the advertising industry is on track to rebound to pre-pandemic volumes and revenue trends moving forward. Our normalized EBITDA in Q3 2021 was $433,065, inclusive of government assistance, in comparison to EBITDA of $645,514 in the second quarter of 2021 ended June 30, 2021, and $502,299 in the prior year quarter ended September 30, 2020. The decrease in normalized EBITDA relative to the prior quarters is primarily attributed to higher salaries and consulting expenses as well as higher general and administrative expenses related to the acquisition of DMS. Next, in terms of our statement of financial position and balance sheet strength. Our cash and cash equivalents stood at just over $1.6 million, working capital stood at $2.53 million and liquidity of $3.37 million as of September 30, 2021. Our cash, working capital and liquidity positions were strong and surpassed our internal targets post acquisition. This can be directly linked to the great job our team has done integrating DMS assets and personnel into YANGAROO and a strong disciplined approach to managing our balance sheet. Finally, our financial goals over the next 12 months will be to continue to maintain a strong and robust balance sheet while continuing to invest in our advertising platform, tech stack. We see tremendous market opportunity in the advertising business with the greatest addressable market and potential for revenue growth amongst our 3 business divisions. As such, we will allocate our spending and management focus on the advertising business on a go-forward basis. Further to Grant's view on the future of the YANGAROO business, we believe that enhancing our advertising platform through the development of our analytics data offering to customers, improving workflow with clearance improvements and integrating with incredible partners on digital offerings for our customers will be a key priority of ours and will drive future top and bottom line revenues. Finally, I will next pass it on to Rich, our CTO, to speak in respect to our technology investments and the new features we are developing.

Great. Thanks, Dom, and thanks, Grant. The technology team has continued its planned expansion in the third quarter. We've hired a number of additional developers and quality assurance analysts to the team. This expansion has allowed us to fuel continued product growth, expedite a number of key projects and expand our goal of foundational improvements to our DevOps process and our various different procedures in that area. This quarter, we completed several integrations for YANGAROO Advertising. One of those was an integration with Innovid. And that expanded our distribution capabilities to include ad servicing destinations that allow us to fulfill orders for CTV and OTT deliveries. And we also completed an integration with team companies providing talent tracking and rights notification functionality within the DMDS media library. Our ongoing integration with DMS entered Phase 2 as we started to tackle the improvements of internal workflows, post production management tools and a number of billing and account automation services. Our clearance platform experienced continued growth as we implemented feedback from customers during our planned rollout. This included a significant interface enhancement for improved collaboration, and it will expedite the overall clearance approval process. It also provide several commenting and management features related to our video playback engine. We also completed a new set of broadcaster feedback tools for YANGAROO Music. We're just in the midst of rolling those out here into the fourth quarter. Submitters will have the opportunity for additional feedback direct from radio and television broadcasters. The improvements will drive enhanced user participation in the distribution process, and coincide with additional features related to radio playback and royalty tracking. YANGAROO Awards is also continuing its evolution. The team is building a number of key enhancements that will significantly improve the platform's manageability and enhance overall functionality. There's also a continued evolution on the streaming and media management capabilities of the platform with the first release of our media flow service, which is a scalable tool that will allow for secure coordination, management and streaming of assets by award show submitters. The service offers both greater flexibility and quality of service improvements to the streaming media workflows associated with the award show product. And we have aggressive targets for both Q4 and Q1 2022 as we move to put the finishing touches on a number of important interface improvements to our DMDS like project. That pretty much covers all the items. So Grant, I'll send it back to you.

Okay. Thanks, Rich, and thanks, Dom. Thanks, everyone, and that marks the end of our scripted discussion, and we'll now open next up for our Q&A session.

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

I'm just wondering in your press release and in your quarterly reports, you guys placed a heavy emphasis on investing in your advertising business. And I'm wondering how we should think about the music business from now on? Is this something that you'd consider selling? Or is this still something you see a future with because that's kind of how I'm interpreting it but just want your thoughts.

Yes. Thanks, Dean. No, advertising is key for us as a go forward. Really the same as music and awards. We really treat the 3 verticals no differently to each other. What we're finding is that the opportunities in advertising and the growth opportunities that we see there are more likely for us on a go-forward basis than what we see with music and awards. However, we do see lots of sort of opportunities that we're building a strategy for to meet certain growth objectives for those 2 divisions as well. So music is still very, very important to us. It's obviously always been a cornerstone to the business, and it will always remain that way. And we'll just continue to grow that business organically. And really also, we're open up for opportunity to see what acquisition opportunities are in the music business as well on a go-forward basis. So it is just important. It is as important for us, but advertising at the moment is pretty much getting a lot of attention because of the growth opportunities, the acquisition we did with DMS, the new innovation that we're -- and new service offerings through analytics and TV clearance that we've just recently launched is in this current chapter that is obviously taking up our most attention at this time. In regard to would we be willing to sell the music business, we're obviously always open to discussions, but it's not our intention to sell that business.

[Operator Instructions] The next question comes from Colin [Indiscernible], a private investor.

I was just calling to inquire about the earn-out payments, what's the structure of that? I think it's like a sliding scale. And I'm just wondering the targets, what do you anticipate? Which targets are going to be hit? What the structure of that is because it's not really clear in prior releases or the financial statements.

That's the DMS earn-out target? Is that what you're referring to?

Correct. Yes.

Dom, can I hand that over to you?

Yes, yes, I can take this. Thanks, Colin. Our earn-out is a total of $3 million, and it's all in USD. That earn-out is payable in 3 equal tranches on the 1-year anniversary -- sorry, on the annual anniversary over 3 years. So what is contingently due is $1 million every year for 3 years. And the way those earn-outs are triggered is based on DMS' 2019 revenue baseline. So for example, if we hit 100% of that baseline, we would trigger the first $1 million annual payment every year. And then it's a sliding scale. And if it goes below a certain threshold, and I believe that number is about 80%, then that amount is due. So at this point, Colin, we're only 6 months into the integration of the business, so it's still too early to predict the annual payments going forward. But that's essentially the structure. It's $1 million per year and it's a sliding scale based on the business' 2019 or pre-COVID revenue targets.

Okay. And based on, I guess, the quarterly results, I'm assuming that's not even close to being reached. There's no really breakdown in the DMS revenues, but I deduce from that.

No. Again, Colin, it's just too early to tell. Look, we're going to have to revalue our liability and our balance sheet every quarter because we do have a contingent liability that's going to be fair value, and we will provide guidance because that fair value will essentially help predict what our liability is. But at this point, it's just too early to determine the full extent of those payments.

This concludes the question-and-answer session. I would like to turn the conference back over to Grant Schuetrumpf for any closing remarks.

Okay. Thank you, operator. All right. Thank you, everyone, for your time this morning. I look forward to -- we've enjoyed obviously presenting you with the Q3 results. We look forward to into the next report that we provide you. Thank you very much for your time.

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