Destiny Media Technologies Q3 2024 Earnings Call Transcript

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July 15, 2024

There are 3 speakers on the call.

Operator

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 cause actual results to differ materially from those forward looking statements.

Operator

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 slightly 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.

Operator

Also, I'd like to mention that following the presentation, there will be a questions and answer session during which you can submit questions by selecting the raise hand icon at the bottom of your screen. Your question will be pulled in the order that they're received and at which point you'll be prompted to unmute your microphone before speaking. With that, I'd like to turn the call over to your host, Fred Vandenberg, Chief Executive Officer.

Speaker 1

Thanks, Rebecca. Good afternoon, everyone. I'll go through our Q3 results very briefly and turn it over to questions. Revenue for Q3 grew by 8.2% and 10.3% for the 3 quarters, the period ending. We believe this shows a small inflection point in our revenue growth that began about 5 quarters ago.

Speaker 1

I'll talk more about our organic growth strategy shortly, but we've seen growth that's around 9% over that period compared to what is about 3.5% for the several years prior to that. There is a slight positive net income and a slight positive EBITDA and that would be we put the capitalized software development costs on here just to show you that the EBITDA would be positive even if we hadn't capitalized any software development costs. I've added a graph to this slide to show our global independent revenue through the 1st 3 quarters of the year. This growth is around 9% for the last 4 years. This is a yearly year to date graph versus about 7% through the years prior to that.

Speaker 1

We think this is, again, a bit of an inflection point, but you'll see it a little bit more dramatically in fiscal 2024. And as global independent revenue becomes a larger portion of our total revenue, this should impact our results a little bit more strongly. And P's market share and then add products and services that can grow our addressable market. So how do we do that? We're really trying to invest in the platform to to really organically grow, have our users market our platform.

Speaker 1

The main thrust is to create an ecosystem where customers stay in platform longer, get more done, drive more marketing for us, drive more revenue growth organically. So this organic growth is really just a shot in the arm to our growth strategy. These investments are just beginning. Many of you will recall that we had a year's long effort to build out global administration for our largest customer and we just moved them over to the online platform in March of this year. We also want to complement that with marketing and business development.

Speaker 1

The product updates for the quarter was the one that you probably be most interested in is the MTR launch. That didn't launch until following the quarter, but it was nearing the end of just at the end of the quarter. The other product updates are really that we continue to work on the customer sign on and paying platform. These are things that are going to allow us to scale. And there's a number of other things that are going to help that organic growth that reinforces activity within the platform.

Speaker 1

Also in Q3, we had a change in our marketing leadership. There's a bit of a restructure that began in late Q2 to move the leadership over to somebody new, and we began to restructure the business development group that continued throughout Q3. There's been a lot of work here that's really exciting, but they're really involved in a lot of block and tackle marketing activities. We rebranded the website. You'll see the logos that we've added here.

Speaker 1

We created the logos. We added the tracking platform into Play MP, so that's meter. There's a lot of site optimization. We are tracking lead flows, all the basic block and tackling of marketing, but it's probably too much detail, but it's really quite exciting for us. The new website actually didn't launch until the beginning of Q4.

Speaker 1

Lastly, the meter, you'll see you've seen a press release about meter, MTR, music tracking radar. We call it different things, but meter is really the name that it goes by. Its core functionality is that we listen to music and then identify that music, what that music is and report on when it's played and by whom and how often, what time of day. Our first customer type is an artist or a small label looking to track a song or a few songs. Our Play MP customers have expressed a desire to obtain this information.

Speaker 1

What we have found is that our customers have found this type of information to be expensive and or doesn't have the coverage that we can provide or in real time with a connection to Plan B. We segment this information sorry, we segment this market from those that want to track a single. So you'll see that first segment up there. And those that want to track several songs, many songs. There's a remarkable amount of music produced every day.

Speaker 1

There's something like 98,000 songs a day produced and sent to DSPs like Spotify or something like that. But we think that the market here that we will be attacking is around about 35,000 songs monthly, so quite a small fraction of that, or about 420,000 songs per year. In the U. S, which is our first market, we think this number is closer to about 5,500 per month or about 66,000 songs annually. Our base price now is about is around $20 to $25 depending on how many months are purchased.

Speaker 1

But that's per month of tracking. So we have experienced that the average person wanting to track is around 3, 3.5 months of tracking, but that doesn't include renewals or things like that because we just don't have enough experience yet. So if you do the math to figure out what we're attacking here, you would multiply the 66,000 songs. This is in the U. S, 66,000 songs times the monthly price, times the number of months they wish to track.

Speaker 1

We think this is this analysis is fairly conservative and does not include older songs. And like I said, it's a very small portion of the total songs produced. We don't know now what the split is between customers that want to single and those that would want to attract a number of songs. And there's some functionality differences between the 2 that we have to build out yet. So our first market to attack is the singles, the artists or record labels that want to track a single.

Speaker 1

As far as costs go, there's really a fixed monthly cost with a variable component that grows with the number of songs, the number of detections, the number of stations that we cover. The number of stations is really the upfront cost because we have to present a number of stations. We think that the price point, our price point is high enough that we can cover our investment with a reasonably small market share, and then we have to figure out how quickly do we grow into new markets and that sort of thing. So our immediate goal with MTR is to really to figure out the marketing, improve the marketing, reiterate, figure out what an enterprise customer looks like. I mean, we were already doing that, but really to figure out and build that out and go from there.

Speaker 1

But this is really MTR is really the first. Part of that organic growth that's totally new, a totally new addressable market. And it's something that internally we're really excited about. And with that, I will turn it over to questions.

Operator

Great. Thank you, Fred. Yes, so we'll now begin our question and answer session. Access to a microphone. And if you wish to retract that question, you can also just click the raise hand option again to lower your hand.

Operator

Your camera will remain off, but once prompted, please unmute your microphone before asking your question. So the first question today is from Jerry. Jerry, you can go ahead and unmute your microphone.

Speaker 2

Can you hear me?

Speaker 1

Yes. Hi, Gary.

Speaker 2

Hey, how's it going? Good. I just have a couple of questions, Fred. First of all, the I think you were maybe you have renewed the Universal deal. Has that been done for another 2 years?

Speaker 1

We have renewed it until the end of September. We are currently in talks with them. I think they're going quite well positive. We moved them over to the online platform in March, like I said, and it's been going very well.

Speaker 2

So if it if you think you'll have them signed in September, is that going to be retroactive to January or is it go from 2 years in that September point or is it an annual deal?

Speaker 1

The term is yet to be decided. I think it probably depends on well, depends on a number of things, I suppose. But it will be from October 1 onwards.

Speaker 2

And would you expect increases?

Speaker 1

That really depends on what they are interested in purchasing. I mean, we built out this the global administration features that they require. I don't think there's anybody else that does it, and they find it very useful. But as far as increases go, I don't want to speculate that on that right now.

Speaker 2

Okay, fair enough. In the press release, 2 things. One is a comment, you should denote all the figures as U. S. Dollars because some media outlets pick it up and denote it as Canadian dollars.

Speaker 2

They don't say U. S. Dollars.

Speaker 1

Okay.

Speaker 2

I mean, just saying there were headlines saying you had $1,200,000 in income or whatever or $0.01 in earnings. They donated that in Canadian, the media who pick up it because they didn't see it was donated U. S. Dollars on the press release. Just a comment.

Speaker 1

Okay. I will do that.

Speaker 2

Yes. Second of all, you talk about the buyback up until early May. You're rather active in the buyback over the last 12 months and even in that last quarter. But the buyback wasn't renewed. So I just wanted to understand why we're so active and now it wasn't even renewed and thought we just continued?

Speaker 1

Yes, I think there's a couple of things there. It's really a function of our wanting to see where it goes with METR. METR is a really interesting new product for us, and it does come with some costs, like I said, and we are looking at marketing for it. And I think depending on the results of our market acquisition, we might decide to grow that our segments a little bit faster. And so we just wanted to pause on the buyback for just a bit period of time.

Speaker 1

We'll revisit that at some point, I'm sure, but we have a lot to invest in organic growth and potentially inorganic growth. I talk a lot about our strategy to grow organically on these calls. I don't really talk too much about inorganic growth, but we do spend a bit of time seeing how we can grow faster.

Speaker 2

So you're saying that your capital allocation plans have changed as of the expiry of the of your buyback?

Speaker 1

That's a that's a a confusing question to answer. I would I wouldn't I wouldn't say our capital allocations have changed. I would say that we've put a pause on it to see if they will change. So I really wanted to answer your question precisely, the we I mean, we there's two sides of this. We still see the stock price pretty low, but that's really a function of demand and supply.

Speaker 1

We're not really well known and we're pretty small. We're a microcap company. So the awareness in the market is kind of dictates our stock price. So we see our stock really low, but we also see a lot of potential to invest. And I think we just want to spend a few months figuring out where we where we put that capital next.

Speaker 1

Okay.

Speaker 2

Are you expecting your OpEx to jump a little more significantly because you talked about investment in the MTR marketing?

Speaker 1

Right. We are currently cash flow positive slightly marginally. The I think we will make progress generally with revenue and positive margins, which gives us a little bit more opportunities to expand spending if we choose to and if we see a lot of areas for growth that are really promising. But I think we just want to have a little bit of run rate before we decide to do that. Okay.

Speaker 2

And coming back to the MTR, so you piloted the product in Canada from a functionality standpoint, not a market test standpoint? Or is the product rolled out in Canada and generating revenues in Canada?

Speaker 1

It is rolled out in Canada and generating revenue. We when we were in Canada, we were monitoring a select group of stations. We charged a very we charged a price that was so low that I'm it's it's not it wouldn't impact our revenue. It would just it was just to get some skin in the game to see if people actually would pay for it. That's essentially what we did in Canada.

Speaker 1

Now we've moved the price up to which is still a screaming deal at $20 $20 $25 a month. One of the things I don't think we highlighted is or potentially highlighted enough is that artists that our first target market, the smaller artists that want to track single or a few singles, They don't really have a way to capture this information easily from a company like us. They they. There's options out there, but but. This is something that our customers have asked for that we want to to provide.

Speaker 1

We don't know what the real adoption rate will be. So we will monitor that. We do see customers in Canada buying it. It's just now that they have to pay a little bit more. But now we're tracking stations throughout the United States.

Speaker 2

And do you envision this product being, like I've invented word, more successful at the artist level or at the enterprise level?

Speaker 1

I don't know. The reason I showed it, the showed this pyramid is the I don't know the split between singles and enterprise. We have a we have a sense. We don't it's not like we it's it's a complete blank slate to us. But we think that there's going to be an interesting amount of single tracking.

Speaker 1

Enterprise will require some additional functionality, but in terms of the market split there, I don't really know. With enterprise, you'll get a smaller price per month tracked, but you'll get a lot more songs tracking. So it'll be interesting to see the split. The reason why we showed sorry.

Speaker 2

Was it piloted in Canada at both enterprises and artists

Speaker 1

or not? No, no, no, no, just a single tracking. And we were even missing things in Canada that we added during the year that ours, I wouldn't say they're required, but they make the platform just a little bit more usable. The reason why we show this in a pyramid is even the singles and the enterprise tracking that I've talked about, those are sort of the you know, really interesting, compelling markets that we want to adopt. But there's a lot of blue sky with associated with MTR that I just don't want to talk about until we're further down the road of product development.

Speaker 2

And when do you envision MTR being a meaningful contribution revenue contribution to Destiny? Is this a 12, 24 month, 36 month period or give more color on that?

Speaker 1

I suppose it depends on what you mean by meaningful.

Speaker 2

More than 10%, I guess, would be the first level of meaningful.

Speaker 1

Yes. I don't know, Jerry. I don't want to predict that. When we look at our revenue curve, we sort of look at a we expect to see a slower adoption and then an inflection point where our rate of customer acquisition grows faster. A lot will depend on what the split is between those wanting singles and those wanting a more enterprise level agreement.

Speaker 1

We think we can build out the enterprise functionality reasonably quickly. And when I say reasonably quickly, it's not a few months. It's probably more than a few months to build. It depends on what we find we need. So it really depends on what the split is and how much more work we have to do.

Speaker 1

I just I want to give a sense of what the initial market in the United States would look like and with a big market share.

Speaker 2

What would an enterprise use isn't destiny to for the service today? What's your competitive what's the competitive environment in the enterprise or on a single today?

Speaker 1

When it comes to enterprise type things in the United States, they're really you're really looking at what's called a charting platform. And there's a few different providers and depends on the genre, but they are much larger companies that what they provide is. A smaller number of radio stations monitored. It tends to be not in real time or is not in real time as what METR would provide. And instead of providing information about the songs that you're the person buying the information, they provide a more complete repertoire of music.

Speaker 1

So in contrast to fewer stations, they have greater number of songs. So you'll get information about songs that you're not asking about. And this is desired by some of our enterprise level customers. So some of those will we won't be able to sell to at least at first. But it tends to be much, much more expensive.

Speaker 2

So today, what's your key competitive advantage in this segment? And is it defensible?

Speaker 1

It's an excellent question. We're substantially cheaper, like a fraction of the price. Then we're real time and we have more stations. So you'll see a much larger number of stations in the United States that we track.

Speaker 2

And is this defensible, your competitive advantage? Is there anything proprietary that other than being a first mover?

Speaker 1

Well, it's not easy to do what we're doing. There's a lot they went into to building out the watermarking, the fingerprinting rather, that you have to build out a fingerprint, you have to generate that fingerprint in real time, you have to match it in real time, you have to manage false positives and false negatives. It's not the easiest thing to do. You have to maintain connections. So I think it's defensible.

Speaker 1

It's it's it's the barriers to entry are, you know, the technical barriers to entry are not insignificant. And so we're really I'm really proud of our team to have built this. I think the market defensive part of this is that this is selling to our own PNP customers. So, they're already engaging with us and they're already aware of us and I think that's a really compelling. You know, there's this customer trust.

Speaker 1

There's awareness. There's all sorts of really good advantages for synergies for METR.

Speaker 2

When you renegotiate a universal contract, will the MTR be part of that?

Speaker 1

I don't know. Certainly not. It's not something we've discussed yet. So I think one of the things that MTR could do that I don't believe exists is manage is are they interested in that? I don't know why they wouldn't be, especially at the price points that I think we could offer.

Speaker 1

It would likely change how they do this. But at this stage, I don't know. I don't really know anything about what they do to get that information now. I don't know how they could do it more cheaply than what we could do it, but

Speaker 2

And if all things go well, generally, what how much of your total business do you think MTR could generate, 20% of your total business going forward? Or is it bigger than that? Or how big is the market opportunity here?

Speaker 1

I think if you just look at the song tracking, the very first components of this pyramid that we think, then you're starting to look at an addressable market that would certainly exceed what Play MP has right now. But we really think that we can grow Play MP organically. As long as we're smart in what we develop, we can reinvest in that platform and that can be the core on which to to build more functionalities like like meter. What you know, there's unique aspects of meter that don't don't really exist with. I guess I should probably say it in the opposite way.

Speaker 1

But when it comes to Plan P, some of the hard part of growing is if you go to a new market, you have to grow activity first at the you have to put content in, then you grow activity at the radio stations, then you can start selling to the record labels. There's no such thing with MTR. There's no resistance. So if we wanted to expand into new territories, we're just tracking songs. It's just a matter of where we where we go next, which which our next market is.

Speaker 1

Because if we we discover that it's much easier to sell to an existing Plan B customer than a non Plan B customer, then maybe we figure out our market expansion for METER that involves either building out Plan P first or changing our marketing or staying within the confines of the Plan P market.

Speaker 2

And final question, are you looking at any acquisitions?

Speaker 1

Always consider it. From what we've seen, they seem to be a little bit expensive so far. But we we we are we continue to look at them, yes.

Speaker 2

Okay. Thank you. Thank you. There are no further questions.

Speaker 1

Okay. Thanks,

Speaker 2

Jerry.

Operator

Thanks, Jerry. So we've got no more raised hands right now, but got a couple in the Q and A box for you, Fred. The first one is how many users have signed up for METR so far?

Speaker 1

Oh, boy. I don't I don't I don't I don't know precisely the number of users that have signed up, but I I it's going above our. Projections. It is we are getting adoption. You know, our projections were again very, very conservative.

Speaker 1

So it's that's not saying much I guess, but we are seeing really nice positive signs with people signing up. I don't want to give I don't want to put a number on it because we'll disclose that when we disclose our financial results.

Operator

Thank you. Next question is if NCIB is not to be renewed, what are we thinking in terms of capital allocation, mostly R and D?

Speaker 1

Okay. Well, I think you covered some of that off with Gerry's questions. The what we what we where we spend our existing capital is depends on what we see in the next little while. We we continue to invest in the core Plainfield platform. We think we can do that with our ongoing operating revenue.

Speaker 1

As far as expanding capital allocation, there's there's really there's a probably a distinct distinction between software development for meter or market expansion activities. So we typically what we're seeing is that we would go into a market like United States and we absorb a bit of an operating loss for a period of time while we grow that revenue. And that would probably be true with every new market we we add on. So these are the 2 main distinctions of where we would spend our money. And I don't know that I don't know what we're going to do yet until until until we learn a little bit more.

Operator

Great. Thank you. Another question, this one came from Kelly. I've noticed you buy back shares. Which of the stock exchanges do you use to buy back shares?

Speaker 1

All of our purchases are done on the TSX Venture.

Operator

And then we've got a question from Harry. Congratulations on your results today. I would like to know more about who the meter customer is and why do they buy?

Speaker 1

The Playapy customer is really sorry, the meter customer is really artists and labels. Our initial market is, you know, the probably the smaller labels or artists that want to to see where their song is getting played. And these these the the the reasons they buy are really a function of they're mostly marketing. There's some curiosity there, but it's really to figure out where their their where their marketing spend should be. The other potential customers for METR is radio themselves.

Speaker 1

So radio wants to see essentially what other radio stations are playing, but that they would need to see a larger repertoire of music before they would be interested in meter, you know, depending on how many customers we get from meter that it might be useful information for them. And I think the last one, last grouping there would be promoters. So we have quite a number of promoters that are customers of of us. And they want to know they they use PlayMP as a tool to in their promotion activities. And they want to know how many tracks, how many spins they're getting.

Speaker 1

They can see how successful they are in terms of getting downloads and where the downloads are coming from through Plan B. But the next step in that is where they're getting spins. And I think that's really a useful data set for them to help market their own business. I think I've answered that question.

Operator

Okay. Got one more from Harry. What are the synergies between METER and PLAYMP?

Speaker 1

There's quite a number. Well, first of all, they're the same customers generally. The customers for meter are the same users of Plan P, whether it's radio or the actual artist and the promoter. So you're selling to people that are already your customers. The there's a lot of data analytics that are can help cross marketing.

Speaker 1

There's a lot of operating costs that are would be that would overlap. So in Plan P, we tend to we distribute to people. So on the recipient side, you have users that are people, which in turn manage radio stations. Amongst other things, as you know, they we get music supervisors and media and press and all that. But in terms of where we distribute, it's our lists anyway are primarily radio.

Speaker 1

And so we manage the person in plan B that manages the radio. And then on the meter side, we manage the radio station, which includes when we talk about radio, we tend to have a broader definition than what potentially is typically understood. But it would include Internet, satellite, terrestrial broadcast, but also some in store programming that there's not a clean line between those. But there's quite a lot of overlap. And certainly, I think the thing that gets us most excited is the information that we'll get is the data that we'll get.

Speaker 1

I think there's a lot of potentially cross selling where potentially a meter customer now becomes a plan B customer, you know, and vice versa, obviously.

Operator

Okay, great. Thank you. It looks like that is all of our questions for today.

Speaker 1

Okay, great. Thanks, Rebecca, and thanks for everyone who joined the call. Speak to you soon.

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