Good day, and thank you for standing by. Welcome to the Stingray Group Inc. Q3 2022 results call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require an operator assistance, please press star zero. I would now like to hand the conference over to Mathieu Peloquin. Sir, please go ahead.
Thank you very much. [Foreign language] Bon matin. Good morning, everyone. Thank you for joining us for Stingray's conference call for Q3 results ended December 31, 2021. Today, Eric Boyko, President, CEO, and Jean-Pierre Trahan, CFO, will be presenting Stingray's financial and operational highlights. Our press release reporting Stingray's Q3 results for fiscal 2022 was issued yesterday after the market closed. Our press release, MD&A, and financial statements for the quarter are available on our investor website at stingray.com and also on SEDAR. I will now give you the customary caution that today's discussion of the corporation's performance and its future prospects may include forward-looking statements. The corporation's future operations and performance are subject to risks and uncertainties, and actual results may differ materially.
These risks and uncertainties include, but are not limited to, the risk factors identified in Stingray's annual information form dated June 2, 2021, which is available on SEDAR. The corporation specifically disclaims any intention or obligation to update these forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required by applicable law. Accordingly, you're advised not to place undue reliance on such forward-looking statements. Also, please be reminded that some of the financial measures discussed over the course of this conference call are non-IFRS. Please refer to Stingray's MD&A for a complete definition and reconciliation of such measures to IFRS financial measures. Finally, let me remind you that all amounts on this call are expressed in Canadian dollars unless otherwise indicated. With that, let me turn the call over to Eric.
Merci, Matthew. Good morning, everyone, and welcome to our Q3 results conference call for fiscal 2022. I'm pleased with our financial performance in the Q3 as the ongoing return to normal commercial operations, combined with increased advertising revenues, generate revenue growth of 4.8% to CAD 76 million. Our key KPI organic growth improved to 5% in broadcast and recurring commercial music revenues, including an impressive 28% in the United States. Our investments in the U.S. markets, which are reaching nearly 1 million per quarter, are beginning to pay off with consistent double-digit growth in this key market. In terms of our bottom line, adjusted EBITDA decreased by 16% to CAD 28.5 million in the Q3 .
Adjusted EBITDA decreased year-over-year, mainly due to a one-time gain from a settlement with SOCAN in the Q3 last year, and significant incremental investment this quarter to support strategic growth initiatives in the U.S. and to accelerate the pivot to the digital streaming, with results expected to be materialized over the next few quarters. From a pure operational standpoint, adjusted EBITDA would have been stable compared to the same period last year, with higher revenues of 4.8%, mostly offsetting lower margin caused by increased investment in the U.S. and difference in product mix. During the Q3 of 2022, broadcast and commercial music revenues grew by 2.3% to CAD 41 million due mainly to higher advertising. As you know, Stingray is in the process of pivoting the business from traditional sources of revenues to high-growth, strategic digital revenues.
This transformation will allow Stingray to deliver increased profitable growth and ultimately improve the company's valuation based on higher margin profile of our growing digital business. One of the key assets that will enable us to achieve our goal is the recent acquisition of InStore Audio Network, the largest retail audio network in the U.S. and in the world, reaching 16,000 pharmacies and grocery stores. This acquisition, our second-largest in the company's history, with a total consideration of nearly CAD 60 million, complements our existing retail media network in Canada, with signed 2,300 locations, with a positive outlook to double in the next quarter. By combining this strategic asset with our existing platform, Stingray Retail Media Network is well-positioned to tap into the addressable market of 250,000 locations in the U.S. and Canada.
The benefit of InStore Audio advertising offers quantifiable and compelling value to consumer product companies. InStore Audio Network, for example, placed audio ads from Pfizer across the digital platform and network, helping pharmaceutical companies capture additional market share during the COVID-19 pandemic. Closely tied to the success of InStore advertising is Chatter Research, our insight AI-driven SaaS solution that uses SMS messages with non-purchasers and purchasers alike to provide better insight to retailers. During the last six months, we have secured contract with several leading global brands, including PINK, Victoria's Secret, Driven Brands, and Nike. We also hired seasoned executive to bolster Chatter's go-to-market strategy and sell the initiatives dedicated to customer experience and management. As a result, we are offering retailers a compelling value proposition with our digital media assets.
In other words, we're telling CMOs at the retail companies, "We'll take care of all your music, digital ads, and consumer insight needs with a one-stop-shop at Stingray." Another important segment driving our digital transformation is our SVOD. Subscribers increased to 692,000 in this quarter, adding 80,000 subscribers, an increase of 34% from the same period last year. Our bundle rollout, Amazon channels in Canada, Brazil, and Mexico contributed significantly to subscriber growth in the Q3 . Additional deployment of our SVOD strategy is gonna happen in the Nordic countries, Australia, and India, starting in Q4 2022. Looking ahead, we expect to hit our one million subscriber goal within the next 4-8 quarters. Turning to our radio business. Revenues improved 8% year-over-year to CAD 35 million in the Q3 of 2022.
This revenue growth, which outperformed radio peers in Canada, represents our strongest quarterly performance in the last two years. The outlook for our radio business remains favorable with end market recovery still not having reached pre-pandemic levels. In closing, our pivot towards strategic digital revenues is in full motion and gaining traction with the accelerated growth in new revenue streams, outpacing the drop of our traditional source of revenue. We expect continued progress on all our growth KPIs in the coming quarters as we further leverage our content in new channels, our digital insight, our advertising offering, and our worldwide relationship with top enterprise brands. With this, I will pass you to our friend, Jean-Pierre. Merci [Foreign language], Jean-Pierre.
Merci, Eric. Good morning, everyone. The gradual return to normal commercial operations, combined with increase in advertising revenues in Broadcast and Commercial Music segment, generate year-over-year revenue growth of 4.8% to CAD 76 million in the Q3 of 2022. In terms of our profitability, adjusted EBITDA decreased 16.1% to CAD 28.5 million in the Q3 of 2022. As previously mentioned, adjusted EBITDA increased year-over-year, mainly due to a one-time gain from SOCAN in the Q3 last year, and operating cost structure realigned with significant growth opportunity this year. From a geographic perspective, the United States became our second-largest market with 18% of total revenues in the Q3 .
Strong year-over-year growth of 28.1% in the U.S. was fueled by increased subscription revenues and organic growth in advertising revenues. Canada remains our largest market, accounting for almost two-thirds of total revenues with year-over-year growth of 4.2%. Revenues in other countries dropped 8.8% in the Q3 as lower audio channel revenues and unfavorable foreign exchange rate negatively affected our top line. Turning to our broadcasting and commercial music businesses, revenues improved 2.2% year-over-year to CAD 41.1 million in the Q3 , largely due to an increase in advertising revenues. Adjusted EBITDA for this segment decreased to CAD 14.6 million in Q3 2022 from CAD 21.9 million in the same period last year.
The CAD 7.2 million decrease can be attributed to the large gain obtained from the SOCAN settlement in Q3 2021, other costs related to the gradual return to normal business operations, increased U.S. investment, and a lower growth margin impacted by processing. Moving to our radio business, revenues increased 7.9% year-over-year to CAD 34.9 million in the Q3 of 2022. As Eric mentioned earlier, we're outperforming our radio peers across Canada, even though revenues are still below pre-pandemic levels. Adjusted EBITDA for our radio segment grew 9% to CAD 15 million in the Q3 , mainly due to higher revenues caused by the gradual easing of COVID-19 restrictions and return to normal commercial operations.
In terms of corporate adjusted EBITDA, we represent head office operating expenses less share-based compensation, as well as performance in different shared unit expenses, and amounted to -CAD 1.1 million in Q3 2022, compared to -CAD 1.7 million in the same period last year. The improvement in corporate adjusted EBITDA year-over-year can mainly be attributed to a special bonus given to employees in Q3 2021. From a balance sheet standpoint, Stingray had cash and cash equivalents of CAD 11.3 million at the end of the Q3 of 2022. Sub-debt of CAD 25.4 million and credit facilities of CAD 318 million, of which approximately CAD 120.7 million was available.
Total net debt at the end of the quarter stood at CAD 374.6 million, or 3.01 times pro forma adjusted EBITDA.
In summary, we have a solid balance sheet to support a strategic pivot towards becoming a high-growth digital intensive distributor of audio and music brands. This ends my presentation for today. I will now turn the call back to Eric.
Okay. Thank you, JP, for the quick summary. This concludes our prepared remarks. Thank you for your time and attention. At this point, Jean and I will be pleased to answer any question you may have.
I'll pass the call.
Thank you, sir.
Go ahead.
Thank you, sir. Just a reminder, everyone, if you would like to ask a question, please press star one on your telephone keypad.
Adam Shine.
We see Adam Shine and Tim Casey are waiting, so I'm not sure if you see them. Matthew Lee.
We can't hear him.
We can't hear Mr. Lee.
Mr. Lee, your line is now open. You may ask your question, sir.
Hi, guys. Thanks for taking my question. I don't know what just happened there. I wanna first ask about the ISAN acquisition. You know, based on the figures in the MD&A, it looks like you expect the acquired assets to drive 25%+ growth in FY 2022, or FY 2023 rather. Can you maybe talk about what's kind of driving that and what trends you're seeing in the out-of-home music industry in general?
Yeah. As you know, when we did the acquisition last year, their numbers were roughly CAD 18 million in sales, CAD 10 million in EBITDA, and we do see a growth of 25% this year on our book sales. The reason is very simple, more and more focus on vaccination with all pharmacies, not only for COVID. Vaccination for shingles, vaccinations for pneumonia, and most pharmaceutical and even cable companies realize the importance of being able to do ads in the store. Nothing better for Pfizer to say, "We strongly recommend the booster shot. Ask your pharmacist," "brought to you by Pfizer," in the pharmacy. Same thing for USPS, same thing for a lot of different products, Campbell Soup. We're very excited to see this, and we're launching in Canada.
Beautiful Canada, everything is gonna work. We just started in February with our retail network. I think it's gonna be a very interesting growth because we're a small number increasing quickly.
Great. Maybe on the radio side, did you guys see any challenges related to the COVID shutdowns in early Q4, or has advertising largely remained pretty strong?
Yeah. It's you know. We're pleased with our results. We've managed well the business, but. The COVID restriction has left the effect of still the supply chain. We're not seeing the car business isn't back like it used to be two years ago. If you ask dealership, every car is pre-sold, so there's no need to do advertising. Every car is pre-sold. For now, we'll have to see, but we're not seeing the car business back, and that's about 10% of our sales usually. That part we're trying to replace. For now, we're still seeing that negative wave against us.
Okay, great. Lastly, on subscribers, I mean, a really strong net add quarter. Can you maybe give us a breakdown of what propelled that, and then maybe some color on ARPU for the quarter?
Yeah. it's Roughly, we added 80,000 subs. This quarter is a strong B2B and B2C quarter. Our ARPU is roughly around CAD 7, so we're generating close to CAD 5 million a month if you look at a run rate basis, so very happy about that. For sure, the launch of Amazon Canada, Mexico, Brazil, a big win. Europe, a lot of our B2C products, Calm Radio, Qello. I must say we, the SVOD, as a macro, are still growing and will grow by double digits over the next 4 to 8 quarters just by launching new countries. Like we said, we're launching in the Nordics, we're launching in Australia, India, and other countries. So it's.
The beauty about the SVOD, it's the same product, so it's really leveraging the same units. The margins are high. It's a product with a very high margin for us and good contribution.
All right. Thanks.
Speakers, our next question from Adam Shine from National Bank Financial. Please ask your question.
Thanks a lot. Good morning. eric it was nice to see organic growth per your calculation at 5%. You talked about perhaps some momentum percolating in the business going forward. Can you give us a sense as to where this metric might trend over coming quarters? Is it potential that we start heading towards higher single digits, let alone into the double-digit zone?
I agree. You know, for us, the good news is that October, November, December or Q3 did not include any retail media and still not much of Chatter and not much of the ISAN, which is our in-store audio network in the U.S., which only gonna happen in Q4. All those three products are more than double-digit growth. I think this will have a very good impact, and I think we expect organic sales to grow, and I think that's where the pivoting is starting, and I think that the next few quarters will be instrumental to show the market that we're able to generate high organic sales.
If I go back to the other question on ARPU and SVOD, I am curious just in terms of the run rate, is the run rate now sort of stepping up into that CAD 58 million type zone? Because it appeared to have been stuck for a while below CAD 55 million. It sounds like you've finally broken above CAD 55 million on a sort of annualized basis. Is that a fair comment?
Yeah. Roughly our run rate for the end of December was about CAD 5 million a month, so CAD 60 million a year.
Yeah. Okay.
For sure, January, February, March, we lose a bit of subscribers on the B2C side, on the karaoke. But we're still gaining a lot on the B2B side, so we expect those revenues to continue growing. We're confident that this business in the next 4-8 quarters should be generating close to CAD 80 million a year. 1 million subscribers at CAD 7.
Okay. One question that you might need a little JP help potentially is when I look at page 18 of the MD&A, and I see the CAD 19.5 million as part of your leverage calculation, and this is sort of a bump to EBITDA, the CAD 19.5 million, I think, relates to sort of three items. One, it's obviously pro forma M&A, so I Send and maybe a little bit more of Calm in there. It relates to, I think, some assumption around synergies. Then it also has investments in associates. Can you just give me a little bit of help as to those three buckets?
Because I'm under the impression that the M&A contribution is maybe somewhere in a CAD 9.5 million type zone, and I'm curious about perhaps how the two other buckets break down.
Roughly for the ISAN deal this year, we expect with synergies close to CAD 16 million of EBITDA, and the other buckets are CAD 3.5 million.
Okay.
For sure, ISAN, we already see the synergies that are being done. We see the growth in sales because we're working together. It's something that we're able to, I think that the Q1 will be, sorry, their Q1, but now our Q4, January, February, March, is gonna be, because their sales are booked, a very impressive quarter for retail media in the U.S. I think that it will, the numbers are looking fantastic, based on our orders right now.
Okay. Okay, thanks for that. I appreciate it.
We're surprised how quickly we're able to create the synergies, both on the cost side and on the revenue side by working together.
Okay, great. Thank you.
Our next question from Tim Casey from BMO. You may ask your question.
Yeah, thanks. Just Eric, can you talk just going back to the subscriber growth in the quarter, which was quite strong. Are you able to give us a little bit more color in the cohorts and what they contributed? In other words, is most of that 80,000, is that Amazon launch or are you still growing in some of the other legacy channels? Maybe just a comment on how those legacy distribution channels are performing. Then on the radio side, how should we think about the margin profile there? I mean, are we completely past all the COVID noise with respect to you know, costs and subsidies and whatnot?
You know, where do you think you'll end up with kind of a normalized margin outlook for radio?
Okay. Thank you, Tim. Good question. For the SVOD, we have a very strong quarter of Amazon, so out of the 80,000 subs, almost half of it come from just Amazon. For sure we launched a bundle in Canada, which we call All Good Vibes. It retails at CAD 9.99 or CAD 10. It's a very good product for us, good RPU. roughly we maintain that RPU should be around CAD 7. About this quarter, about 30,000 subscribers came from our B2C platform because it's a big quarter. For sure, 80,000 is, we did 30,000 last year, we did 80,000 this year.
That's why we're very confident we're gonna hit the 1 million mark on subscribers with launching new countries and with the help of Amazon. There's no doubt that it's a great partner. For radio, I think we maintain our 40% EBITDA margin. This quarter, we had less and less COVID help. I think for the radio side we keep the cost side very, I think, compared to our peers, we're a good management team. For sure, the two things that are not helping us is that people are still not going to the office in their cars in the morning, so the results are still perceived by the advertisers as we're not back until people start driving to the office, and B, it's the supply chain.
On that side, we need people to go back to their offices and we need traffic in Toronto in the morning. Maintain a 40% EV/EBITDA margin.
Right. Okay. That's good for me. Thank you.
Thanks, Tim.
As a reminder, everyone, if you would like to ask a question, you will need to press star one on your telephone. Speakers, our next question from Drew McReynolds from RBC. You may ask your question.
Yeah, thanks very much. Good morning. Just following up on Tim's margin question, just shifting to broadcasting commercial music. Is the 36%-38% range still relevant? I just got two others. I'll let you answer that one first.
Yeah, for sure our margin is being affected. You know, we're investing right now, like we said, CAD 1 million per quarter in the U.S. market, in retail media in Canada, and with Chatter. Large investment in Salesforce, in marketing. If you put that as CAD 4 million a year, that has an impact of about 4% on the EBITDA margin. I think we're closer to 36% for the next few quarters until we start realizing the return of these sales or of our investment, which we feel is not a matter of years. I think that this quarter in January, February, March, in Q4, we will start having some nice revenues that we'll be able to show the market that our investment has been wise.
Got it. Thank you. Two others for me. In terms of following up on the previous COVID impact question, on the commercial music side how much fully back to normal is that? Like, obviously, with some retail closures, there's still that. But assuming we're in the clear, and I know that's a big assumption, is there any material headwind from COVID on the commercial music or Stingray business side? Second one, following the ISAN acquisition, just where is your mindset here on additional M&A and opportunities? Because obviously that was a little bit of a bigger one to digest. Thank you.
Yeah, good question. For the commercial business, I'd say 99% back. In January, February, a bit in Europe, but not material. On the opposite side, the good news is, like we see with our retail business, our audio retail, pharmaceutical are aggressively doing marketing. More and more people are doing marketing in stores. People are doubling down on their investment in Chatter and in all our products. No, I'd say we're probably back to 100% plus because we're getting the investment that wasn't done in the last two years. Just for ISAN, which is the In-Store Audio Network, that's our little acronym. Last year's sales they did was $15 million, so CAD 18 million, but their inventory is $80 million.
There's $70 million for us to sell in the U.S. that it's not sold. That's our first priority. The potential of ISAN with the current 16,000 locations is CAD 100 million. We have a lot of growth there, just tapping the existing retailers in the U.S., and that's why we're very focused. Our number one priority at Stingray right now is selling those ads in the U.S. We're doing North American deals. We're talking to big brands, Procter & Gamble, Coca-Cola, Pfizer, and we're working on both Canada and U.S. deals. The synergies are coming very quickly.
The reason why it's so new and doing well because all of our boxes are connected, and we're able to do ads just like we do, I guess, on the internet and on mobile. We're able to do targeted ads, change them every day, at the time that the advertisers wanna do it. I think that offering is really getting traction, and we're seeing it in the January, February, March, in the Q4 sales. That's why we're so confident on organic sales over the next few quarters.
Yeah, that's great color. Thank you, Eric. Just on additional M&A in that pipeline.
Yeah. This one is a big M&A. I think we have a lot of synergies to attain both, mostly on the revenue side. Like I just mentioned, we have CAD 70 million of unsold inventory that we wanna capitalize on. I must say we need to deploy and change a lot of their machines to our system and all that. There's a lot of IT work needs to be done. I would say for the next few quarters, we're digesting this acquisition unless something very interesting, like we're always open. The ISAN deal was interesting. We met them. We closed this deal in 24 days. We've been talking to them for two years, and then boom. In 1 month, we talked, the timing was good.
They wanted to close before December 31, and we did. There were 68 companies that were lined up with the bankers for ISAN. They chose us 'cause we're strategic. I think it's a good fit, and I think you'll be, the market will be very happy with the results of this acquisition and the return on equity.
Got it. Okay, that's great. Thank you very much.
Thanks.
Speakers, there are no further questions at this time. You may proceed.
Hey, thank you very much for joining us today. I know it's an important quarter because it's a big acquisition. There's a lot of pro formas. I'm excited to show the results and some good news in the next few weeks, months about our deployment of all the new strategies. I think that will bring a lot of clarity to the market. Thank you for your time, investors, shareholders, and analysts.
This concludes today's conference call. Thank you all for joining. You may now disconnect.