Good day, ladies and gentlemen, welcome to the Stingray Group Inc Q4 Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question -and- answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, June 7th, 2023. I would now like to turn the conference over to Mathieu Péloquin. Please go ahead.
Thank you very much. Good morning, everyone. T hank you for joining us for Stingray's Conference Call for the Fourth Quarter, ended March 31, 2023. Today, Eric Boyko, President, CEO, and Co-founder, as well as Jean-Pierre Trahan, our CFO, will be presenting Stingray's financial and operating highlights. Our press release reporting Stingray's fourth quarter and annual results for fiscal 2023 was issued after the market closed. Our press release, MD&A, and financial statements for the reporting period are available on the Investor website at Stingray and also on SEDAR. I will now give you the customary caution that today of the corporation's performance and its future prospects, mainly including statements. The corporation's future operation and performance are subject to risks and uncertainties, actually, differ materially.
These risks and uncertainties include, but are not the risks identified in Stingray's annual information form, June 6th, 2023, which is available on SEDAR. The corporation specifically disclaims any intention or obligation to update these four statements, whether information, future events or otherwise, except as may be required by applicable law. Accordingly, you're advised not to place undue reliance. Also, please be reminded that some of the financials discussed over 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. 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 Mathieu. Good morning, everyone, and welcome to the fourth quarter and full year conference call. For fiscal 2023, we have proven to be a transformational year, with the InStore Audio Network, ISAN, becoming a cornerstone of our broadcasting and commercial music segment, and the streamlining of operation, sharpening our focus on key high-growth drivers, including free ad-supported TV channels, in-car entertainment, B2B-driven subscription video on demand, SVOD, and retail audio ad network with Stingray Advertising. Our team has yet again shown its agility and focus on financial discipline by generating approximately CAD 12 million in annual cost savings, by narrowing our focus on the previously outlined important growth initiatives. This contributed to increasing our revenues 14.6% to CAD 323.9 million in 2023, while adjusted EBITDA improved 15% to CAD 114.1 million.
Equally important, these actions have positioned Stingray for sustainable, long-term, profitable growth. Broadcasting and commercial music revenues grew by 22% to $195 million in 2023, primarily driven by the ISAN acquisition, increased equipment and installation sales related to digital signage, in-car revenues increasing and positive FX impact. These factors were offset by a planned decrease in B2C and music video on demand revenues. We intend to expand our market presence in 2024, both in the U.S. and Canada. In the U.S., the retail market is larger and more mature than in-store. Digital audio advertising have been around there for 20 years. Given our leadership's position south of the border, our strategy mainly involves leveraging our existing relationship and increasing market penetration with current and new customers. In Canada, we're progressing well, securing renewals and new customers.
We expect to be able to secure a true coast-to-coast footprint with additional brand locations, which will serve nationwide advertising campaign in the coming months. We are the world's FAST channel dedicated to trivia, contracting third parties to resell on certain visitors, enabling us to better monetize our content for connected TVs. We are equally optimistic about growth opportunities for our in-car entertainment segments. Sales of this business typically increased in 2023 through our organic growth at Tesla and VinFast, a new electric car manufacturer. We recently signed agreements with two leading technology companies, automotive sector, to bring our popular Stingray Karaoke product to select Audi models in the upcoming year.
This represents a key milestone for Stingray as we strive to become the de facto entertainment option to the connected car industry. In the B2B-driven SVOD space, we continue to expand in new regions such as New Zealand, Poland, and the Northern countries. Subscription were slightly up a sequential basis at 815,000 subs in the fourth quarter, which is based always on the after the holidays. Moving on to radio. Revenues progressed 4.2% year-over-year to CAD 128 million, largely due to growth in local airtime and digital revenues. The automobile industry, which has historically been an important source of revenue for our radio business, has slightly from supply chain issues with inventories increasing in the car dealership across Canada.
As a result, we're confident our radio business will continue to provide steady growth in 2024 and beyond, despite unpredictable economic landscape. Looking at 2024, we intend to excel with existing customer and secure new accounts to grow our broadcasting and commercial music business, which right now is on a, on a run rate of EBITDA of CAD 20 million a quarter. We will continue generating healthy cash flow from our radio segment to fund our growth strategy. We will also maintain our financial discipline to keep our consolidated adjusted EBITDA above 35%. Reduce our debt level to create asset flexibility in order to target acquisition and opportunistic basic. To sum up, the future looks promising for Stingray, with ample room for expansion and strategic growth. Revenues have reached 50/50 parity, cash flow revenues from traditional cable and radio activities.
I will now turn our call to our Jean-Pierre for a financial review.
Thank you, Eric. Good morning, everyone. Revenues reached CAD 78.9 million in Q4 2023, up 8.7% from Q4 2022. The growth was primarily due to the higher ISAN sales and higher equipment and installation sales related to digital signage, greater radio reviews, and a positive foreign exchange impact. Revenues in Canada improved 7.9% to CAD 43.6 million in the fourth quarter of 2023. The year-over-year increase can be attributed to growth in radio reviews based on higher digital sales and higher equipment and installation sales related to digital signage. Revenues in grew 14.7% to $22 million in Q4 2023, on the strength of the ISAN acquisition and a positive foreign exchange impact.
Revenues in the other countries increased 1.9% to CAD 13.3 million in the fourth quarter, largely due to a positive foreign exchange impact. Looking at our performance by business segment, broadcasting and commercial music revenues rose 9.8% to CAD 50 million in the fourth quarter of 2023. The increase was primarily driven by higher equipment and installation sales related to digital signage and a positive effect impact. Radio revenues improved 6.7% year-over-year to CAD 28.9 million in Q4, largely due to the growth in local airtime and higher digital revenues.
In term of profitability, consolidated adjusted EBITDA in the fourth quarter increased 26.4% to CAD 26.6 million on higher revenues, combined with a lower operational cost base, especially in the broadcasting commercial music segment, following cost-saving initiatives implemented in fiscal 2023. Consolidated adjusted EBITDA margin reached 33.7% in Q4, compared to 28.9% in 2022. As mentioned, last quarter, we made the difficult decision to streamline less profitable business lines and improve profitability, we're well positioned for sustained profitable growth in 2024 and beyond. By business segment, broadcasting and commercial music, adjusted EBITDA increased 40.6% to CAD 20.4 million in the fourth quarter of 2023, mainly due to an improved gross margin, supported by higher revenues and lower operating expenses.
Radio adjusted EBITDA, meanwhile, decreased 2.3% year-over-year to CAD 7.7 million in the fourth quarter of 2023. The decline can mainly be attributed to the effect on a one-time allowance for doubtful account, actual reversal in Q4 last year. In term of corporate EA, we represent head office operating expenses, less share-based compensation, as well as performance and different share unit expenses, amounted to a loss of CAD 1.5 million in Q4 2023. Stingray reported a net income of CAD 4.4 million or CAD 0.06 per value to share in the fourth quarter of 2023, compared to CAD 4.5 million or CAD 0.06 per value to share in Q4 2022.
The decrease was mainly related to higher interest expense, as well as a lower gain in the fair value of derivative financial instruments and on the fair value of contingent consideration. These factors were partially offset by higher operating results. Adjusted net income totaled CAD 14.7 million or CAD 0.21 per diluted share in Q4 2023, compared to CAD 11.8 million per diluted share in the same period of 2022. Turning to liquidity and capital resources. Cash flow generated from operating activities amounted to CAD 27.6 million in Q4, compared to CAD 22.1 million in 2022. The increase can be attributed to improved operating results. Adjusted free cash flow totaled CAD 14.9 million in Q4, compared to CAD 11.8 million for the same period last year.
The increase was mainly related to improved operating results, partially offset by higher interest paid. From a balance sheet standpoint, Stingray had cash and cash equivalent of CAD 15.5 million at the end of the fourth quarter, supported a debt of CAD 25.5 million, and facilities of CAD 361 million, of which CAD 68.6 million was available. Total net debt at the quarter end stood at CAD 371.1 million, or 2.19x pro forma adjusted EBITDA ratio. We repurchased 53,000 shares for a total consideration of CAD 300 thousand on our normal course issuer bid program in the fourth quarter. For full fiscal year, we repurchased 786,000, CAD 4.4 million. This ends the presentation for today. I will now turn the call back to Eric.
Okay. Thank you, JP, and thank you for the presentation. On behalf of the entire Stingray team, thank you for joining us on this conference call. We look forward to speaking with you again following the release of our first quarter results for fiscal 2024. Okay, questions, please. Sorry about that.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. First question comes from Matthew Lee of Canaccord. Please go ahead.
Hi there, thanks for taking my question. I just want to talk a little bit about the advertising revenue in the commercial and broadcasting segment. Was there a little bit of seasonality there? I mean, Q4 kind of came down quarter-over-quarter. Maybe just talk about what you're seeing for 2024 and what type of growth you're expecting on that side of the business.
Just like radio, for sure, October, November are big months for radio and also for advertising for Stingray, for commercial and broadcasting. For this year, good question. We expect still good growth. We expect between anywhere between CAD 50 million-CAD 60 million or a 40% increase in our advertising in the Stingray broadcasting commercial.
Okay, that's great. Maybe in terms of capital allocation priorities, you know, debt reduction feels like it's a priority right now, M&A as well. Maybe, you know, is there an opportunity to raise the dividend or buy back more shares in 2024?
Yeah, no, our first priority is to bring back at that level below 3. We expect to be there by the end of the year. We expect to be well below three by the end of the year. Again, our goal is to be closer to 2.5. Right now, that is our first priority. For sure, depending on the stock price, or we have an NCIB program that we can establish. We're committed to again, to be below three for the end of the year. That is our first priority with interest rate rising and also to give us more flexibility. Don't forget, we just did a $60 million acquisition last year, which we paid.
Right now we want to refocus on paying that acquisition quickly on our debt.
Thanks so much. I'll pass the line.
Thank you. Thank you.
Thank you. The next question comes from Adam Shine of National Bank Financial. Please go ahead.
[audiodistortion]
Yeah, well, JP will get back to you, our FAST channels and our SVOD are still growing in Q4. Let me revise that. We had a strong ENL, for sure, equipment and labor of CAD 5 million in this quarter. No, we had The big factor for us, as you know, we're putting a lot less focus and investment in B2C. User acquisition costs after COVID went very high, we saw it with all our peers. That's the major impact. The rest of the broadcast business, all units are increasing.
Okay. When you talk about margin staying above 35%, obviously, you know, 35% or at least 35% was the objective which you reached in F23. Do we expect any potential margin expansion above the 35.2% level of fiscal 2023? If so, maybe you can talk a little bit about the puts and takes.
Absolutely, the broadcasting business and commercial music is roughly above 40%. As we do more and more sales in broadcast- and less and less sales in radio with lower margin, that margin will go up. The broadcasting margins that I think it's while explaining, will only continue to improve with scale. The more we do sales, the more gross margin increases and the more our EBITDA margin increases. I think we should expect it to go up again, depending on radio. Radio is again fluctuates a lot like you saw in Q4.
Okay. Just lastly, are you seeing any recessionary concerns, you know, yet, you know, heading into your Q1 of the new fiscal year, or anything, conversations with clients?
No, no. So far I must say, Q1 has been on the radio side, very stable. Nothing that we've seen in the radio business, which a lot of people ask me because they see that there's. We've even seen in the last three, four weeks, surprisingly, pick up in national sales. What we're seeing is that sales are coming in more last minute, mostly national sales than before, we're happy with that. With the retail media, that business is, you know, a lot of new customers, expanding. We have some large customers, depending on when they, you know, that we get an annual budget, they decide which quarter.
Very confident, like we mentioned before, with our friend Matthew, to achieve a 40% advertising on the Stingray and commercial music.
Okay, I'll leave it there. Thanks for that.
Thank you, Adam. Always, thank you.
Thank you. The next question comes from Scott Fletcher, CIBC. Please go ahead.
Hi, good morning. I wanna follow up on that 40% number. I think last quarter you were talking about 25% growth or 25% plus. Has there been any material change that makes you more confident in faster expected growth there?
Yeah, it's just that last year for retail media in Canada, we were building a network. We're very confident in the next even weeks, that we'll be expanding with a few new retailers. That's why we're confident to really increase our sales in Canada by a big multiplier. The U.S. also, we've got great momentum. We are the big sales group. We're hitting a lot of new customers, and we're leveraging, you know, if our inventory in the U.S., if we were able to sell 60%, 70% at a good CPM rate, above $500 million. Our goal right now is just how can we sell that inventory that we already have? That's why we're positive on that segment growth.
Okay.
Good question. The biggest issue with the retail media advertising, is about evangelizing the market. It's not about recession, it's not about budget, it's people getting used to doing ads and on radio or doing ads, you know, Spotify is doing that. But I think we're getting there, customers, next few quarters.
Yeah, you're, you actually sort of touched on what my next question was gonna be. When you're in the process of evangelizing the market, have you sort of? Is the sales strategy evolving? Have you changed anything? Are you seeing anything more effective or less effective? Maybe just an update on that, you know, qualitatively.
The most important, we started in Canada 1 year ago. We're getting sales that we met 9 months ago. We're building the network, the best news is, if you go more and more in stores, we have customers that once they come on board, they repeat every month. You can imagine the, you know, the lottery gaming commission of every province, a lot of food. That, for us, that's the good news. The same in the U.S. In the U.S., our customers are 98% recurring. Our goal is to get more new customers.
Once the customer comes in and our retention rate is very high, so, just to convince them, evangelize them, that it's a new network and, that has never existed before in North America and even in the world, so.
Okay, thanks. That's really helpful. I'll pass along.
Thank you, Scott.
Thank you. The next question comes from Tim Casey, BMO. Please go ahead.
Yeah, thanks. Eric, can you add a little color? It seems like your outlook in D&C is that in the U.S., you want to take more wallet out of existing customers, but in Canada, it's about expanding your customer base. Have I got that right? could you.
Yeah.
sort of fill that out a bit? Like, what, why not more customers in the U.S.?
Yeah. Just to mix up, because we got retailers and then we have advertisers, because we call them, they're both customers, technically, for us. In the U.S., we've got 16,000 location, and if you put dots, we cover the whole country, so we have a nationwide network, and a lot of customers wanna be able to just do an ad for the nationwide. In the U.S., it's really about getting more advertisers. Just to confirm that, for sure, we want more advertisers and we want a bigger diversity. That's why we hired a new sales team that's focused more on the keys and the Procter & Gamble and the Colgates of this world. In Canada, the issue we have is we're not yet national.
You know, for sure, we're with Walmart, with Dollarama, we're with Metro. If you look at the grocery market, which is key, we're still a bit Quebec-based. You could debate if Walmart is a grocery store or not. We're, hopefully, in the next few weeks, we'll be adding some new grocery chains and some new pharmacies across the country. Advertisers wanna be able to do national ads in Canada. We're, we're building our network on that side. Does that answer the question, Tim?
If we tie that back to your 40% growth in advertising, is to reach that growth rate, we're going to need to see you signing up more Canadian grocers and drug retailers. Is that fair?
Yeah, I think that will help a lot. Even right now, in the first, we're already two months in the year, last year, we did our sales in Canada were minimal, at $1 million, $1.2 million. Already in the first two months, we've already doubled the sales for this year. Again, it's even without new retailers, we doubled in the first two months, our booking for this year compared to last year. The growth in Canada is not to go, it's not by 40%. The growth in Canada is we're looking at 500%. And more, we'll see. We're finally seeing momentum of sales every week and new customers and repeat and larger orders.
Most of the orders last year, people were testing us. You know, they gave us a small order of CAD 50,000, CAD 25,000, CAD 75,000. Now we're finally getting orders in Canada of CAD 300,000, CAD 400,000, CAD 500,000, which is showing confidence. Excited to see the growth in Canada also. For sure, the U.S. market is bigger. In Canada, we, as you know, we dominate the market with 60,000 locations that we have our boxes, so it's a great niche for us.
Thank you. Second one was thinking about the SVOD expansion strategy. You've been saying that D&C is, you know, too expensive, but is the million sub target still in line or, you know, is that?
Yes, great question. The question is absolutely, yes. The U.S. growth has slowed down a bit, so our SVOD in the U.S., our product has been... With the launch of Amazon, of I think this year, we're launching with them in 12 countries. We've also launched our SVOD services with the people from YouTube. That was the launch about two months ago. We've also launched with Verizon, with a bundle service of SVOD. Because of our growth of new territories, expanding new customers, we know we maintain that goal, and I think that it could be achievable over the next four to six quarters. Also we're launching new products. As you, we're also launching a meditation-type product or a bit in the, in the style of Calm Radio.
That also is, we're able to add new products, add new territories, while the U.S. market, and I think the B2B, I think that all SVOD market worldwide is stable, but we're lucky with the new territories.
Okay, thank you. Last one for me, just revisiting the capital allocation question. Should we assume that, you know, other than very small tuck unders, M&A is pretty much off the table right now, then, that the number one priority, really, the only priority is debt reduction in this current environment?
Yes, as you can imagine, the interest rate and inflation is hitting all companies in our sector. A lot of, I guess, competitors, smaller, bigger, are in strategic process, so there might be some easy tuck-ins. If not, absolutely, our goal is to be well below 3 by the end of the year. Targeted to be 2.5. JP, I think if you wanna, how do you feel about the CapEx and the rest?
As Tim, CapEx for this year, it's gonna be the same, CAD 8 million. Tax, again, we expect to pay CAD 4 million in this fiscal and the same for next year, because interest is deductible. On the interest side, we paid CAD 2.3 million in May, so if you do the math, it's gonna be around CAD 26 million-CAD 27 million next year.
Got it. Thank you very much.
Also we did fully pay all of our, and you'll see next quarter, all of the earnouts were paid this quarter, so there's no more earnouts in our books.
Yeah, we paid around CAD 20 million in Q1 to finish all the earnouts, ISAN.
Correct
All of our deals. That's good news that we're able to pay off our deals quickly, and now we can focus on.
Everything's paid.
On debt reduction.
What was that number on earnouts that was paid in Q1?
20.
On it?
$20 million to the earnout in ISAN, mostly.
No, there's no more, none more remaining?
No. Just small charter, but it's minimal.
Thank you.
Thank you, Tim, as always.
Thank you. The next question comes from Drew McReynolds of RBC Capital Markets. Please go ahead.
Yeah, thanks very much. Good morning. Eric, on the connected car side of the business, just remind us, you know, how you size up that market, and obviously, you're looking to do and have done some more partnerships. What's your expectation to grow this business, say, over the next two to three years? Thanks.
You know, the board asked the same question. You know, every deal, right now, we're a run rate. We're doing about CAD 8 million for this year for the car business. Every deal that we do, it's in the tens of millions of CAD because they're long-term deals and for sure. We've presented the car business to the board, and one of the board members said, "I think I can see you're talking to every car company in the world, and we're in negotiation, and we're in contract." I think for you as analysts, it's gonna be interesting to see that the deals that are gonna be announced in the next few months. All these deals are long term.
Some car manufacturers are starting with zero cars. Some are starting with Tesla, which was already at almost 2 million cars. You know, I think what's gonna happen is the car will replace the cable, with the paying for Wi-Fi at $15, $20 a month, $25 a month. They're gonna offer a bundle of service, and in that bundle, just like on TV, you're gonna have karaoke, and you're gonna have music. Stingray is the only company in the world positioned with the car companies to offer them a global, because we're in 100 countries, we're the largest karaoke catalog in the world, with 100,000 songs in 48 languages.
The car people like when you're Tesla, when you're Mercedes-Benz, when you're BYD, when you're Ford, when you're GM, you want able to have a international presence. Also, the advantage of music is very complex. In the U.S., it's complex. In Canada, it's very complicated. Imagine controlling all the rights worldwide. Stingray, we've become the best company in the world at managing music rights, and car companies are working with us because they realize that it's complex, and if you make a mistake, it's expensive. We're in a right licensing. We have a net advantage of being the only player right now, bidding for that business. You can say, what about Spotify and other players? They're B2C. When you're B2C, you don't think B2B.
We have the advantage of thinking B2B, thinking about white labels, thinking about how we can be partners and adapting our product and content, and that's what makes us unique. For sure, I think in the next three quarters this year, we'll have much more visibility. But the car business, you know, it's now 200 million cars a year, so do a monthly rate on that, the numbers are huge. And everything is gonna go EV. Everything's gonna be connected, everything will have a screen. Like, we know we have to say thank you to Elon Musk because he put that screen in Tesla, and one day said he wanted karaoke, now we've become a basic product.
Very helpful, Eric. Thank you for all that.
Any more questions, Drew?
No. Thank you for all that. Very helpful.
Thank you.
Thank you. There are no further questions. I will turn the call back over to Eric Boyko for closing remarks.
Yeah, I always want to say thank you to the analysts to take the time. I know you're very busy with many companies, so I appreciate your time, your questions, and your reports. Thank you for everybody on the call. I appreciate your presence. Again, for the whole Stingray team, you know, I think we're happy with our strong year, and I think we're well positioned for another strong year next upcoming year. So thank you for all the Stingray team and all of our investors.
Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.