Destiny Media Technologies Q3 2024 Earnings Call - Platform Investments and New Radio Tracking Product Aim to Drive Growth Despite Flat Revenues

Rebecca, Moderator/Call Coordinator, Destiny Media Technologies: Everyone, thank you for joining us on today’s webinar. Before we begin, I would 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 the 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. Such risks are fully discussed in the company’s filing with the SEC and CEDR. 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 for, 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 CEDR. The non-GAAP financial measures used in the company’s presentation 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. Also, I’d like to mention that following the presentation, there will be a questions and answers session during which you can submit questions by selecting the raise hand icon at the bottom of your screen.

Your questions will be pulled in the order that they are 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.

Fred Vandenberg, Chief Executive Officer, Destiny Media Technologies: Thanks, Rebecca. Thanks to everyone joining the call. I’ll just get into the quarterly results. Year-to-date revenue is up 2.5%. Still, there was a slight decline in Q3 of 1.9%. Total year-to-date customers have increased by 4.9%, and there’s a 1.9% increase in new customers. There’s a 1.4% increase in total customers. The decrease really in Q3 is a result really of a small decline in U.S. independent spending per release rather than the total number of customers. Expenditures increased by 21%. About half of this increase is non-repeating litigation costs, and about half of it is non-cash amortization. There’s also a 3.5% increase associated with the R&D infrastructure that isn’t currently revenue-producing. It’s associated with some of the investigations that we’re doing, some of the analytics that we’re doing, and I’ll talk about.

These costs are not necessary for the core business as it stands and are really undertaken to have a longer-term revenue increase. EBITDA is just about, it’s a little bit positive, $37,000, and we’re really operating at a positive cash flow, slightly positive cash flow at the current time given our spending on the litigation and capital investments. We continue to invest for scalable growth. If we break our target markets down, we really break them down into new markets and established markets, and then we separate those markets into larger business development-focused clients that we invest in the platform to address, and then the smaller clients that have more programmatic sales. We’re very close to providing an automated, fully automated release preparation and payment process for the smaller clients where we’ll just support those with localized websites, local ads, local recipient lists, and combined with some platform investments.

I think one of the things that we’re really quite excited about is during the quarter, we’ve launched a new product called MTR, and that’s really the radio tracking service. We’ve begun during the quarter to combine the data that is received within MTR and the data that we have with Play MPE. And we’ve got some really good insights. There’s a bit of challenge in doing that because Play MPE is recipient-focused in contrast to MTR, which is station-focused. Play MPE distributes to many more people than just radio, and these people at radio represent different stations, maybe more than one station, or maybe there’s more than one person per station, but we’re connecting that data. We’ve created some really interesting analytics that we want to use in two different ways.

Things like we’ll know what time a release is made and its impact on whether it’s successful or relationships to success. There are some inferential analytics that show how Play MPE impacts a release. You’ll see some greater success with announcements within Play MPE. Each Play MPE release has approximately 3.5 social media links. We also implemented during the quarter a tracking of the clicks on those links. We’ll be able to report on that and then demonstrate relationships between that announcement and social media impact. We’re not aware of anyone else that does this or can do this. The same thing with MTR. There’s not a promotional platform that also tracks the airplay data. At least we’re not aware of one. I think this is really valuable information to our customers that we think will play a part in our revenue growth going forward. At least that’s the hope.

We’re talking with our clients to see what information they would really find useful or valuable. It’s potentially something that will grow. We’re addressing those larger critical clients, the Walmarts and the mall kind of clients. I think we can package it up as a sellable product. We’re just building up these case studies. MTR connected data with Play MPE is, I think, a very valuable source of information. MTR itself is growing, but the revenue is immaterial at this stage. It’s potentially a very disruptive technology. We have larger clients that provide charting type services that have a smaller coverage base. They provide reporting on fewer stations. What they do is they provide charting information that shows a relative performance, how your track is doing relative to other tracks out in the market. You’ll see like the Billboard Top 100 kind of information.

We don’t have that at this stage. We don’t have the content to do that. MTR could do that and could do that on a global basis. It would be a matter of investing in that to do that. That’s really our plan to grow at this stage. We’re reinvestigating what it takes to grow. We’re going to be critically looking at investments going forward and whether we pursue these things. With that, I will turn over to questions.

Rebecca, Moderator/Call Coordinator, Destiny Media Technologies: Great. Thank you, Fred. Now we’ll begin our question and answer session. If you have a question, please use the raise hand option at the bottom of your screen, and your question will be pulled in the order that they are received. If you raise your hand, please ensure that you do have access to a microphone. If you wish to retract your question, please just click that raise hand icon again to lower your hand. Your camera will remain off. Once prompted, you can unmute your microphone before asking your question. There is a question from Thomas. If you want to go ahead and unmute your microphone.

Hello?

Hi.

Hi.

Fred Vandenberg, Chief Executive Officer, Destiny Media Technologies: Hi, Thomas.

First question, I think you guys forgot to upload the Q2 video on the website for investors. I wanted to look at it and never found it. Okay.

I’ll take care of that.

Will the CFO participate in next earning calls? Or what’s her objectives in the company? I know you haven’t really touched this subject. She’s kind of new, but can you just give us a little bit of information on her background or what you hope she’ll bring to the team?

The investment in a CFO is designed to provide critical financial information. We’ve already been catching up on some tax-related issues that we’re dealing with or compliance-related information. Asel will be working on strategic financial information to help us grow. I haven’t really thought of bringing her on the calls going forward. I actually would probably bring in Andrea Monday, who heads up our operations.

Is Andrea Monday supervised sales and marketing as well or can’t remember?

That’s right. That’s right.

Okay, do you think sales and marketing line item will increase?

We have recruited, we invested into more business development staff during the quarter. I suspect it’s just going to be a small increase in the cost associated with that. It’s really just finding the right people to reach out to the critical clients. The way we grow, it’s kind of in two ways. I tried to explain that there’s the programmatic marketing-related sales that we’re supporting with the self-serve checkout feature that we’re working on. That’s really the smaller sales in all the markets where we can address independent use. The business development people are really focused in on your strategic content, the larger customers, the major labels that in itself will drive use of the platform. For example, a new market for us or a market where we can expand would be into rock or rhythmic or urban music in the U.S.

We have some presence there, but that’s an area where we really want to target. Having the right business development people to address and reach out to those people is critical. We also think the investments that we’re making into reporting and the really interesting analytics that you’ll see within the platform will help drive sales there. We think there’s a lot of things that we can add reasonably easily, and it’s a matter of just trying to figure out what those clients really need to see.

What proportion of sales and marketing is more like business versus trying to?

That’s a good question. I mean, business development is really, I would say, three different things. It’s marketing, business development, and then sales. I think we’re probably evenly split in the investment between sales and marketing.

If I could rephrase, how much is, what proportion is dedicated, if I can say, to major labels versus independents?

Like I said, it’s probably half and half. Yeah.

Okay. Can you remind me how much was invested to build out MTR total, like in CapEx or?

I don’t know that number off the top of my head. I would guess it’s around... I don’t want to speculate on how much that was off the top. I can get that number to you.

I guess I can reconcile myself.

You’ll see capital investments, but it’ll include a number of investments that have nothing to do with MTR.

Yeah.

MTR certainly has not shown revenue to date that would justify its capital investment, at least not directly. The benefit of it, though, I think is more prospective. It provides support for Play MPE’s relevance itself, so it’ll help in sales of Play MPE. It is a potentially disruptive product itself. If we could do charting on a global basis, that would be a very significant high-margin business. The landscape there is getting quite competitive. Apple even launched a free, very rudimentary reporting service for it, but we’re a small company. Our MTR provides a bit more and different information, but Apple’s version is free, so there’s a little bit more competitive landscape with MTR. It does help us with Play MPE sales, and I still think that there’s some potential to be disruptive in the marketplace for MTR.

Is the momentum, if I can say, really quite there yet? Was MTR built on what we thought would be useful or based on customer requests, and how much did customers involve in just choosing at least the basic features to start off with?

Oh, I mean, it’s both based precisely on customer requests. Yeah, we listen to, we don’t build things without customer feedback, without looking into what customers really want. That’s going to be true with reporting within Caster itself. We really need to know what’s going to make a difference to their daily lives to grow their use of their value of Play MPE. Same held true with MTR. Our customers were customers that wanted this type of service that had no option for it. That is really, you know, it’s not really a competitor. I think Mediabase thinks we’re a competitor, but Mediabase is the charting provider. They provide a very expensive review of airplay. It’s very detailed. It’s very expensive, but it provides detail that isn’t really necessary for a lot of the smaller clients, and that’s who we built MTR for.

You’ll get in MTR, in contrast to something like Mediabase, you’ll get airplays of your track and your track only, whatever you are subscribing to, whereas Mediabase provides airplays of the whole panel, the whole chart. We also provide a larger set of radio stations, so a much broader coverage of the United States, for example, than Mediabase would. This is in direct support of those smaller clients. In the process of building out MTR, the competitive landscape has increased. It wasn’t just us that identified this as a target market or an addressable market. Our revenue is growing and small, but it also provides some really fantastic information that combines the promo part of Play MPE with its success at radio. You’ll be able to identify, you know, like what I said earlier, is that if you release a song at 9:00 P.M.

on Tuesday, you know, that seems to be the greatest success so far. It also shows, it highlights that there’s a very high correlation between downloads and airplay. Downloads from Play MPE and airplay, really high impact of secondary announcements and high impact of including metadata within your release in Play MPE. There’s all sorts of really interesting data points that we can leverage at least into sales of Play MPE. That way we just created those this quarter. In fact, after the quarter, it was completed, but we’re still working out on the data on that. It will help, it should help Play MPE revenue.

Thank you. I guess I just have a hard time reconciling, like total, if I just circle back to your sales and marketing, like total amount I was spending the last four years versus the incremental revenue that it generated. I know things take time. I know on the product development side, it takes time to develop things and sell it. I don’t know, I feel it’s hard to convince other investors to look into the story when it feels like there’s a ton of costs that are being shoved in, not shoved, but invested in sales and marketing, but that there’s not much incremental revenue that’s being generated out of those.

There’s a certain amount of sales and marketing that is necessary to maintain revenue. I think it’s a fair comment. We haven’t seen the growth that we have wanted. We have adjusted our investments there. I think your comment is, it’s one I feel myself, but we’re trying to improve that. I think the analytics, the reporting features that we’re working on in platform is something that is new. We hope to channel that into a higher revenue growth. Ultimately, the proof will be in the pudding in the next little while about whether those investments will pay dividends. We’ll make that assessment. We’ve engaged an outside consultant to take a critical look at our strategy, and we’ll be receiving a report later this year, this calendar year, just to see if there’s anything we’re missing or different approaches or whether we should reduce investments for growth.

I see. Is it on the whole business or just?

Yeah, it’s on the whole. It’s holistic, yeah.

Okay. I see. It feels like it’s more like the product is most often the bottleneck, and that the hope is always based on the next couple of iterations of the product.

Yeah, I mean, I think that’s fair. We’re a bit long-winded in addressing those product features. I don’t want to bring up too much from the past, but there was a fair amount of technical debt in moving program languages. That’s an investment that’s required that we were behind on. There’s technical debt. We also really built out the platform to be online for Universal. Those two things really were required to maintain our business. They didn’t do a tremendous impact on growth. I think we were recently able to invest in the automated self-serve checkout portion of the platform, which we believe will help us in that smaller sale in markets where we don’t have a lot of independent usage. For example, there’s a lot of markets where we have that cornerstone of content that drives use. Just take Portugal, for example. That’s one I’ve mentioned before, I think.

We have very strong active recipient use. We have a curated list for that. We don’t have any independent sales in Portugal. That’s just one market. It’s not a big market. You don’t want to invest in business development to go and attack that market with the possible exception of the majors in that market. With the self-serve checkout, you can localize the website, local ads, you can hopefully programmatically sell to that. That’s true with a lot of different territories. You’ll see that in a variety of territories. It’s, again, platform investments that, I mean, I think it’s a fair comment that that does seem to be the bottleneck on a little bit of growth. Yeah.

Thanks. That’s all from me.

Rebecca, Moderator/Call Coordinator, Destiny Media Technologies: Great. Thank you, Thomas. Doesn’t look like there’s any other raised hands, but there is one question in the Q&A box, so I can read it out, Fred. You’ve been talking about revenue snowballing for at least five years now, yet performance remains stagnant and there’s no price support for shareholders. How do you explain this disconnect at this stage?

Fred Vandenberg, Chief Executive Officer, Destiny Media Technologies: I think we’ve covered that with our investments in the platform itself and business development. I mean, we’re going to take a hard look at it. Snowballing or accelerated revenue growth is something that we’re targeting, but if, you know, ultimately, if we can’t do that, then we’ll have to find a different way to provide a return to our shareholders.

Rebecca, Moderator/Call Coordinator, Destiny Media Technologies: Okay, great. I think that is all the questions for today.

Fred Vandenberg, Chief Executive Officer, Destiny Media Technologies: Thanks, everyone. I’ll speak to you in the fall.