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Edited Transcript of RAY.A.TO earnings conference call or presentation 6-Jun-19 2:00pm GMT

Q4 2019 Stingray Group Inc Earnings Call

MONTREAL Jun 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Stingray Group Inc earnings conference call or presentation Thursday, June 6, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Eric Boyko

Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director

* Jean-Pierre Trahan

Stingray Group Inc. - CFO

* Mathieu Péloquin

Stingray Group Inc. - SVP of Marketing & Communications

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Conference Call Participants

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* Adam Shine

National Bank Financial, Inc., Research Division - MD, Head of Montreal Research & Research Analyst

* Bentley Cross

TD Securities Equity Research - Associate

* Deepak Kaushal

GMP Securities L.P., Research Division - Director and Technology & Communications Analyst

* Drew McReynolds

RBC Capital Markets, LLC, Research Division - Analyst

* Maher Yaghi

Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst

* Tim Casey

BMO Capital Markets Equity Research - Equity Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Stingray Digital Group Inc. investor presentation conference call. (foreign language) (Operator Instructions) Before turning the meeting over to management, I would like to remind everyone that this conference call is being recorded today, June 6, 2019.

I would now turn the conference over to Mathieu Péloquin, Senior Vice President, Marketing and Communications. Please go ahead, sir.

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Mathieu Péloquin, Stingray Group Inc. - SVP of Marketing & Communications [2]

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Thank you. Good morning. (foreign language) Thank you for joining us for Stingray's Fourth Quarter Results Conference Call ending March 31, 2019. Today, Eric Boyko, President, CEO and Co-Founder; and Jean-Pierre Trahan, CFO, will be presenting Stingray's financial and operational highlights. Our press release reporting Stingray's fourth quarter and full year fiscal 2019 results was issued yesterday after the market closed. Our press release, MD&A, and financial statements for the quarter and the year are available on our Investor website on stingray.com and on SEDAR.

I will now give you the customary cautions 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 7, 2018, 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 are advised not to place undue reliance on such looking forward -- 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 the MD&A for a complete definition and reconciliation of such measures to IFRS financial measures. Finally, let me remind you that all amounts are expressed in Canadian dollars, unless otherwise indicated.

With that, I will turn the call over to Eric.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [3]

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Thank you, Mathieu. We just completed an exceptional year and put in place the foundation or next building blocks for the future. Here are some key highlights. We completed, by far, the largest acquisition in our history with NCC, which allowed us to become the leading international music media company with the capacity to generate significant free cash flow. We posted solid overall organic growth of 4.4% for the year and 4.6% in Q4. We maintained strong momentum in SVOD with the number of subscribers reaching 364,000 at the end of Q4. For this business alone, our monthly revenues are now at $3.5 million. We're expecting a larger number of subscribers, coupled with higher average monthly revenues. Finally, we continue to return money to our shareholders with a dividend of $0.26 per share, presenting an increase of just over 18% on an annual basis.

For the fourth quarter, revenues and adjusted EBITDA increased 112.5% to $72 million and 90.7% to $22.4 million, respectively. We are pleased by our results as this solid execution is clearly leading us towards a new growth phase. The results reflect a solid contribution of NCC, acquisitions in the Broadcasting and Commercial Music segment and an organic growth close to 5% driven by B2C and the SVOD.

The initial NCC synergies are now at $8.4 million on a full run rate basis, and therefore we have a full impact in Q1 2020. We have instantly been outperforming the industry with our strong portfolio of radio station, including Toronto's #1 radio, Boom FM. More recently, we have observed traction at the local advertising level with organic growth reaching 2% in April and May. We attribute this to -- improvement to 2 factors. First, the uncertainty around the acquisition of NCC among customers and, a certain extent, employees is now well behind us. Second, our marketing and sales efforts, coupled with strong listenership results in most markets, give us confidence on our radio operations leading into this new fiscal year.

I want to enter into a commitment towards reducing the debt and leverage. While we maintain an optimistic approach for high return on investments, second, acquisitions, we expect to have our leverage EBITDA ratio below 3 by the end of this month. As we enter fiscal 2020, we are excited by many opportunities we have to leverage our leading position as a music, media and technology company. As we achieve most of these operational synergies, we are now turning our focus on fully exploiting our cross-selling and cross-platform synergies.

I would like to thank all the Stingray employees for their great work throughout the past fiscal year. Their passion and commitment to our business are what helps us move forward.

And now Jean-Pierre will now review the financial details, and I'll finish the segment.

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Jean-Pierre Trahan, Stingray Group Inc. - CFO [4]

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Thank you, Eric. Good morning, everyone. Stingray consolidated revenues increased 112.5% to $72.7 million in the fourth quarter of 2019 compared to $34.2 million a year ago. The increase was primarily due to the contribution of the acquisition of NCC, combined with the acquisition of DJ Matic and organic growth in B2C apps and SVOD.

Recurring Broadcasting and Commercial Music revenues were up 12.4% to $34.5 million from $30.7 million a year ago. On a geographic basis, revenues in Canada increased 246.4% to $47.3 million or 65% of total revenues due to contribution of the acquisition of NCC and Novramedia. In the United States, revenue rose 12.2% to $9.4 million or 12.9% of total revenues due to organic growth in SVOD. Finally, in Other Countries, revenues increased 31.3% to $16.1 million or 22.1% of total revenues.

By business segment, Broadcasting and Commercial Music revenues increased 13.1% to $38.7 million, mainly due to the acquisition of DJ Matic and Novramedia and to increased revenues from B2C apps and SVOD. In addition, existing operations, excluding nonrecurring equipment and installation sales related to digital signage, generated organic growth of 4.6%. Radio revenues stood at $34 million for the fourth quarter of 2019 due to the contribution of NCC acquisition for the fourth quarter.

For the quarter, consolidated adjusted EBITDA increased to $22.4 million compared to $11.8 million a year ago due to the acquisition of NCC and other acquisitions realized in fiscal 2019 and 2018. However, the adjusted EBITDA margin decreased 30.8% from 34.3% due to normal business in Radio segment.

By business segment, Broadcasting and Commercial Music adjusted EBITDA increased by $1.7 million or 13.6% to $14.6 million from $12.9 million last year. This increase is mostly related to higher subscriber revenues from B2C apps and SVOD and to the acquisition of DJ Matic. The adjusted EBITDA margin increased to 37.8%. Radio adjusted EBITDA stood at $8.9 million, up 13.2%, for the fourth quarter of 2019. These results reflect the contribution of NCC acquisition -- of the NCC acquisition.

For the fourth quarter, the corporation recorded net income of $3.9 million or $0.06 per diluted share compared to $4.7 million or $0.08 per diluted share last year. The increase was mainly due to higher interest, mark-to-market losses on derivative financial instruments, amortization, income taxes, depreciation, acquisition expense, partially offset mainly by higher operating results.

Adjusted net income increased 28.8% to $12.5 million or $0.18 per diluted share compared to $9.7 million or $0.17 per diluted share a year ago, mainly due to higher operating results and write-off of a balance payable on acquisition, partially offset by higher interest income tax, market-to-market (sic) [mark-to-market] losses on derivative financial instruments and higher depreciation.

Cash flow generated from operating activities increased to $13.6 million in the fourth quarter from $10.7 million a year earlier. The increase was mainly due to higher operating results, partially offset by higher interest paid and income tax payable included in the opening balance sheet of NCC paid after the acquisition date. Adjusted free cash flow decreased to $10.5 million in the fourth quarter from $11.1 million for the same period a year ago. The decrease was mainly related to higher interest paid, income tax paid due to the income tax payable included in the opening balance sheet of NCC at the acquisition date and higher capital expenditures partially offset by higher operating results. Excluding the income tax paid related to the NCC acquisition of $3.6 million, adjusted free cash flow would have reached $14.1 million.

And let me make a few brief comments on the result for the year. Revenue increased 63.3% to $212.7 million mainly due to acquisition as well as organic growth in B2C apps and SVOD, partially offset by the decrease in equipment and installation sales related to digital signage.

Adjusted EBITDA was up 74% to $72.2 million, primarily due to the acquisition. The adjusted EBITDA margin increased to 34% from 31.9%.

Adjusted net income was up 39.8% to $37.5 million or $0.57 per diluted share due to higher operating results, partially offset by higher interest, income tax and depreciation expenses.

Finally, adjusted free cash flow reached $38.2 million compared to $33.2 million last year. Excluding the income tax paid related to NCC acquisition, adjusted free cash flow would have reached $41.8 million.

Turning to our financial position. Stingray ended fiscal 2019 with cash and cash equivalents of $4.7 million and subordinated debt of $49.5 million and a credit facility of $450 million, of which approximately $130 million was unused. Total net debt stood at $358 million. And based on some performance synergies assumption presented in the MD&A, the net debt adjusted EBITDA ratio would be around 3.13%.

I will now turn the call back to Eric.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [5]

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Okay. Thank you, Jean-Pierre, and this is our presentation remarks for today. Thank you for your time and attention.

At this point, Jean-Pierre and I would be pleased to answer any questions you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Adam Shine from National Bank Financial.

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Adam Shine, National Bank Financial, Inc., Research Division - MD, Head of Montreal Research & Research Analyst [2]

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So Eric, maybe we start with SVOD. We saw the ARPU continue to move higher, slight increase in number of net adds. Maybe talk about what transpired in the quarter and any upcoming initiatives that are worth noting.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [3]

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Yes. I think the SVOD, for sure, we're going to -- the more we do B2C products, the ARPU there is anywhere from USD 12 to USD 15 a month. So you're looking at CAD 15 to almost CAD 20. So the more we do B2C products, the more our ARPU is going to increase. And I think it was a solid growth, over 21% of growth quarter-over-quarter. For sure, for this quarter, we don't expect the same growth. There's a bit of seasonality in the SVOD, but we expect continued growth over this quarter also, which is the opposite of last year, where we had a net decrease in April, May, June of 8%.

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Adam Shine, National Bank Financial, Inc., Research Division - MD, Head of Montreal Research & Research Analyst [4]

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Okay. And any sort of new initiatives worth calling out as we head to the summer and into the fall?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [5]

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For sure, for sure. No. Some of our success, The Voice is succeeding very well. Also, the Piano Academy, which is a piano lesson, is also having strong growth. So it's -- and we're talking about strong growth month over month, so we're very happy. And also, we're launching with Roku. I think it's interesting. We're also going to be involved with our friends at Apple in the fall, so we're really -- there's no doubt that Qello and Karaoke have been chosen to be in every SVOD service that will be launched, I would say, not in the world, but they are like renowned products for an SVOD service.

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Adam Shine, National Bank Financial, Inc., Research Division - MD, Head of Montreal Research & Research Analyst [6]

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Okay. If I could switch gears. One of the things coming out of the NCC transaction was a goal of getting some revenue synergies, particularly on the advertising front. I think we're about 8 months past the closing. And when we look to the Q4 advertising in the Broadcasting and Commercial Music segment, I think we're around $0.6 million. This originally was going to be a target of $5 million, and I think you have aspirations of getting to a pretty big multiple of that figure. Can you just speak to where we might see some traction manifesting itself and any near-term targets?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [7]

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Yes. For us, very confident again with the revenues. But again, we'll see it more in Q3, Q4. Putting all the synergies together, the cross-promotions, the different levels takes time.

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Mathieu Péloquin, Stingray Group Inc. - SVP of Marketing & Communications [8]

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The team, the technology.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [9]

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The technology. So there's a lot of work to do in advertising, which we're happy to be involved with the NCC team. As I mentioned, we achieved our sales -- not our -- synergies of $8.4 million, so we're above our initial estimate. But for sure, now our focus is all about cross-synergies and cross-sells.

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Adam Shine, National Bank Financial, Inc., Research Division - MD, Head of Montreal Research & Research Analyst [10]

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Okay. Just maybe this is more for JP, but, Eric, you can certainly answer. Just as a point of clarification, when we look to the revenue by-products, which is something that is new when you're breaking it down for an annual basis, I don't think there's a specific definition for media solutions. I know it's not advertising, which is separate and distinct. Does media solutions mostly serve commercial music product sales and maybe a few other elements? Just to clarify.

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Jean-Pierre Trahan, Stingray Group Inc. - CFO [11]

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So Adam, it's mainly signage, that line in the P&L.

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Operator [12]

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Your next question comes from the line of Drew McReynolds from RBC Capital Markets.

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Drew McReynolds, RBC Capital Markets, LLC, Research Division - Analyst [13]

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First, on the Radio performance in the quarter, and, Eric, you alluded to some growth in April and May. Can you just comment on drivers of your outperformance relative to the broader industry? And in addition -- yes. Okay. We'll start there.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [14]

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I agree with you because, in Canada, the only other person or group that reports radio numbers is Corus. Both Bell and Rogers, the numbers are too small, I guess. And for sure -- so for sure, we get TRAM reports where we get the market and we get our results, so we're outperforming the market. We were minus 2% in Q4, January, February, March. But again, we're seeing improving trends. And right now, in April and May, we're plus 2%. So stable business, strong growth, happy to be working with the NCC team. Ian and myself met over 60 radio stations. I've got a few left in the U.S. but very excited and very focused team. I'll say it again, I think that the Stingray radio team is the #1 management team in Canada. And every market we're in, from Fredericton to Charlottetown to Calgary, I think we're beating our competitors.

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Drew McReynolds, RBC Capital Markets, LLC, Research Division - Analyst [15]

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And so just to drill down a little bit there. Obviously, execution, you're flagging. From a ratings standpoint, is there an outperformance on national versus local? And any breakdown you can give us on those basis?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [16]

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I'll have to look at -- again, I don't know the exact details. But for sure, locally, we're strong. The ratings I have said it's an interesting business. There's always -- some radio stations are doing better, and there's always some that are lagging. We changed 2 stations to -- in Edmonton and in Vancouver. But generally speaking, we see stable and a positive momentum on the radio side and on the cross-selling. So for sure, we're putting new solutions to our customers. For example, we say, "If you invest $100,000, we'll put $70,000 in radio. We'll put $10,000 on pay audio sponsorship. We'll put $10,000 on mobile and $5,000 on podcast." So we're able to do a really Stingray -- what we call the Stingray 360 audio solution. So we're not only selling radio, but we're selling all of our assets.

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Drew McReynolds, RBC Capital Markets, LLC, Research Division - Analyst [17]

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Okay. Great. On the EBITDA margin front, certainly, versus our expectations in this quarter, a little bit above what you're looking for, for both segments. Maybe just provide an update on broadly what you're targeting in each segment on an EBITDA margin basis.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [18]

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Yes. I think I'm very happy to report on both segments. The EBITDA margin on radio -- sorry, I do have a small cold. The EBITDA margin on radio was up 13.1%; our EBITDA margin, 14.5%. So the EBITDA is beating the sales revenues. So for us, it's operational leverage and we're seeing it, and we expect to continue to have EBITDA margin improvement on both radio and on the Stingray broadcasting side. And also, we're very -- the goal of management, one of our motto is bring down the debt, so we're very focused on being below 3. I mentioned on the call, we want to be below 3 by the end of June. So we've been very, very aggressive with our OpEx, and I think we should expect our OpEx to be flat to last year. So we're very -- tight control of all of our expenses to help us contribute to EBITDA margin.

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Drew McReynolds, RBC Capital Markets, LLC, Research Division - Analyst [19]

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Okay. Perfect. One last one on my side. On the CapEx side for fiscal 2020, again, just lots of moving parts underneath the hood. Maybe provide an update there.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [20]

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Yes. So very good. On the CapEx, we're good. We -- last year, we did around $18 million. And this year, we expect to reduce our CapEx to $15 million, $15 million, $15.5 million. So we're again very focused on the CapEx side. About $4 million on the radio side and about $11 million, $11.5 million on our side.

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Mathieu Péloquin, Stingray Group Inc. - SVP of Marketing & Communications [21]

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Broadcast.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [22]

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On the broadcast side. And also, income tax for this year, we had income tax that we paid this quarter because when we closed the deal on October 26, we were forced to. We couldn't merge the companies and all the different -- so for this year, we only expect income tax to be around $5 million.

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Operator [23]

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Your next question comes from the line of Deepak Kaushal from GMP Securities.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [24]

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Eric, I just want to ask you about SVOD. Good growth quarter-over-quarter in revenue. But just wanted to get your thoughts on how you might accelerate subscriber growth over the next year and what kind of your targets are in terms of the growth rate for subscribers going forward.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [25]

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So the SVOD market is going to be growing, not only for us, but for Disney and all the players around the world. So our first target was for us to achieve 5 million a month, and we told the market. We're at 3.5 million out of 5 million, but the potential of the SVOD market is enormous. We really -- and when you get to the B2C apps and all that space, so it's -- and the pricing. It's very interesting how a micro-SVOD services like us, we can be priced at USD 11 to USD 15 a month. So on that side, how can we increase momentum? We got to go step-by-step with our B2B partners. On the B2C side, we're aggressively launching new products and investing. But for now, for us, this segment has great upswing. Our competitor, Smule, in the karaoke space announced that they're doing USD 150 million a year, and they have 2 million subscribers on karaoke, so that gives you a potential of the market. And that's just the karaoke product, that doesn't include piano, doesn't include our music products. So that's the potential that we see in the SVOD market.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [26]

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Okay. And sorry to use the term from the linear world. But in the SVOD world, and I know it's early days, but it will still be largely a pick-and-pay type of market for consumers. They'll be picking and choosing various subscriber services they want to find. I mean do you see this eventually turning into bundles that the aggregators like an Apple might do on TV? I mean where are your thoughts in terms of that and how this -- what consumer type...

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [27]

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We're looking at SVOD model being subscription based. And the most interesting is, like I mentioned with Apple TV, with Roku, with Amazon, the SVOD services -- and with Flex. We're also with Flex with Comcast. It's not only a cable operator or a TV operator business. It's really a different -- it's over-the-top market. So for us, it's a nice flexibility to be not only dependent on the cable operators, but also to be dependent on over-the-top players like Amazon and Roku and Apple TV.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [28]

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Okay. Great. And I think I heard a whisper from Mathieu in there about technology. I wanted to ask you more generally -- more broadly about innovation and how you think about it with respect to your business. When I look at the business side, 3 sides. You have your linear audio. You have your SVOD and your video, and you have your mobile apps. Maybe along those 3 buckets, how do you think about innovation for each of those buckets?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [29]

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I think that -- and I said this to my Board yesterday. I think Stingray is the #1 SVOD music property in the world. That segment, we're very dominant in terms of all the video space. And we invest about $50 million a year in R&D, so we will do strong investment. We have over 150 people in Montréal.

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Mathieu Péloquin, Stingray Group Inc. - SVP of Marketing & Communications [30]

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Engineers, yes,

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [31]

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Engineers, plus 50 engineers in Tel Aviv. So people see us as a media company, but I agree, we're very technology. And in terms of innovation, if you look at the apps, go under Karaoke, we have the app [1, 2, 4]. Go under piano, we have the app [1, 3]. So we're able to organically be in the top apps in the world, which is pretty impressive. So I think we'll continue to be able to be innovative in that way. And for me, the Piano Academy application, if you have a chance as an investor or as an analyst to look at it, incredible results. Our competition on the Piano Academy side, which is [Lessons], is doing USD 2.5 million a month. So we have a lot of growth potential, again, on that side of the music.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [32]

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Okay. Just let me -- just to follow up on the innovation side. I think that you mentioned podcast in there. When we think about linear audio or even radio or radio on the -- IP -- radio on the Internet or even video, what kind of innovation are you guys doing in terms of playlists, in terms of putting in podcasts, in terms of promoting these things? Anything on that front that we should be thinking about from the innovation side?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [33]

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Yes. I think we have -- on both the radio side and our business, we have a very strong increase in listenership hours done online. So we're talking -- we're approaching almost 10 million hours a month of listenership, so that's an incredible growth for us. The U.S. also, on the audio side, very aggressive on the listenership on the Stingray Music App. So -- and us getting more involved with the smart speakers with Alexa and Google speakers is a big focus, and I think we're also going to be able to be very dominating. Stingray without -- with the acquisition within radio, we're probably in the top 5 music companies in the world in terms of distribution, so we have that advantage. And we have great relationships with both Amazon and Google and our friends at Apple, so we have that leverage that not many companies have around the world.

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Operator [34]

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Your next question comes from the line of Bentley Cross from TD Securities.

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Bentley Cross, TD Securities Equity Research - Associate [35]

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I want to start with just a few points of clarification. Eric, you keep talking about $3.5 million in monthly recurring. Is that as of end of May? Or where is that?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [36]

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March.

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Bentley Cross, TD Securities Equity Research - Associate [37]

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The release says $34 million, so I'm just a little confused there.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [38]

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Where is the SVOD sheet?

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Jean-Pierre Trahan, Stingray Group Inc. - CFO [39]

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It's around here.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [40]

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So our exact number is $34.54 million. So if I -- how do you say it --

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Jean-Pierre Trahan, Stingray Group Inc. - CFO [41]

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A rounding.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [42]

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A rounding, obviously it's $35 million.

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Bentley Cross, TD Securities Equity Research - Associate [43]

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Okay. That's good. The other thing, on Radio, you mentioned up in April and May. Is that just for the local or across the board?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [44]

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No. It's up across Radio for April, May. The synergy of -- there's also -- like in business, there's also the synergies of having the team together, working, all the employees on both sides. So things are gelling. So -- and again, very proud of the team that we have on the Radio side and very impressed with every market I've been to. So -- and I've never been happier to be a Canadian because I get to see every province.

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Bentley Cross, TD Securities Equity Research - Associate [45]

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And then also on -- I know you guys aren't keen to give guidance. But historically, you've suggested you want to get below 2.5 by the end of this year. Does that assumption still hold?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [46]

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No. I think it's going to -- I don't think by the end of March, but we are doing some acquisitions. And this year, again, we always tell 5-5: 5%, organic; 5%, acquisition. So in all, we got to do -- plan about $30 million to $40 million of acquisitions in terms of investments that we're still going to do. We have a very, very strong pipeline of tuck-ins, also, very surprisingly, a lot in the B2C space. So we're very excited. We're always excited, I guess, we're very happy about our acquisition plan and the tuck-ins that we can do. And the good news is we officially tell our -- the people that are in our plan of acquisition that the cash up-front that we're going to be giving them is 3x to be able to maintain our debt below 3.

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Bentley Cross, TD Securities Equity Research - Associate [47]

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That's maybe a nice segue. There was a write-off of balance payable on an acquisition. What did that relate to?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [48]

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Oh, it was -- one of them was with Qello. So with an agreement in place, so there was -- cannot go too much in details, but we officially don't have a payable towards the ex-owner of Qello because the technology that they did not -- they were supposed to give us, they didn't give us. And there were some other ones, Classica also. But for us, pretty much in line of when you do earn-outs. If you don't get the numbers on certain earn-outs or certain technology requirements, then we're able to write off those earn-outs.

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Bentley Cross, TD Securities Equity Research - Associate [49]

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Okay. And then just last one for me. The Canadian revenues, ex Radio, were down again this quarter despite a couple of acquisitions there, at least Novramedia. What can we think about for organic Canadian revenues as fiscal 2020 progresses?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [50]

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We are losing -- in the Canadian market, we're losing, on our side. And we were losing 200,000 subscribers a year, 2%. And right now, the run rate is anywhere from 300,000 to 400,000. So for sure, the subscriber base in Canada is decreasing by 3% to 4% for us on the Stingray audio product. And also, we did -- with certain of our customers, we did have -- we're launching new products and aggressively marketing those products, giving them a bit of savings. So we're able to launch more products for long-term growth on the SVOD side, on the premium and advertising. So we're leveraging that a bit.

So -- but I agree, Canada for us, right now, organically, on the residential side, 3% to 5% decrease in subscribers, which we're trying to inverse with the advertising and commercial subs that we have with Bell and Rogers and Vidéotron. But for sure, we're very happy to be international. We're very happy to have the over-the-top products because we do see a subscription growth in Canada -- decline.

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Operator [51]

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Your next question comes from the line of Tim Casey from BMO.

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Tim Casey, BMO Capital Markets Equity Research - Equity Research Analyst [52]

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Yes. A few for me. Just, Eric, can you talk about how you think you'll have subscriber growth on the SVOD platform for the current quarter, the quarter ending June. How do you see that playing out through the year? Do you still think you'll lose subs through summer months and then pick them up as we get closer to calendar Q4? Or what's the outlook there?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [53]

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Tim, very good question. So we -- like I said on the call, we expect continued growth for every quarter. Right now, our organic growth month-over-month is above 30%, 35%, year-over-year, month-over-month. So we're seeing strong organic growth. We're launching new products, and that's excluding the B2B launch, so very excited about that segment. And again, the more we get involved in it, the bigger the segment gets. So it's tough. It's a new business, so it's tough for us to predict for the next 12 or 24 months. But for sure, that business, do we expect it to be $5 million a month or $10 million a month? We expect that business to be a $10 million a month business over the future because it's just the market is getting bigger and bigger.

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Tim Casey, BMO Capital Markets Equity Research - Equity Research Analyst [54]

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So what is driving that growth? Is it that you're in more addressable markets as you get pickup from the platforms like Amazon and Roku and things like that? Or is it that you're offering more versions of Piano Academy and Qello and Karaoke and things like that?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [55]

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So Tim, good question. For sure, so the B2B side is growing. Amazon, we get -- every Thursday morning, we get our numbers around the world. And every week, every Thursday morning, the numbers are growing. And the numbers are also growing with the new players, Roku, also the launch with Cox, the launch with Sling, the launch with Flex, the launch in Canada. Canada is a smaller market, but still, we launched the SVOD with Bell. So that side is growing. Amazon became -- is almost -- went from 0 to almost 400,000 a month in less than a year, so very excited about that. And -- but the growth is even stronger on the B2C side. The B2C is unlimited. With the Karaoke product, we got a big win in Korea, so we bought a lot of Korean songs. And now in the last month, a lot of Brazilians are buying their karaoke, so we've just bought a lot of Portuguese songs. So we're really investing in the catalog because we're seeing different markets. And also China. The Chinese are having more credit cards, I guess, and we're seeing a strong increase in sales in China. Always done via -- these are sales via the iPhone and Android. And even Android, which was -- Android, always we have a lot of downloads, but Android customers don't buy much. But even there, we're seeing a big growth on the Android side. So very positive on the B2C segment. And with our Tel Aviv team and our team in Montréal, like I say, again, I think we're the #1 SVOD music provider of apps in the world.

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Tim Casey, BMO Capital Markets Equity Research - Equity Research Analyst [56]

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Okay. Next question would be on acquisitions that you -- could you just go back to what your acquisition strategy is going to be this year? You threw out a couple of numbers there. Could we just sort of...

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [57]

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Yes. So roughly, we're trying to add $5 million and $5 million. So pro forma, we have $110 million of EBITDA pro forma last year. So this year, we're looking at $5 million organic EBITDA and $5 million EBITDA acquisition, so you can roughly plan that we'll be spending cash up-front, about $15 million to $20 million and then at a 5x multiple investing this year between $25 million to $30 million to achieve that EBITDA goal. So -- and our pipeline is -- we already did one in radio, but our pipeline is very strong on the B2C side and also on Broadcasting. So we have over a dozen, as fishing men, lines in the water. So we're always Captain High Liner. We're always fishing.

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Tim Casey, BMO Capital Markets Equity Research - Equity Research Analyst [58]

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And so -- and sorry. Just the targets would be filling in holes in the Radio portfolio, I presume? And then is -- are the other targets music libraries? Or are you still going after, for a lack of a better phrase, legacy businesses internationally?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [59]

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Yes. So it's a mixed -- our first targets and where we're mostly is in the B2C space, so we're buying out competitors that are much smaller. But by combining together, we have the advantage having one platform. So there's competitors in the audio space that we're looking to merge with, competitors in the Classica space, competitors in the piano space, competitors in Karaoke. So we're looking to merge the platforms. We do have a few broadcasting opportunities in Lat Am and in the U.K. and also filling in the gaps on the radio side. On the radio side, the acquisition we did is giving us 20% cash flow return. So we have a return on investment of 20%. So we at Stingray, we're very cash-flow-oriented, and we like 20% return on investment. But also, I think -- and these are all small tuck-ins. None of these acquisitions are looking at -- they were only $10 million to $15 million range. So nothing -- we don't expect to do a $50 million to $100 million acquisition in the next 6 months.

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Tim Casey, BMO Capital Markets Equity Research - Equity Research Analyst [60]

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Great. Okay. And last one for me, just the margin outlook. You talked about that you are seeing some operating leverage. What sort of margin range do you think you can post in 2020?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [61]

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Yes. Good question. I have to get back to you on that one offline because we got to look at both radio and broadcasting, and then we have this new line, corporate, whatever, we have the corporate costs of $1.5 million. So before I give you wrong numbers, I'll get back to you offline for that. But for sure, expect growth in the margin, accelerate growth in EBITDA margin better than last year on both segments.

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Operator [62]

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(Operator Instructions) Your next question comes from the line of Maher Yaghi from Desjardins.

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Maher Yaghi, Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst [63]

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So I wanted to ask you on the NCC acquisition. So you've been able to deliver on those $8 million of cost synergies now. The $5 million of revenue synergies that you talked about, Eric, when should we expect to see them fully reflected in results? You talked about third quarter, fourth quarter. Is the fourth quarter a good quarter where we should see that $5 million or it's going to take a little bit longer than that?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [64]

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So the process synergies, I think, for us, for both, for Radio and Stingray, we have broadcasting, is going to be well above $5 million, but we have to put the process, the Numeris. We're also being very aggressive with advertising in the U.S. using the same leverage. Very aggressive also -- the audio ad market in the U.S. went from 0 to $5 billion. I was meeting with the team from Liberty Media in Denver. They just bought Pandora, so -- and I like the people at Liberty Media. So we're very focused on leveraging audio ads on the mobile side in both Canada and the U.S. and also on a pay audio, so we see the growth of that market. There's a big demand for audio ads. Just -- so don't think of us as a radio company. Think of us as a leading audio music company in the world and Q3, Q4.

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Maher Yaghi, Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst [65]

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Yes. When you say Q3, Q4, are we talking the full amount that you talked about in the past or it's -- we'll start to see those numbers coming in?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [66]

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Yes. Look, more run rate. But first, there's -- again, the business, both Canada and U.S., you have these. So we did an event this week. Where we started selling in advance. We started selling for the fall, started selling for the spring. So what's the term that they use when you do...

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Jean-Pierre Trahan, Stingray Group Inc. - CFO [67]

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Upfronts.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [68]

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Upfronts. So it's the first time that we've been involved in upfronts. So again -- but there's a time process because you sell them 6 months in advance. So we're getting in that cycle and getting our products out, both Canada and the U.S. And also, the CPM on the audio side are -- seem to be very favorable. So it's going to be a very -- there's no doubt that the advertising for us in both Canada and the U.S. will become the #1 growth.

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Maher Yaghi, Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst [69]

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And so turning to the U.S. market on the TV and video side. Can you update us on what is happening right now in terms of renegotiation of contracts now that you have chosen not to pursue certain acquisitions down there? How are you doing on winning share against them?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [70]

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So for sure, Stingray has the advantage of scale, and Stingray has the advantage of leveraging our SVOD services. So for sure, when we approach U.S. customers, we're able to stay very aggressive pricing on the pay audio side, leveraging the commercial accounts and also leveraging our SVOD services. So for us, we see there the 80 million subscribers in the U.S. that we don't have as a great way to market and market our brand and market our SVOD services all across the U.S.A. So a great example with Altice. For sure, with the Altice in the New York market, we're seeing a high growth of our SVOD subscribers in New York because we're able to leverage the advertising that we do with the Altice subscribers.

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Maher Yaghi, Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst [71]

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Any large renegotiations that you...

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [72]

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Yes. For us, the 2 main ones -- and this is public information. The 2 main ones is Comcast and Charter with both 20 million subscribers. So those are -- we're meeting all the customers almost every month, and they're proposing an aggressive plan of pay audio, SVOD, advertising and commercial subs, which we're the only company able to offer that in the U.S. So no other company is able to offer the suite of products and the different revenue lines that Stingray has, so we have the scale advantage.

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Maher Yaghi, Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst [73]

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Okay. And you talked about the growth that you are targeting on EBITDA with acquisitions and organic growth. Can you talk about what the free cash flow line should look like in terms of year-on-year performance? It's definitely a topic that investors are looking at because of the leverage that you have at 3-plus that you have right now. So any thoughts on free cash flow production in 2020?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [74]

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Like we told -- we've been telling the market, pro forma, and we expect our free cash flow to be around $70 million this year or close to $1 per share. So for sure, we find that the share price right now is trading at less than 6x free cash flow is a good buying opportunity. And I think management is going to be also investing more in the company because we think it's a great investment. But expect -- so the exact numbers are -- the pro forma is $70 million, and we think we're in a good direction.

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Maher Yaghi, Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst [75]

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You still believe that number is achievable?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [76]

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Yes. We just -- again, we are very confident about the pro forma number that we gave last quarter. And like JP was saying, we're going to be below 3 by the end of the month. So just that is a saving of a -- with the standby fees and interest, $1.5 million a year. So the more you deleverage, it's like...

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Jean-Pierre Trahan, Stingray Group Inc. - CFO [77]

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It's going fast.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [78]

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So good news. It's the #1 objective.

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Maher Yaghi, Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst [79]

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How much cash tax is included in that $70 million?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [80]

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$5 million. We have the advantage with the international divisions in Canada and merging both companies to be tax efficient.

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Operator [81]

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Your next question comes from the line of Bentley Cross from TD Securities.

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Bentley Cross, TD Securities Equity Research - Associate [82]

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Eric, just want to follow up on that last question. I mean we've talked about this before, but you highlighted you like 20% returns, I think you and everybody else. But I mean your own stock, based on your math, is yielding pretty close to that as well. How do you kind of think about the relatively riskless opportunity to buy your own stock versus acquisitions that obviously carry a little bit more execution risk?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [83]

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Yes. So there's no doubt that I think that the Board members of Stingray have been net buyers, and the management team has been net buyers. And there's no doubt that we feel at this stock price we're going to continue to be net buyers. So I don't want to -- when I think over the next couple of weeks and months, we're going to -- because the issue we have is being blackout. So when blackout, we're going to be off blackout tomorrow, but the math views is we come in blackout at June 30. It's already the end of Q1. So I think that management and the Board members are going to be net buyers of the shares at this price. And including myself, I'm taking home my bonuses, my PSUs to be reinvested in DSUs. So -- and also, don't forget, management and the insiders, we own almost 30 million shares out of 75 million, so we own 47% of the company. And also, like (inaudible) owns another 10%. So you've got the strong base of, not insider, but what do you say...

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Jean-Pierre Trahan, Stingray Group Inc. - CFO [84]

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Shareholder.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [85]

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Shareholders, which is good and bad. It's good because it's a strong base. But the bad news is, if you have a seller or a buyer, then there's more volatility in the stock.

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Bentley Cross, TD Securities Equity Research - Associate [86]

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I understand that. I'm more wondering why don't you take a stab at NCIB.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [87]

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In terms of capital allocation, we got to go step-by-step. Our first step is to bring down our debt officially on the market with the banks below 3. And then for sure, we'll look at all the opportunities that we can do for capital allocation. So that could be one option.

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Operator [88]

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There are no further questions at this time. I turn the call back over to management for closing remarks.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [89]

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Okay. I thank you very much for the call today. Thank you for your time. Again, thank you for all the employee support and help on the Stingray side, and we really appreciate the questions from the analysts, always gives us good thinking and guidance. So thank you very much for the call, guys.

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Operator [90]

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This concludes today's conference call. You may now disconnect.