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Edited Transcript of RAYa.TO earnings conference call or presentation 7-Nov-19 3:00pm GMT

Q2 2020 Stingray Group Inc Earnings Call

Nov 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Stingray Group Inc earnings conference call or presentation Thursday, November 7, 2019 at 3:00:00pm 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

* Lloyd Perry Feldman

Stingray Group Inc. - Senior VP, General Counsel & Corporate Secretary

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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

* Maher Yaghi

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

* Matthew James Lee

Canaccord Genuity Corp., Research Division - Associate Analyst of Telecom and Media

* 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 Group Inc Investor Presentation Conference Call. (foreign language)

(Operator Instructions) I would like to remind everyone that this conference call is being recorded today, November 7, 2019.

I will now turn the conference over to Lloyd Feldman, Senior Vice President, General Counsel and Corporate Secretary. Please go ahead.

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Lloyd Perry Feldman, Stingray Group Inc. - Senior VP, General Counsel & Corporate Secretary [2]

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Good morning everyone and thank you for joining us for Stingray's conference call for the second quarter results, ending September 30, 2019. Today, Eric Boyko, President, Chief Executive Officer and Co-Founder and Jean-Pierre Trahan Chief Financial Officer will be presenting Stingray's financial and operational highlights. Our press release reporting Stingray's second quarter of fiscal 2020 results was issued yesterday after the market closed. Our press release, MD&A financial statements for the quarter and the full year are now available on our investor website at www.stingray.com and on SEDAR.

I will now give you the customary caution that today's discussion of the corporation's performance and its future prospects may include forward-looking statements. The Corporation's future operations and performance are subject to risks and uncertainties and actual results may differ materially. These risks and uncertainties include but are not limited to the risk factors identified in Stingray's annual information form dated June 27, 2019, which is available on SEDAR as well. The corporation specifically disclaims any intention or obligation to update these forward-looking statements whether as a result of new information, future events or otherwise, except as may be required by applicable law.

Accordingly, you're advised not to place undue reliance on such forward-looking statements. Also, please be reminded that some of the financial measures discussed over the course of this conference call are non-IFRS. Please refer to the MD&A for a complete definition and reconciliation of such measures to IFRS financial measures. As well, I would like to highlight that on April 1, 2019, the corporation adopted IFRS-16, leases using the modified retrospective method. Under this method, the standard is applied retrospectively and the comparative figures from fiscal 2019 are not restated. Please refer to the new standard adopted by the corporation section of the MD&A for further details. Finally, let me remind you that all amounts on this call are expressed in Canadian dollars, unless otherwise specifically indicated.

With that, I will turn the call over to the President, CEO and Co-Founder of Stingray, Eric Boyko.

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

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Thank you, Lloyd. Good morning, everyone. As you probably have heard yesterday, we are very proud to announce that Stingray business has concluded a long-term deal to provide custom music programming and in-store messaging for over 1,000 leading grocery and pharmacies, metros establishment. Retailers under the agreement include Metro, Metro Plus in Quebec, Metro in Ontario, Supersede, Food Basic, (inaudible). We were also happy to report that during Q2, Stingray Karaoke was launched successfully in Tesla cars under the brand Karaoke worldwide as part of their version 10 operating system release in late September.

We've also been confirmed that the karaoke app from Stingray is one of the best apps on the Tesla car. We are pleased with our second quarter results, which continue to build under significant momentum created by the acquisition of NCC, coupled with the growth from the Broadcasting and Commercial Music segment. A key measure of our achievement continues to be our adjusted free cash flow, which more than tripled to CAD 18.8 million. To put things into perspective, year-to-date we generated CAD 0.52 of adjusted free cash flow per share, compared to CAD 0.21 a year ago. This quarter we generated CAD 0.25 per share compared to CAD 0.10 a year ago.

On a consolidated basis, adjusted EBITDA increased to 142% to CAD 27.7 million while the second quarter is a slow period in the radio business due to normal seasonality in the Canadian radio industry. This segment reported solid adjusted EBITDA of CAD 30.7 million with a margin of 36.3% EBITDA margin. At this stage, most of the operational synergies have been captured. With regards to broadcast and commercial music, adjusted EBITDA for the quarter increased by 21.6% to CAD 15.2 million and the margins improved by 300 basis points over the prior year due in part to efficiencies in operation and most importantly, as a result of our scale.

Since going public we have gone a very long way of diversifying our music offering to its transfer in the digital lives of our customers and to fulfill all their needs in terms of the music and videos. At the same time, we have extended our reach to various platforms, well beyond our initial cable-centric business model. Now today we can say that less than 10% of ourselves is based on the CPS model. With our increased emphasis on ad-supported business model and our comprehensive approach to customer journey, we have far more potential with cross-selling and cross-promotion opportunities to capitalize on with radio.

The recent launch of audio 360 an advanced multiplatform audio star solution in partnership with Bell Media brings together the largest multiplatform audio network in Canada with 22 million unique weekly listeners to digital audio and podcast TV and radio. Audio 360 helps brands connect with listeners on the right audio platform across the right channel at the right moment in time.

Consumer spending on streaming music and video services is growing at an accelerated pace and will reach over CAD 32 billion by 2020. Clearly, we want to capture our share of this market, the launch of the Stingray music free mobile app will further extend our reach and touch a much wider audience. The free mobile app is now accessible to everyone in Canada, the U.S, U.K. and The Netherlands. The basic service is free and ad-supported while the premium service is very compelling and competitive at just CAD 3.99 per month.

At the end of the quarter, our net debt to pro forma adjusted EBITDA ratio was 2.95. We clearly feel comfortable with this level of leverage considering the strength in free cash flow. During the quarter, we took the opportunity to buy back shares at very attractive levels under our NCIB. We acquired over 250,000 shares for a total consideration of CAD 1.9 million and also in the month of October we bought some more shares. So up-to-date, we bought 400,000 shares for about CAD 3 million. We feel that this buying back our shares is the right capital allocation and right opportunity. Buying our shares offers one of the most attractive returns for Stingray, therefore, we will continue to opportunistically acquire shares in the market.

While the global music industry is in consistent evolution, Stingray has clearly demonstrated its ability to rapidly adapt and capitalize on changes. Our music is now available on multiple platforms and innovation is firmly in our DNA. Our vision remains to unleash the power of music by delivering the best-curated video and audio experience for people and businesses globally. So up to you JP.

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

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Thank you, Eric. Good morning, everyone. In the second quarter of fiscal 2020, revenues increased from 20.7% to CAD 76.6 million compared to CAD 34.7 million a year ago. The increase was primarily due to the acquisition of NCC and the dramatic as well as to organic growth in (technical difficulty) Recurring broadcasting and commercial music revenues were up 9.4% to CAD 32.5 million from CAD 30.7 million a year ago, which represent a 1.2% organic growth as a delay in a submitted time to market to deploy advertising solution moderate to the increase.

Broken down by geography, revenues in Canada increased 270.7% to CAD 52.8 million representing 68.9% of total revenues. This growth was mainly due to the contribution of NCC and Novramedia acquisition. In the United States, revenue rose 12% to CAD 9 million or to a 11.8% of total revenue due to the organic growth in SVOD. Finally, in other countries, revenues increased 19.5% to CAD 14.8 million or to 19.2% in total revenue, primarily due to the acquisition of the DJ-Matic and to the organic growth in SVOD partly offset by the termination of some low margin contracts.

Let me now review our performance by business segments. In the second quarter, broadcasting and commercial music revenues increased 11.7% to CAD 38.8 million, primarily due to the contribution of DJ-Matic and Novramedia And through organic growth in SVOD. This contributing factor were partially offset by the delayed mentioned earlier and by the termination of some low margin international contracts.

Finally, radio revenues stood at CAD 37.8 million in the second quarter of this fiscal year, due to the contribution of NCC acquisition. Consolidated adjusted EBITDA for the second quarter increased to CAD 27.7 million compared to CAD 11.4 million a year ago due to the acquisition of NCC and DJ-Matic. To organic growth in as SVOD and to the adoption of IFRS 16. As I said EBITDA margin improved to 36.1% compared to 32.9% a year earlier. The increase was mainly related to the adoption of IFRS 16 and to reduce operating expenses in the Broadcasting & Commercial Music thing. Excluding the impact of IFRS 16, the adjusted EBITDA would have been CAD 26 million and the adjusted EBITDA margin 34%.

By business segments, Broadcasting & Commercial Music adjusted EBITDA increased 21.6%, CAD 16.2 million compared to CAD 12.5 million last year. This increase was primarily due to organic growth in SVOD, to the acquisition of DJ-Matic and Novramedia and to the impact of the adoption of IFRS 16. Adjusted EBITDA margin increased to 39.3% from 36.1% a year ago. For the radio segment Adjusted EBITDA stood at 13.7 million in the second quarter of 2020 reflecting the contribution of the NCC acquisition as you know, radio revenues are subject to the seasonal fluctuation of the Canadian radio industry.

Accordingly, the first and the third quarter results tend to be the strongest and the second and fourth quarter results tend to be the weakest in the fiscal year. For the second quarter, the corporation recorded a net income of CAD 5.2 million or CAD 0.07 per share compared to CCD800,000 or CAD 0.01 per share last year increase was mainly due to the higher operating results, partially offset by higher interest income, taxes, depreciation and amortization and legal expenses. Adjusted net income increased to CAD 12 million or CAD 0.16 per share compared to CCD6.7 million or CAD 0.12 per share a year ago mainly due to the higher operating results, partially offset by higher interest income tax depreciation in market-to-market losses, derivative financial instruments.

Turning to liquidity, cash flow generated from operating activities amounted to CAD 19 million in the second quarter of fiscal 2020 compared to 5.6 million a year earlier. Adjusted free cash flow amounted CAD 18.8 million in the second quarter compared to CAD 5.8 million for the same period a year ago. The increase of 237.8% was mainly due to the contribution of NCC acquisition, higher operating results, lower capital expenditures and lower income taxes paid partially offset by higher interest paid. Regarding our financial position at the end of the second quarter the Corporation had cash and cash equivalents totaling CAD 8.4 million and the subordinate debt of CAD 49.6 million and the credit facilities of CAD 380 million of which approximately CAD 53.5 million was available. As I think we reduced authorized amount on the revolving facility by CAD 17 million in July of this fiscal year. We also extended maturity to October 25, 2020. On that note, I will now turn the call back to (technical difficulty).

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

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Okay, this concludes our prepared remarks for today. Thank you very much for being on the call. I know it's a very busy week. A lot of companies are reporting their numbers and a lot of our peers. So thank you very much for your time and attention. At this point, Jean-Pierre Trahan and I will 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) Our first question comes from Deepak Kaushal from GMP Securities.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [2]

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I've got a couple of questions if I may. First, Eric, Jean-Pierre, I'm not sure if I missed it in the filing. But can you guys provide an update on your SVOD revenue, the growth rate and what you're seeing on the ARPU side of that.

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

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The ARPU this quarter went down a bit. We have more B2B2C products than we have B2C. So the ARPU is lower on the B2B side and that's -- roughly were about flat to minus 3% on our SVOD numbers. And but for sure for us the SVOD October, November, December. These are the key months for us because however we finish December will help us all to out towards the rest of Q4, January, February, March. We're pretty much flat.

We'll give you after, Deepak.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [4]

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Okay. So on the free app launches, you mentioned a handful of countries. What are the early signs on those in terms of uptake/ Any kind of data or metrics you can share with us?

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

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So it's still very, very early because we only launched like about officially 4 weeks ago. We're not even promoting it yet. For us, it's a big move. At the end of the day advertising audio, advertising in the U.S. this year. So is predicted to be a CAD 2.4 billion industry. So we want to be on the audio advertising business. So in this case imagine, so we're competing against Pandora. We're competing against the ad-supported Spotify and we're competing against iHeart Radio. We think it's a great model, great business. We expect the revenues to be anywhere between CAD 0.06 to CAD 0.08 an hour, so it's a very lucrative business. Now what we need to get is more inventory and more hours of listenership.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [6]

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Okay, so you mentioned that you're not promoting it yet. Is that part of the plan? Do you have a plan for when you might start promoting it?

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

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Absolutely, I think on the radio -- in Canada, we added the radio channels to our app. Not everything was working perfectly because we're still testing. I think in the next couple of weeks, we have our last version. Once everything is stable very tested then you can expect every radio station or Stingray Radio in Canada to start promoting the app at the same way Bill promotes the iHeart in Canada. So I think that's the plan. I think already distinguishing music app we were rated the #2 app in Canada. So we have strong customer over 2 million downloads. But now is to make sure that's available for all Canadians.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [8]

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Okay, that's great, but the U.S. is a much bigger market. But it's also a much more crowded market and you don't have a radio station there to promote on. So what are the plans for U.S. market promotion for the free app?

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

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So U.S. it's a good question. So the way we're looking to promote the U.S. is to launch our audio channels with our different MSOs and with our different over the top players. So you can imagine, we're looking to launch the audio channels with ad-supported with flex on Comcast. We're looking to launch the audio channels with Samsung. They have 60 million connected TVs. We're looking to launch the audio channels with our friend at LG, with XUMO, with our friends at Roku, Pluto and also our friends at Sinclair, which is a strong U.S. base ad-supported over the top. So that will be part of our strategy to get more listenership of ours. In the U.S. our strategy for sure is more advertising base than CPS base for the audio channels compared to what we do in Canada.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [10]

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Okay and those launches, timeframes expected over quarter?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [11]

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We're launching some in December and we're launching, I'd say most of them in January, February, March. So that's going to take time for people to get used to having the audio channels but I think our strategy for the U.S. is very much of a advertising model base and so we already got some great success so far with the video channels. So we're continuing that trend.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [12]

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Okay, but you do have that SVOD channels in the U.S. so would there be running banner ads for the free app on the SVOD channel?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [13]

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Yes, we have SVOD but the volume is still pretty low on the SVOD side. We're still a micro SVOD. So I think for us the best ways to partner up with the big guys. We launched Samsung the -- what we call the nature vision or [LBS] channel and with Samsung after 2 months, we are close to 300,000 hours of visitorship. So those are the types of partners that can really get us rich. So and now just a small launch in the U.S. with Samsung. So those are the type of deals that we want to focus on. I think we've launched Karaoke with Tesla. I think there's no doubt that we're trying to be more included as a door music provider in cars. So that's something else. Those are different partners that we're trying to get ourselves in trench.

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Operator [14]

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Your next question comes from Bentley Cross from TD Securities.

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Bentley Cross, TD Securities Equity Research - Associate [15]

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First, just a couple of clarifications. JP in your script, what was the organic number you cited?

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Jean-Pierre Trahan, Stingray Group Inc. - CFO [16]

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1.2 I believe.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [17]

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Three organic sales, 3% if you take out ENL, 1.2. That's one thing by the way, Bentley that was discussed at the Board. With or without FX that in the future, we might just have one organic number and that's it because it's not -- it gets difficult to have all these mix organic numbers. We could discuss what's the best strategy for that after.

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Bentley Cross, TD Securities Equity Research - Associate [18]

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At the Investor Day, Eric, you through around number of internal plans contemplating a big step up in organic growth in the second half. Just wondering what your updated thoughts are on that?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [19]

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It's, we're in the pivot stage. So we're pivoting from the CPS model worldwide to like this is doing to more B2C advertising base, subscription-based, so and wish were -- for us Q3, Q4 are both our strong quarters of the year. So we know we're very confident. Like we always tell the market we want to beat the 5%. So with this quarter, we're close, but we want to be able to beat the 5% and that's the target that we give ourselves as management and hopefully with the pivot in the right moves that we're doing with the different partners. We will be able to achieve that.

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Bentley Cross, TD Securities Equity Research - Associate [20]

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Okay. And then switching gear over to the radio. I mean, on my numbers, it looks like radio organically was down high single-digits. Is that fair?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [21]

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Roughly, radio, the first 3 months, we were like plus 2 and in the second quarter, we're minus 2. So for minus 2, minus 3. For the year we're pretty much flat so far, but for sure for radio, we're working hard to be able to beat last year's number. So we got our cuts and I think for us one of our goals is just to beat last year's numbers with the web sales and also with the launch audio 360 which will take time. Audio 360 that's something that's going to happen in December. We see it a bit of impact in January, February, March. Audio 360, we are excited to see the results for next year, but still very early stage.

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Bentley Cross, TD Securities Equity Research - Associate [22]

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Okay and then just lastly, (inaudible) look at to what the overall radio market did in the quarter, maybe it's tram numbers you could share?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [23]

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It's always -- there is no doubt that the trams market were minus 8 between now minus 5, minus 10 for the tram market was -- we beat the tram. But the tram market is lower. No Chorus declared 2 weeks ago they were minus 2. And one of the things that we need to figure out is a lot of our competitors Bell, Rogers, Chorus have the radio and TV. And we know TV is very hot right now. There is more CPM on the TV side. So how does Rogers and Chorus and Bell allocate a client between TV and radio? So that's something that we need to understand more. For sure, we've seen some customers go more on TV side and radio, but since Bell at the right pocket, left pocket, it's tough for us to measure. I don't know if you follow me.

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Bentley Cross, TD Securities Equity Research - Associate [24]

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Yes, I follow. And last one for me, just updated thoughts on cash taxes for both this year and next?

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

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We were -- the good news is, because of the fact that we have a lot of R&D in Canada, with Stingray all of the R&D, all of the investment is done in Canada. So we always had the huge tax losses in Canada and now that we have a great engine that's showing a lot of positive EBITDA. We're able to merge both of the projects, both of the companies. So this year we only expect to pay between CAD 2 million to CAD 3 million of income tax. So it's pretty -- it's been very efficient and also decreases the risk of transfer pricing, what other countries, when that gets more complicated, as you know. So it's been good news for us.

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Bentley Cross, TD Securities Equity Research - Associate [26]

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And just how about next year?

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

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Next year, we expect to be about the same thing. We're really able to offset our R&D investments in Canada with the gains of radio. That's why there has been a very, very efficient deal, the radio deal.

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Operator [28]

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Your next question comes from Tim Casey from BMO Capital Markets.

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Tim Casey, BMO Capital Markets Equity Research - Equity Research Analyst [29]

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Eric, can you talk a little bit about what your expectations are on the S5B2C side because I know that's a major push for you guys. And you've talked a lot about how Apple is your biggest customer now. What do you see in the market in the quarter and what are your expectations into the seasonally important period that we're in right now? Thanks.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [30]

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Very good question. The answer is -- on Comcast, on Amazon U.S. we hit the plateau of you get a number of subscribers were your churn equivalents your new add. So most important for us is new platform. New products. So we're very aggressive as one day the launch Amazon, Japan, France, Italy also Amazon LATAM is launching. We also want to be an Amazon Canada, we want to be on the Apple TV platform, Apple TV will be -- they launched -- the first round they always go with the big companies. we usually are in a second phase. So most important to follow us is us launching our products on different platforms. We're talking to a lot of mobile operators, which are getting in the SVOD space, more countries but again on Comcast we've hit the plateau where Comcast is stable. Not growing not decreasing. Amazon U.S.A. is stable, so that for us will be the growth story for Stingray SVOD across the world. The beauty is we have the rights. There are video rights that are available in every country in the world. So we're a unique company in terms of that we have international content.

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Tim Casey, BMO Capital Markets Equity Research - Equity Research Analyst [31]

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And so what launches are happening in this quarter in calendar 2020 that it's going to support?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [32]

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I'd say for us we want to continue to grow with Amazon. We've met every Amazon partner in Can and so we're preparing our launch with different products with Amazon worldwide so Amazon is a key partner. I think for us to be on Apple TV. So we met the Apple TV team in California, we met the Apple TV team in Canada, we meet their team in France and U.K. So we're well connected. The advantage that we have as Stingray because we've been in the TV business for all these years we have developed relationship with every content provider or every cable provider but as you can imagine the Samsung, the Apple TV people are all xcable industry content buyers. So we have the relationship with almost every new SVOD service launching in the world because of the TV relationship that was built over 12 years. So I guess in a way we're bit lucky. That is the same core group of people. So we're very confident to be on all the platforms. Karaoke is a great success in (inaudible). Both of these platform are known to be great as well as services. So we're putting them on the next steps.

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Operator [33]

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Your next question comes from Matthew Lee from Canaccord Genuity.

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Matthew James Lee, Canaccord Genuity Corp., Research Division - Associate Analyst of Telecom and Media [34]

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Could you give us an idea of the EBITDA growth in that Radio segment? I know you said negative 2% of revenue for the quarter year-over-year.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [35]

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EBITDA growth was strong. EBITDA growth was plus 10% because of the savings. So we're -- EBITDA grow by 10%. I'm talking for the first 6 months. So minus 2 but EBITDA plus 10 for the first 6 months. And so I think plus 10.7. So for sure but the synergies are there. So that's the good news. They will achieve. We might get a bit more synergies. Now, our big focus is getting advertising on the Stingray platforms and that for us is the biggest revenue growth. Audio 360, pay audio, mobile ads and on our video channels. So that's a quick answer.

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Matthew James Lee, Canaccord Genuity Corp., Research Division - Associate Analyst of Telecom and Media [36]

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Right. And then just on the advertising side, the first half of the year, you brought CAD 0.5 million in advertising revenue, what do you think that run rate to get to by maybe the end of 2020?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [37]

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I think that debt revenue, it's still early stage, but that revenue will increase substantially in the next few quarters. So when I say that we see the doubling and more because it's such a small number and we are -- for example, and now we've launched on a lot of our products with Samsung TV and just that will generate about 100,000 -- 150,000 a month. We're launching our TV ads in January on the music video linear channels in Canada that we expect to be up CAD 1.2 million to CAD 1.5 million a year. So the advertising since we're starting at zero is only going to be good organic growth and all this advertising DNA we're getting because of the experience of the Stingray Radio team. And we've been able to implement their DNA in our thinking. So that for us is the biggest growth story over the next 2 years.

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Matthew James Lee, Canaccord Genuity Corp., Research Division - Associate Analyst of Telecom and Media [38]

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That's great and just one clarification for me. The CRTC tangible benefit, that did not hit your free cash flow this quarter?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [39]

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Yes, so we've made about CAD 7 million, but it does -- but it's not in the free -- it's not in the CAD 19 million. We don't put in our free cash flow. But we did pay did this in August, but we didn't put it in the -- you're right, it's not in the CAD 19 million. For us, free cash flow is EBITDA minus CapEx income tax and interest.

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Operator [40]

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Your next question comes from Maher Yaghi from Desjardins Capital Markets.

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Maher Yaghi, Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst [41]

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Eric, I just -- I wanted to ask you about your full expectations for your SOS services, you talked in the -- for both raising prices in some of these products. What's your view on ARPU in general as you said it was down a little bit in the quarter? Are you still expecting them to improve or we should keep our expectation at bay here? Also, the second question I had, Eric is on your organic growth, it's now in the low single-digit, you had hoped that we see re-energization in that growth path. Is it, as you say, dependent on a lot of your digital activities happening on the music side that's going to drive organic growth. Is that what you're putting you expectations on and how fast should we expect that organic growth to return to a more growing trend?

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

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Thank you. Very good question. So on the ARPU side, it's a good debate we had at the audit and the Board yesterday because we have certain products that the ARPU might be between on the B2B2C $1 to $2 and then we sell karaoke at $18 a month in UK. So, the only issue we have is, the only issue that we keep B2B and B2C together is we're trying not to give too much information on the B2C side to our direct competitors like Smule but long term, it gets a bit so confusing. So that's one thing we need to strive to bring more clarity. So this, the ARPU went down on that because the ARPU on the B2C went down. It's just that we had more B2C subs increase this quarter and we lost a B2B2C. So that's one thing we have to try to clarify better for the analysis and for you guys. So I agree with that. But for sure, you're getting a $2 account or getting an $18 account, it makes the whole difference in terms of ARPU.

So, yeah, that's something we can discuss. On -- you know, for us, 3% is -- our goal is 5%, 3% was below the management objectives and all of our growth is coming from advertising, US, over-the-top subscriptions, and our new launches. So, and also I think Stingray business with the deal of Metro, the deal of Metro is about a $10 million deal. So over 5 years, so you got about, so it's a very nice deal, very nice brand, gives us also the chance to do advertising in the future. So it really reinforces our space in Canada. So I think Stingray business also is the right path of beating the 5%. So I think we're confident over the next few quarters to beat that goal of 5% and to make sure that you guys are happy.

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Maher Yaghi, Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst [43]

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Okay, great. And my last question is on free cash flow generation, it's becoming hard to ignore the generation -- the cash generation power of the company even in a very seasonally difficult quarter, you're closing in on $20 million. You talked in the past about your objective to hit initially 75 then 80 and then sometimes, you mentioned 90 something million, how is your view on cash generation looking at this point in time, you've done a few cost saving actions in the past couple of months on the interest cost. Just maybe you can update us on your view of cash generation, please?

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

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Yeah. So, great question. I'm happy that's one of our strong points. I think, you know, free cash flow in the first 2 quarters, hit $40 million, we attributed 20.5. The good news is the end, we were able to secure a 10-year deals with our debt on the senior debt. Thanks to all of the banks at 3.5%, and we do have a bit of sub debt. So our interest rates are going down. We paid -- we were paying 4.0 -- we were paying off $4.6 million in Q1 this year and we expect to finish the year at $3.2 million of interest per quarter.

So that means, we started at $20 million in the start of the year, and we expect to finish around $13 million. So, we've got $7 million in the savings and based on our plans, next year in your forecast, the interest will be below $10 million. So we've gone from 22 to 14 to 13 to below 10. So we got huge savings there and it's real money. And so at the end of the day our taxes are low. Our CapEx has been decreased. So if you do $40 million times 2 is $80 million. So $80 million divided by the number of shares. We're looking about $1.10 per share this year based on the run rate. And it's -- the interest rates are not going to change because they're fixed. The income tax are done and the CapEx, we're very focused on it. So, I think you know that's why for us with the NCIB at $1.10 on the $7 share, it gives us a 16% free cash to yield, so that's why we're net buyers because we can buy a company and try to make 20% and without the risk of integration or are we just buying back our own shares. That's very safe and we get 16% guaranteed. And as the stock price goes lower, it goes to 17 and 18, so, and our free cash flow keeps on increasing. So for sure that's our strategy right now.

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Operator [45]

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Your next question comes from Deepak Kaushal from GMP Securities.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [46]

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Eric, I was a little bit surprised earlier maybe I misunderstood, but I think you alluded to Comcast having plateaued on the SVOD side. I know that you had some issues on the rollout or some delays and some not, so are you not plateaued in terms of a revenue perspective with Comcast and what kind of penetration are you're seeing?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [47]

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Yeah. At the end, we measure ourselves with (inaudible) and it's about 6 to 7 micro SVOD service because we can't compare ourselves to Netflix and Disney Plus. They're in the stratosphere, you know, these guys are, -- HBO is another league, so we can't compare. So in our space, when we look at all our comps, if you get 0.3% of 0.4% installs with a B2B customer like Comcast, then you're doing good. So on 20 million subs 0.3 to 0.4 is 60,000 to 80,000 subs. And that's what we've been able to achieve with Qello and Karaoke. So based on what our peers are doing, and we're already in a top 5% micro -- in terms of successfulness. So, with Comcast unless we launch other products, and now we're launching on Flex. That's a new flex for Comcast. That's a new platform. We'll launch for Roku. We want to launch on Apple. We want to launch of Amazon in different countries. We're looking to launch with Charter SVOD and we've launched the SVOD in Canada but Canada by nature is very small.

So, -- we love our partners and I'm not trying to say that, but you know, we launched SVOD with one of our partners in Canada and we got a 1,000 SVODs. It's great. It's great but it's not going to move the needle. So, for us to have to be international growth, big platforms, and also the mobile side, we have to work with Claro, Telefonica, Sprint, T-Mobile and Verizon. So those for us for the next platform that we'll be launching. If not on a Comcast, no Comcast, the answer is we've we hit, we hit our 3.4.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [48]

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Okay but so going. I understand the growth path with new platforms and new countries, et cetera, but going back to Comcast. I mean you're just talking about Qello and Karaoke. What's the prospect for Concert-- iConcerts or Djazz or Classica?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [49]

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Qello and Karaoke are by far better products for SVOD than Djazz and Classica. Classica, we're having a lot more success and we're having -- when it's about 10 to 20 times more success with Classica when we do a linear video channel -- linear instead of SVOD. The people that like Classica are not maybe your best SVOD customers. They are more of at linear channel and that's why you will see will be launching a lot more, because I'm not sure that everybody likes Classica with the -- maybe the age or the Group really wants to be able to choose their opera. I think they just want to have a good lean back experience, and that's what we're trying to convert with Classica and be more I guess easy going for our target audience.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [50]

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Okay. Okay. I got it.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [51]

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Is that a good answer?

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [52]

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Yeah. Yeah. That helps me. Okay, thank you so much.

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

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Thanks, Deepak.

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Operator [54]

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(Operator Instructions) Your next question comes from 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 [55]

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My apologies if any of these have been asked already, but with respect to Metro deployment, are we looking at calendar year for it to be completed or is it more of a fiscal 2020 content?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [56]

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Yeah, so it's pretty aggressive there I think natural once everything done, I think for November before the holiday season. So very aggressive deployment and after that there is a lot of -- the part of this agreement with them there -- we are doing -- all other speakers also will be changed in a lot of the stores. So that will be probably over 2 years, because a lot of the equipment and labor will be over 2 years, because putting a box for music is simple. But I think part of our initial deal is also to change all of the atmosphere in every Metro store and there's also digital signage. So it's about a $10 million contract, 2 million RMR, 8 million in ENM and could be bigger. Because they're just launching more and more stores and we're expanding more with the different -- the drug stores and -- Jean Coutu. So for us Metro was a key customer and we're both in Canada, it's one of the major retailers. But I think you'll see our trends, I don't want to be too confident. But we are winning every major account in Canada, I think Stingray is becoming the go to music and digital supplier.

So if it's been, with banks -- we're winning with banks. We're winning with other grocery stores and we're able to deploy across all of their platforms. So it gives us scale and scale gives us better margin. Was that a good answer?

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Adam Shine, National Bank Financial, Inc., Research Division - MD, Head of Montreal Research & Research Analyst [57]

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That's perfect. Thank you. And with respect to organic growth, I just want to maybe bridge the gap between the 1.2% type growth related to your recurring revenue versus 3% that was also headlined in the press release.

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [58]

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That's becoming more-and-more complicated, because when we do content on -- when we do content with Metro or with Sport Experts, we say content is recurring -- net recurring, so that's why -- so content is recurring but then sometimes we'll do less content for Sport Experts. So it becomes more difficult and that's a question that maybe we can all sit down with the analysts, in the future do we just get one number. Because always giving 2 numbers, gets to be so we're 3%, overall we're 3%. If you exclude ENL about 1.2.

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Adam Shine, National Bank Financial, Inc., Research Division - MD, Head of Montreal Research & Research Analyst [59]

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Okay, got it. Okay. And obviously historically --

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [60]

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We'll need to - it becomes complicated having 2 numbers.

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Adam Shine, National Bank Financial, Inc., Research Division - MD, Head of Montreal Research & Research Analyst [61]

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Yeah, absolutely. Okay. And just lastly, with respect to M&A, I mean notwithstanding your comments regarding buying back your stock, which right now seems to be the easier route to go. Any further update as to prospects for near-term execution?

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Eric Boyko, Stingray Group Inc. - Co-Founder, President, CEO & Non-Independent Director [62]

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Very good question, that was one of my -- I was -- when I report to the Board, that was one of my main points that we did yesterday. We haven't done an acquisition in 12 months. It's not part of our DNA, we've never been so active. We probably have 15 LOIs that are -- in fishing lines, so we've never been this active. Our team has never been this active. The only issue is the pricing is getting harder. We had good deals closing in Europe with 10,000 location with all done very excited close to 5 to 6, and the company got an offer from a private equity firm at 9.5 times. So, I said, "Good for you. We can't pay 9.5 times in our model. So we are happy for you make lots of money."

So the deal hasn't closed, but there've been a couple of deals that have been re-priced above our level and maybe that's the difference between an entrepreneurship company and a management style company. We're not going to do a deal just to do a deal if the pricing is not good. But maybe we're being too aggressive on the upfront money. But right now, we're waiting for the market to turn, and there is no doubt that if we are fighting against the private equity on a larger deal, there's a lot of money out there, and for us, we will have to wait till the market becomes more reasonable or some of the partners don't get the deals.

So, I think, but very confident to have some deals closed before the end of the year. And like I said, but I wish we had 3 deals that were expected to close in September that I think that didn't close. So, for sure, Management was a bit disappointed on 2 of them.

And one of them, we lost before a very rich family in Europe that just paid like, 10 to 12 times whatever and there was no EBITDA. It's tough to beat when you're finding big families so.

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Operator [63]

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We have no further questions at this time. I turn the call back over to the presenters for closing remarks.

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

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Yes. Again, thank you very much for everyone. I know it's a busy week, everybody is reporting. So, and I know we're one of the smaller companies compared to our friends in the cable industry, but very happy you could attend today and I appreciate your time and everybody on the line.

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Operator [65]

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This concludes today's conference call. Thank you for your participation. You may now disconnect.