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Edited Transcript of SCR.V earnings conference call or presentation 13-Apr-17 12:30pm GMT

Thomson Reuters StreetEvents

Q2 2017 theScore Inc Earnings Call

Apr 13, 2017 (Thomson StreetEvents) -- Edited Transcript of theScore Inc earnings conference call or presentation Thursday, April 13, 2017 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Tom Hearne

theScore, Inc. - CFO

* John Levy

theScore, Inc. - Chairman & CEO

* Benjie Levy

theScore, Inc. - President & COO

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Conference Call Participants

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* Nikhil Thadani

Mackie Research - Analyst

* Rob Goff

Echelon Wealth Partners - Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to theScore, Inc. second-quarter results conference call.

(Operator Instructions)

This call is being recorded on Thursday, April 13, 2017. I would now like to turn the conference over to your host, Tom Hearne, Chief Financial Officer. Please go ahead.

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Tom Hearne, theScore, Inc. - CFO [2]

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Good morning everybody. Thanks for taking the time to join us today on our call and webcast for theScore's fiscal 2017 Q2 results. On the call will be theScore founder and CEO John Levy as well as President and COO Benjie Levy and myself.

At this time I'd like to caution our listeners that this presentation contains forward-looking statements. There are risks that actual results could differ materially from what is discussed and that certain material factors or assumptions are applied in making these forward-looking statements.

Any forward-looking statements contained in this presentation represent the views of management and are presented for the purposes of assisting theScore's shareholders and analysts in understanding theScore's financial position, objectives and priorities and anticipated financial performance. Forward-looking statements may not be appropriate for other purposes. Additional information on items of note, theScore's reported results and factors and assumptions related to our forward-looking information are available in our annual information form and on our MD&A for Q2 2017, both of which are now available on SEDAR.

With that, let me turn the presentation over to John.

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John Levy, theScore, Inc. - Chairman & CEO [3]

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Thanks, Tom, and good morning. Welcome to everyone. Thank you for joining us today for our review of our second quarter of fiscal 2017.

In Q2 we saw revenue grow from $5.8 million to $6.7 million. This growth was achieved through a combination of performances of our Canadian and US direct sales teams as well as the growth and engagement within our mobile apps, which powers our programmatic business in the US. Revenue for the first six months of fiscal 2017 sits at $15.2 million versus $12.8 million for fiscal 2016, which keeps us well on track to deliver on our goal to achieve EBITDA profitability during fiscal 2018.

We achieved significant revenue growth this quarter through a combination of great work by our direct sales teams in Canada and in the US plus the continued improvements in the sophistication of our programmatic business. This quarter we sealed major sales deals with brands including Chevy and NBC in the US, with the latter accessing our user base to promote Thursday Night Football.

In Canada we also finalized major deals with a trio of agencies that guarantees a significant seven-figure spend with us over the next year. Independent of this we also saw six-figure buys with such companies as GMC, Subway and Steel just to name a few. We also expanded our sponsored content offering to our eSports platform this quarter with Sugar Crisp attaching their name to some fun video integrations focused on the competitive video gaming scene.

In addition to our direct sales successes we are also making continued strides in assuring we offer brands and agencies the very best experience by focusing on improvements in the areas of particular interest to buyers like viewability, better audience segmentation and behavioral targeting. As a Company that's been successfully monetizing mobile traffic since our inception, we have built a very strong reputation as a publisher brands want to work with us to deliver the best results by reaching engaged sports fans.

Engagement in our mobile app continues to grow year over year, a testament to the compelling user experience our team has created. Average monthly app sessions were up to 378 million compared to 335 million for the same period in the previous year with users opening our apps on average just over 85 times a month. Average monthly active users of theScore's mobile apps were 4.3 million versus 4.4 million in Q2 2016, and our product development and marketing team is laser focused on revitalizing user growth to ensure we get our offering into as many new hands as possible.

We are tackling this challenge from a position of strength and continue to maintain our position as the number one Challenger to ESPN on mobile throughout North America. As disclosed on our last call we are the midst of executing an exciting new strategic and data-driven feature roadmap for our flagship app, theScore. The objective of this initiative is to strengthen our already large community of users while improving the interaction with and application of the content we create and service.

We are well on track with this and have already completed the first few stages of user testing. You can expect to see these new features rolled out during the remainder of this fiscal year.

While the continued development of theScore app is our primary focus for the next few months we are also meeting the evolving needs of sports fans by continuing to iterate on the areas of business with high growth potential like bots and eSports. For more on what we are doing from a product development standpoint I will turn things over to Benjie.

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Benjie Levy, theScore, Inc. - President & COO [4]

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Thanks, John, and good morning everyone. As John just mentioned, our team has been making great progress on the execution of our new feature roadmap.

We have also recently begun our initial user testing and are very pleased with the results. We will be using this feedback to help guide our efforts as we continue to refine and develop these exciting new features before we introduce them to our fans later this fiscal year.

In addition, as part of this process we have expanded the role of VP, Product Riaz Lalani to include leadership of product development for our core sports app in addition to his current role leading our boss and fantasy sports teams. Riaz' proven track record during his time at Zynga plus his experience of managing product teams and using real-world data to drive feature development here at theScore makes him perfectly suited to this role. And we are excited to support him in this initiative and beyond.

While the launch of theScore's $100,000 Team Tourney Challenge didn't technically fall into Q2, much of the work to prepare it did so it's getting a mention here. This was our first-ever bracket picking contest for our app based around the annual Men's College Basketball Championship Tournament and involves a unique and innovative game play format that invited friends to team up and compete against other groups for a guaranteed grand prize of $100,000.

The contest was available across North America exclusively to users of theScore app and was supported by Canadian Club as the sponsor in Canada. The challenge saw more than 100,000 fans enter the contest and the experience demonstrated that there is a clear appetite for contest-style features on our platforms, which will inform our future product roadmap plans.

It's no exaggeration to say that in less the year of theScore Bot for Facebook Messenger has quickly emerged as the leading independent sports bot on the platform. As an early adopter, we've struck up a great working relationship with Facebook and worked closely with them to ensure our bot offering is playing at the very forefront of the latest technical capabilities on this platform.

As well as localizing our content for greater adoption globally, we have also begun exploring moving the Bot beyond just scores and news, adding related multimedia content. We are very excited about the future potential of this platform and we are looking forward to showcasing what else we've got planned here very soon.

Like bots, eSports continues to show great promise for us. In two years we've succeeded in creating a media platform that has become the go-to for hard-core fans of the competitive gaming scene. Our next step is to broaden this audience by producing more content including video content that appeals to the many millions of fans that may not follow a professional eSports team but enjoy playing the games or watching the scene at a more casual level.

We are already seeing returns on this strategy with a marked increase in video views as we look to break into this larger addressable market. On top of this, our product team has made further improvements to our web offering, adding scores and stats to create greater parity with our market-leading app.

Finally, our free-to-play fantasy sports game Squad Up continues to expand its coverage, recently adding golf tournaments right in time for the Masters with soccer next on the agenda. We have also enhanced game play by introducing one-on-one duels, allowing friends to challenge each other and invite others to the app to play for real cash or virtual coins. We continue to market Squad Up to existing users of theScore's web and app platforms as we continue to iterate on game play and content structure.

I will now turn things over to Tom who will run through our financials in more detail.

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Tom Hearne, theScore, Inc. - CFO [5]

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Thanks, Benjie. Q2 2017 revenue compared to Q2 2016 revenue grew from $5.8 million to $6.7 million, an increase of 15%. For the first six months of fiscal 2017 revenue grew from $12.8 million to $15.2 million, an increase of 19%.

Our revenue growth in Q2 was driven by better direct sales in both Canada and the United States and our increased app user engagement. Engagement grew by 13% in Q2 compared to the same quarter last year.

In Q2 2017 Canadian add revenue grew 43% year over year while US revenue grew 7%. Year-to-date Canadian ad revenue grew 41% year over year while US revenue grew 11% year over year.

In Q2 2017 expenses declined to $8.7 million from $10.1 million in the prior year. Reduction is mainly driven by reduced G&A cost as well as some lower marketing costs. In Q2 2017 personnel cost were $4.6 million, consistent with the prior year, and for the first six months of the year personnel costs were $9.1 million compared to $9.0 million last year.

Headcount at February 28, 2017 was 206 full-time staff versus 201 at February 29, 2016. Our headcount was essentially flat year over year. And as we commented in the previous quarter's conference call we see this as the right base for operating the Company and maintaining growth opportunities which will help drive us to profitability.

Adjusted EBITDA allows for Q2 was $1.4 million versus $3.2 million in the prior year. The combination of revenue increases and reduced expenses are allowing us to improve profitability each quarter.

We finished the quarter with $9.1 million in the bank. Cash used for the first six months was, of the year was $6.4 million down from $9.1 million in the prior year. And we recently received CRA approval for the payment of the $5.2 million tax credit and we expect payment by the end of this month, essentially making our cash balance more like $14.3 million.

With that, operator we will turn it over for questions and answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Nikhil Thadani, Mackie Research Capital.

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Nikhil Thadani, Mackie Research - Analyst [2]

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Thanks guys. Good morning.

I just wanted to go back to the marketing spend for a second here. It seems like marketing was down quite a bit from your Q1 number, and so how should we think about marketing going forward, especially with the new features being rolled out in the second half of fiscal 2017? Is this like a strategic pause in marketing while the new features get rolled out? Is that how we should be thinking about the marketing line?

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Tom Hearne, theScore, Inc. - CFO [3]

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The reduction in the cost of marketing is actually not really a pause in marketing. What we are actually finding is in the side where we actually go out and do some paid user acquisition and in some of the marketing efforts we have made we've just become significantly more efficient. And as Benjie will note in the conference call comment, growth in theScore will be driven by product initiative and a combination of what we are doing and app and social media that will really drive the growth of the Company.

This is not something we will just spend our way out of. We think what we are doing on the product side is really what will be the driver of growth and, therefore, if we can be efficient on the marketing side we will do that in order to be able to continue to drive profitability.

Benjie, do you want to add to that?

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Benjie Levy, theScore, Inc. - President & COO [4]

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No, I think the point Tom made about one of the key focuses in our marketing group about being more efficient in terms of paid user acquisition as a complementary channel to organic growth. We are finding that by optimizing our acquisition channel we are doing, for example in January of this year we had the same number of paid users that were acquired through paid channels as we did last year at less than half the cost. So part of that is just our team getting more efficient and finding these channels.

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Nikhil Thadani, Mackie Research - Analyst [5]

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Great. And so it sounds like as you have more features rolling out in the back half of the year the customer acquisition costs should be lower than what they were in the past. Is that a fair way to paraphrase what you just said?

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Benjie Levy, theScore, Inc. - President & COO [6]

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Listen, I think we are hopeful that the efficiencies that we've been able to find in Q2 will continue moving forward. Obviously, there is some seasonality to that driven by what other advertisers are active in the marketplace.

And to support some of these new initiatives we may look at certain -- we may look at certain special marketing initiatives. But to Tom's point, as a general steady state we are hopeful of continuing on the basis that we have.

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Nikhil Thadani, Mackie Research - Analyst [7]

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Got it. And if I look at your user data and the daily app open, it's kind of interesting because the daily app opens are up actually pretty nicely year over year. And the users I imagine is just like the usual seasonality.

How should we think about that as we go into the sports calendar like in the fall and the back half of this year? With the new features it seems to me like the ad inventory that you have in the back half should be meaningfully higher and, therefore, ARPU should be significantly higher too. Is that fair?

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Tom Hearne, theScore, Inc. - CFO [8]

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Well, I'm not sure what you are meaning by second half. If you're talking about fiscal year, what we generally find is Q2 and Q3 are relatively similar for us from both a user and a sessions profile. Obviously, our summer quarter is our quietest quarter.

Last year we had Olympics and World Cup or EuroCup, etc. We had some events going on that we don't have this year. So we will continue to work a way of how to drive user growth and session growth, but it is quietest quarter.

Most of the product initiative work that Benjie talked about is really driving towards getting ready for, as we usually do, the start of NFL season. Q1 is usually our biggest quarter of the year. We focus a lot of product initiatives in getting ready for that Q1 season. And so if you look at back half of calendar year, certainly yes we look at a lot of things that we have been doing from a product perspective not only could help user growth but we think will also continue to help engagement.

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Nikhil Thadani, Mackie Research - Analyst [9]

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Got it. And just one last one before I pass the line here. In terms of eSports there seems to be lots of positive industry data out there recently.

Is there any qualitative data or quantitative data that you might be able to share with us now or perhaps in the upcoming quarters in terms of either user base or monetization, anything along those lines? Thanks, guys.

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Benjie Levy, theScore, Inc. - President & COO [10]

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Thanks, Nick. I think in terms of what you are seeing in the eSports industry at large that's exactly what we are seeing as well, which is why we continue to be so excited about this space. And as I mentioned in my comments, our biggest focus is what's the best way to engage the largest possible number of eSports fans. And you are starting to see some of that reflect in some of the video content that we are producing, targeting a broader audience of eSports fans.

Our app caters very well to the hard-core set of eSports fans who want to follow the teams and players. And I think what you are starting to see with our web offering and also migrating back into our app in terms of the content that we are producing is content that's going to appeal to that broad swath of more casual eSports fans who may watch the streams, who may play a little bit but who may not be subscribing to push alerts to follow the teams.

We have been doing this for the past number of months. We are happy with the initial results. And as we roll forward we will be sharing more.

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Operator [11]

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(Operator Instructions) Rob Goff, Echelon.

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Rob Goff, Echelon Wealth Partners - Analyst [12]

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Thank you very much and good morning. Could you perhaps give us a bit of a sense for how March Madness was for you this year? I know it's an important event.

And could you also address what you're seeing in terms of user churn. Are levels stable with historic levels?

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John Levy, theScore, Inc. - Chairman & CEO [13]

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Hi, Rob, it's John. Yes, for the first time in with March Madness we were very pleased. It's a very competitive space.

CBS, Yahoo, everybody does their tournaments. And we came up with this concept of a team play which was kind of unique, sort of in line with how we do things and we just weren't copying the other tournaments that people offered. So we were very, very pleased with the response.

I don't think we've talked about specifically how many users that were on the team but there were over 100,000 participants in the game. So first-time in that was pretty good for us. The engagement of the users was pretty dramatic, as you might expect, because it's a pretty engaging tournament.

And I think it really worked on a couple of levels. Number one, it allowed us to get into this sort of activity for the first time. And I think that's very important not only from the game itself, but it also allowed us to draw upon some technology that we think we are going to be able to use in the future not only for future March Madness tournaments but for other interesting opportunities in games that we will be looking at creating and rolling out in the future.

Plus, it also gave us some brand extension, predominantly in the US where March Madness is so popular. I think we were named one of the top new by, I can't remember, heavy.com named us one of the top tournaments being offered, whether new or otherwise. So we got some pretty good press on it as well and the buzz was pretty significant about it.

So for first shot in we were very, very pleased with it. And I think it was a pretty efficient spend in terms of, we are talking in the last call about some of the marketing dollars but effectively spending where we think we are going to get the return. So I think we were very happy with it.

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Tom Hearne, theScore, Inc. - CFO [14]

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And then, Rob, with respect to your second question, we aren't seeing any change really in user churn. Acquisition numbers and churn have stayed quite consistent over the last little while. That's why I think you see from a user growth perspective the numbers are relatively consistent with the year before.

One of the big focuses, we have always been very good on the churn side, so, obviously, the focus in growth is really on driving more new user acquisition. We have always had a fairly good level of confidence that once we get you on board and engaged in the application you are going to be a fan and you are going to keep using it. And so for us it's always been more about awareness and user acquisition and how to get more people familiar with theScore brand than it was trying to worry about people on the backend because we tend to keep you fairly well.

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Rob Goff, Echelon Wealth Partners - Analyst [15]

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Thank you. And if I may on the Bot, could you discuss perhaps your roadmap on your product there and the monetization strategy?

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Tom Hearne, theScore, Inc. - CFO [16]

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Roadmap features we can't really outline. Some of that is contingent on the new features that Facebook wants to roll out as part of the Bot platform as well. And we have a great relationship with Facebook as they love the early independence that get in and put a really good effort and can develop quickly.

And so we have been able to interface with them and do a very good job in their development platform. And I think they generally recognize us from a usability perspective as one of the best bots out there.

From a monetization perspective we've had conversations around that. We think that Facebook, Facebook is not afraid to monetize and if one thing Facebook has done incredibly well in their mobile platform is make money.

So we have a high level of confidence that as bots become more engaging and broader scope in the Facebook ecosystem they are going to introduce the Facebook audience network into it. And we will be a great participant in that and be able to start to monetize our Bot engagement.

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Rob Goff, Echelon Wealth Partners - Analyst [17]

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Thank you guys. I will pass it on.

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Operator [18]

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Thank you. There are no further questions at this time. Please proceed.

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Tom Hearne, theScore, Inc. - CFO [19]

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All right. Well, thank you very much everybody for joining us on our call. We look forward to speaking to you again in July when we release our Q3 results.

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Operator [20]

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Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.