Stingray Group Inc. (RAY) Earnings Call Transcript

Good morning, ladies and gentlemen, and welcome to the Stingray Group's Q2 2027 Conference Call. [Operator Instructions] This call is being accrued on Wednesday, November 11, 2026. I now like to turn the conference over to Mr. Mathieu Peloquin. Please go ahead, sir.

Thank you for joining us for Stingray's conference call for the second quarter of fiscal 2027 ended September 30, 2026. Today, Eric Boyko, President, CEO and Co-Founder; as well as Marie-Helene Fournier, Interim Chief Financial Officer, will be presenting Stingray's operational and financial highlights. Our press release reporting Sting rates second quarter results was issued yesterday after the market closed. Our press release and D&A and financial statements for the quarter are available on our investor website at stingray.com as well on SEDAR+. I will now provide you with the customary caution that today's discussion of the corporation's performance and its future prospect may include forward-looking statements. The corporation's future operation 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 August 7, 2026, 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 forward-looking statements. Also, please be advised that some of the financial measures discussed over the course of this conference call are non-IFRS. Refer to Stingray's MD&A for a complete definition and reconciliation of such measures to IFRS financial measures. Finally, let me remind you that all amounts on this call are expressed in Canadian dollars unless otherwise indicated. With that, let me turn the call over to Eric.

Thank you. Good morning, everyone. And welcome to our second quarter results conference call for fiscal 2027. So we're very happy that the flash reports from our analysts last night being so positive is really helping your stock this morning. So thank you to the analysts. Stingray's strong second quarter results reflect the team's outstanding effort to deliver higher profitability across all our growing segments. Since the TuneIn acquisition less than a year ago, we have focused our efforts on a disciplined execution of our strategy plan to monetize our extended distribution and reach. Stingray's adjusted EBITDA increased by 47.5% year-over-year to $58.3 million in the second quarter. I don't need to remind you that every quarter is a record. So we stop saying the word record. We are pleased to have achieved an adjusted EBITDA margin of 34%, bringing us closer to our annual target of 35%. In fact, the integration of in operation has followed us into reach revenue synergies and cost savings on an unlined run rate basis of $45 million and $12 million, respectively, exceeding our internal expectations. We believe there are some further opportunities to optimize our synergies, both in terms of revenues and costs moving forward. Now to our fast channels. Our Fast Travel segment delivered revenue growth of more than 85% year-over-year. During the quarter, we secured the rights to monetize Samson's unsold advertising inventory making Samsung on the third major television manufacturing to John Stingray's premium ad network. We also expanded our fast distribution in Europe, launching 20 channels across 13 countries on LG Smart TVs and 17 channels across 9 countries on Rakutan TV. In addition, we continue to deploy our popular products such as mood scape and continue to expand our offering and distribution. We continue to see mid- to long-term growth opportunities in the connected TV and fast channels. Turning to in-car entertainment business. Our revenue grew at a double digit in the second quarter. We recently announced an inverter pleased to for streaming radio and linking streaming radio, co-branded application powered by Stingray that are rolling out in SELA-North American vehicles. Their audio catalog includes more than 100 curated ad-free channels, 100,000 local and international radio stations and 4 million podcasts across a range of topics. Furthermore, we signed a new agreement with Talentis which are less popular now in Canada to bring the tumor app to select future vehicles and extended our reach with the addition of Stingray Music Plus and HARMAN Ready Link marketplace. Now to broadcasting. Broadcasting and Commercial Music revenues surged 70% year-over-year to $137 million in the second quarter, this outstanding growth reflects Tangri's strong position in distribution and our proven ability to monetize and extending advertising inventory, driven by robust demand across our premium ad network and further amplified by tuning advertising revenue, which includes TuninFasS and retail more than doubled during the same period, while organic sales increased to 15%. We finally, as expected, radio had a great quarter with a revenue climb of 5% to $34.1 million. So again, highlighted by national airtime size and digital revenue. We're very happy with the radio because we all remember last quarter was more difficult. So we're happy with the great comeback. Now before turning to Manila, I would like to update you on our current capital allocation initiatives. First, as you see, and I think we are very happy to announce a 17% increase in dividend from $0.32 to $0.40 or $0.10 a quarter. I think this shows the confidence of the management and the Board on our future cash flow. And as you know, our policy is to be at 20% of free cash flow. And I think that we are -- we'll be able to explain that more. Second, we've also recently renewed our normal course of issue bid with the TSX authorizing us to repurchase up to 4.4 million shares over a 1-year period. So we will be restarting our NCIB again, based on our confidence of strong cash flow and the strong cash flow this quarter of $0.51 per share. Together, these dividends and share buyback initiatives underscore our commit to returning value to shareholders and reflects the board's strong belief in long-term growth potential of the business. While we are pleased to increase shareholder return, our primary capital allocation is and remains debt reduction. We actually lowered our net debt by more than $18 million in this quarter, keeping us firmly on track to bring our leverage ratio close to 2x by the end of the fiscal year 2027. So with this great quarter, Marie, I will pass to you the baton.

Thank you, Eric. Good morning. Revenues reached $171.4 million in the second quarter of fiscal '27, up 51.3% from $113.3 million in Q2 2026. The year-over-year growth was mainly driven by higher advertising revenues from the Tunel acquisition, increased fast channel sales and a positive foreign exchange impact. Revenues in Canada decreased $1.1 million or 2.1% to $50.4 million in the second quarter from $51.5 million in the same period of 2026. This decrease reflects a normalization of equipment and installation sales related to digital signage following an exceptionally strong performance in the prior year. Revenues in the United States grew $57 million or 109.9% to $109 million in the second quarter of '27 from $52 million in the second quarter of 2026. The increase was primarily due to higher advertising revenues from the union acquisition and greater fast channel sales. Revenues in other countries improved $2.2 million or 21.7% to $12 million in the second quarter of 2027 from $9.8 million in the same period of '26 on the strength of greater fast channel sales. Looking at our performance by business segment, Broadcasting and Commercial Music revenues increased 69.8% to $137.3 million in the second quarter of 2027. The growth was again primarily driven by higher advertising revenues from tuning and greater fast channel sales. For that part, Radio revenues improved 5.3% to $34.1 million in Q2 2027 on higher national airtime and digital revenues. In terms of profitability, consolidated adjusted EBITDA rose 47.5% to $58.3 million in the second quarter of 2027. Adjusted EBITDA margin reached 34% in Q2 2017 compared to 34% in the same period last year. The increase in adjusted EBITDA year-over-year can mainly be attributed to TuneIn and overall growth revenue growth. The decline in adjusted EBITDA margin was largely due to lower gross margins related to the recently acquired TuneIn and the Singing Machine product offerings, combined with a shift in product mix towards advertising revenue. By business segment, Broadcast and Commercial Music adjusted EBITDA grew 60.2% to $49.9 million in Q2 2027 primarily driven by revenue contributions from the Tonen acquisition and fast channel sales group. Adjusted EBITDA for our radio business improved 6% year-over-year to $10.8 million in the second quarter of '27 based on higher revenues. In terms of corporate adjusted EBITDA, it amounted to a negative $2.5 million in the second quarter of 2027 compared to negative $1.9 million in the 2026. Single reported net income of $15.2 million or $0.24 per diluted share in the second quarter of 2027 compared to $11.8 million or $0.17 per diluted share in Q3 2026. The year-over-year increase was mainly due to improved operating results and an unrealized gain on the fair value of derivative financial instruments in the most recent quarter. These factors were partially offset by higher acquisition costs and increased amortization of intangible assets related to the tuning acquisition, along with a higher income tax. Adjusted net income totaled $34.7 million or $0.51 per diluted share in Q2 2027 compared to $21.9 million or $0.32 per diluted share in the same period of 026. The increase was mainly due to higher operating results, partially offset by greater income tax expense. Turning to liquidity and capital resources. Cash flow from operating activities amounted to $44.3 million in the second quarter of compared to '27 compared to $24.3 million in the second quarter of 26%. The increase was mostly due to improved operating results and a positive change in noncash working capital items in the most recent quarter. These factors were partially offset by higher acquisition costs related to the TuneIn acquisition. Adjusted free cash flow in the second quarter of '27 totaled $39 million compared to $28.4 million in December of '26, the increase can largely be attributed to improved operating results. From a balance sheet standpoint, Stingray cash and cash equivalents of $19.7 million at the end of the second quarter and credit facilities of $548.9 million. Net debt at the end of the second quarter stood at $529.2 million compared to $ 547.6 million at the end of Q1 2027. The $18.4 million sequential decrease can be attributed to strong free cash flow generation during the quarter. Given lower net debt and our pro forma adjusted EBITDA over the last 12 months, our leverage ratio improved to 2.39x in Q2 '27 from 2.13x in the previous quarter. As I mentioned earlier, we're laser-focused on bringing our leverage ratio around 2x by the end of March 2027. This ends my presentation. I will now turn the call over to Eric.

All right. So thank you, everybody, for the call today. Thank you for all the analysts being present and Machetti. Always happy to do this call. So I think we're ready for the questions. So back to you guys.

[Operator Instructions] Your first question comes from David McFadgen with ATB.

All right. Yes. So a couple of questions. Maybe you could comment on the Samsung deal like how material could this deal be?

Yes. For us, Samsung in terms -- and this is public information. Samsung right now is the largest connected TV platform in the world. So -- and they're very good, very advanced at selling their ads under Connected TVs. So we just started with them this quarter. We're very excited. We've also added the audio ads, so that's something that Samsung did not have. So -- and this quarter, it was minimal, but I think it's going to be -- we believe that Samsung should be bigger than Visio. And so we see a lot of growth at Samsung for the next 2 to 3 years because we're really adding a huge partner on board.

So if we -- or if you look at VIZIO, I'm just wondering what percent of the inventory do you get of their inventory do you get? And what percentage of Samsung's inventory do you think you'll get a?

Yes. I think we'll get the same number of impressions. It's just that when you start with a new partner, you just don't launch all the impressions they want because you're going to scare the market. So you start slow and grow and we take more ad impressions. And so no, I think that all the connected TVs are very impressed with our audio ads. It's a product that did not exist for them. And so we're not competing against other video ends. So now but Samsung is a huge partner for us. They're a huge partner. They're our biggest partner on the front side. So they're the one that sells the most on our channels. And now there are going to be also -- they should be our biggest partner of us selling on the backfill.

Okay. And then a question on synergies. So you said you've achieved synergies, $45 so far and then the cost synergies. I mean -- and I know you think you can get more, but have you basically gotten most of it? Or do you think there's still meaningful synergies to achieve here from this level going forward.

A lot of still info synergies because we're working every day, every morning. We have a synergies meeting of how we can get more cross-selling from tuning to the CTV market more audio ads onto the CTV on Samsung. So that's a daily meeting that we do at 9 a.m. We're happy to invite you. And after that, there's also -- now we're getting to a stage after 9 months. We have 3 ops teams, 3 disks. We have 3 -- so we're looking at how we can work better together and optimize there's still a lot of cost saving in terms of gross margin and cost of goods sold. So we have still a lot of -- some more savings to come. So even if we exceeded our target I think you'll see over the next few quarters, we'll have some more synergies coming.

Your next question comes from Adam Shine with NBF.

Eric, this quarter, we saw the broadcasting and commercial music margin compression a lot lighter than what we've seen over the last 3 quarters. And obviously, we obviously saw a little bit of an increase year-over-year in the margin expansion in radio. Some of this is synergies. Some of it is operating leverage. But -- can you speak to other efforts underway in terms of efficiency gains? Because obviously, to get to your 35% by the end of the year, we're going to see the prospect of margin expansion going into the back half in your big segment. So maybe if you could just speak to that.

Yes, that's. First of all, quarter-by-quarter, we're improving the margin on the backfill and also improving on sales, getting better CPM and also by bringing down our costs, our cost of the distribution. So that's helping us out. And the other part also that you'll see us focusing on. Right now, we're about -- Stingray Group running about 400,000 a month just in loan that tune in. So $1.2 million in the quarter. A lot of it is coming because we know, we invest a lot of the AI, that was not budgeted. So we're also going to start looking at our Opex on both Stingray and TuneIn because just that $1.2 million, it's the 1% that would have given us hitting the 35%. So we're putting those initiatives in place even if having great growth sales, we still want to make sure we stay lean on OpEx.

Okay. And we saw the budget from Carty recently, a bunch of buckets of potential goodies coming to broadcasters. Could you speak at all to what you might be getting, whether it's related to news journalism credit or other pockets of government incentives or otherwise?

Yes, I must tell you that at least the business community that we speak to and even the media company, I was steam to our friends at Coles this week, very happy with the direction of the last budget and the government, what they've done over the last few months, so for sure, the $600 million, difficult to know how we attribute it, but for sure, Stingray will get a portion of it. It's tough to know over now early, but I think it's going to help at least the media business. The journalism, we are going to be involved in there. We have to see what exactly the rules are. So I think it's 40% up to 80,000 per journalist. So we'll see where we are. But I know that for Coles, the number is very aggressive. And after that, don't forget off that, we also had in the budget, the encouraging governments and the Canadian government to invest in regulated media ads. So right now, the government Quebec, Ontario, Federal, I think it's 80% of their ads go to Gap, 20% goes to regulated media, newspaper, or whatever, Autohome or Canadian media. So I think Antonio made the move. Doug Ford made the move in Ontario. That's why we got a boost in national sales on Radio. And I think now Canada is putting the rules. They didn't set the limit, but I think that's also a great focus for all regulated media. So I think that will be a big boost. And also, I have to tell you, the last budget, we have some new Canadian insurance and Quebec reads that are making it even more advantage for us to do our engineering here. So that's significant. And you got the super deduction. That is going to be close to -- we could see almost close to $6 million to $8 million of tax savings. So in terms of cash flow and repaying the debt more faster, it's all positive news.

Eric, if I could just throw in one other quickie. Not much of a mention in the press release or MD&A in regards to retail media. I think maybe retail media was perhaps a little flattish in the first half of the year. But I think on the last call or 2, you suggested that low double-digit growth could be had this year. So do you see the inflection still in the back half of the year? Do you think you can still get to around maybe 10% growth in that segment and what key drivers of that would help.

Yes. And also, Rich, I mean, it's a bit the nature of the gross and net. So with some customers, some of our great customers, we were passing the order and it was all gross and we were making a very small margin. And now they're passing the order themselves and we're giving us a bigger EBITDA margin. So we can extend that later. So we're making better EBITDA. But in terms of gross sales, they're lower because we're going net. So you have -- in terms of organic sales, that's a negative impact on organic sales. but a positive impact on the EBITDA margin. But we can explain that you later.

Your next question comes from Stephanie Price with CIBC.

It's Sam Schmidt on for Stephanie. My first question was just around organic growth. How should we think about the organic growth run rate moving forward as you start to lap the Tunein acquisition?

Yes. So we feel -- for the last 3 years, we hit double digits. There was a bit last year because with a bit of a change in the numbers, but we feel very comfortable with the expansion of the fast the backfill, the TuneIn and the fact that we're able to monetize and the car business and also even on Radio also moving forward, we feel very comfortable with double digits and more. So we'll maintain that growth.

That's helpful. And then one more for me on radio. It was nice to see the growth in profitability improve quarter-over-quarter. How should we think about growth and margin profile here going forward?

Yes. So very happy with the results of 5.5% in this quarter. We always told the market that we feel we can do between 2% to 4% because it's not an exactly strongly growing business. But we got good news, though, there's a lot of tasks in the market, and we're very close and we're testing that we'll be able to put product market ads on a radio station. So if you have radio and you have an ad that's unsold, we will be able to go in the market and get a pragmatic ad, just like we're doing on CTV. So I think we're slowly testing it. We're going to see how that goes. But that could be a game changer, not only for us but for our radio stations because now we estimate we got $15 million to $20 million of unsold inventory. If we could be able to fill that inventory with programmatic ads, I think it would be the incredible for the market. And then this technology that we're working on with our ad stack could be used to help other Dell and other companies in Canada, other radio stations and in the U.S. at Cumulus and Odyssey and iHeart. So if we can -- very excited about this new technology and maybe we can really get radio to grow faster.

Your next question comes from Aravinda Galappatthige with Canaccord Genuity.

As the quarter Eric, I just wanted to go back to to fast channels obviously a huge step-up in growth there, 70% in Q1 and now 85% in Q2 as we try to sort of assess sort of the sustainability of that going into the back half and beyond, maybe just sort of -- I know that in the past, you've shared some of the backfill sales rates on a daily basis. I think the last you said $200,000 per day, $100,000 annualized. Maybe just help us assess that sustainability over the back half, especially with Samsung coming into play, just to kind of help us out with our forecast.