Destiny Media Technologies, Inc. Third Quarter …...Sam Ritchie — Chief Financial Officer,...

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Destiny Media Technologies, Inc.

Third Quarter Earnings

July 15, 2020 — 5:00 p.m. E.T.

Length: 34 minutes

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CORPORATE PARTICIPANTS

Fred Vandenberg Destiny Media Technologies, Inc. — Chief Executive Officer Sam Ritchie Destiny Media Technologies, Inc — Chief Financial Officer Glenn Mattern Destiny Media Technologies, Inc — Director, Business Development

CONFERENCE CALL PARTICIPANTS

Derek Zaremba Private Investor Ben Babcock Private Investor

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PRESENTATION

Operator

Thank you for joining us on the call today. Before we begin, I’d like to announce that we will be

referring to today’s earnings release, which was sent to the newswires earlier this afternoon.

I’d also like to remind everyone that this conference call could contain forward-looking statements

about Destiny Media Technologies within the meaning of the Private Securities Litigation Reform Act of

1995. Such forward-looking statements are based upon current beliefs and expectations of management

and are subject to risks and uncertainties which could cause actual results to differ materially from those

forward-looking statements. Such risks are fully discussed in the Company’s filings with the SEC and SEDAR

and the Company does not assume any obligation to update information contained in this call.

During the conference call we will discuss certain non-GAAP financial measures. The non-GAAP

financial measures are presented in the supplemental disclosures and should not be considered in

isolation of, or as a substitute of, or superior to the financial information prepared in accordance with

GAAP and should be read in conjunction with the Company’s financial statements filed with the SEC and

SEDAR. The non-GAAP financial measures used in the Company’s presentation may differ from similarly-

titled measures presented by other companies. A reconciliation of the non-GAAP financial measures to

the most comparable GAAP financial measures can be found in the earnings press release.

With that, I would like to turn the call over to your host, Mr. Fred Vandenberg, Chief Executive

Officer. Please go ahead, sir.

Fred Vandenberg — Chief Executive Officer, Destiny Media Technologies, Inc.

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Thanks, Sylvie. Hi, everyone. On today’s call we will have Sam, our new CFO, to present the financial

results, then I will talk about the Play MPE platform developments and marketing efforts, and then I will

have Glenn Mattern talking about our business development activities.

Sam, just a brief intro: Sam came on board as our CFO in May. Sam originally hails from New

Zealand but has extensive experience with software companies in both Canada and the United States and

was actually our former audit manager if you go back a few years.

Glenn is our Director of Business Development. They both started in late April. This is the first time

the Company has had a leader in that department. Glenn has had a very successful career, a successful

25-year career and is a founding partner of one of Western Canada’s most successful and highest volume

printers, McCallum Printing Group. I think Glenn brings great energy and will be, well, already has

demonstrated an ability to build relationships with our customers, collaborate internally, and coordinate

with business development staff.

I will pass it over to Sam now to discuss the financial results.

Sam Ritchie — Chief Financial Officer, Destiny Media Technologies, Inc.

Thanks, Fred.

Overall, Play MPE revenue for the quarter was down by approximately 2%. Adjustments in pricing

to a longstanding customer agreement and negative impacts of foreign exchange resulted in a small

decline to revenue. Adjustments to pricing in this agreement is designed to facilitate long-term growth

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and usage of the Play MPE platform and underused market segments. This was offset by continued growth

in usage by independent music labels.

Play MPE shows growth in USA independent label use, increasing to approximately $361,000 from

$273,000 in the immediately preceding quarter and 6.6% above the same quarter in fiscal 2019. Year to

date to May 31, 2020, USA independent revenue has increased to approximately $997,000 from $933,000

in the same period in 2019, growth of 6.8%. Global independent revenue for the quarter increased by

approximately $40,000 from $381,000 from the same period in 2019 to $421,000 in 2020, an increase of

10.4%. Year-to-date global independent revenue increased by $75,000 to $1.151 million from $1.076

million, or 7%.

EBITDA for the quarter ended May 31, 2020 was approximately $98,100. EBITDA for the nine-

month period ended May 31, 2020 was $126,400. As I am sure you have noticed, our accounts receivable

temporarily jumped to $748,000. This increase was caused from COVID-related operational changes with

our customers, as a number of our customers switched from check and other manual payment methods

to electronic transfers. But by July 8, 2020 we had collected over 610,000 or 82% of the amount

outstanding at May 31.

Overall expenditures increased by 19.7% for the nine-month period to May 31, 2020. $190,000 or

8.9% of that is caused by one-time restructuring costs with $232,000 or 10.8% from increased investment

in our technology and business development.

I will now turn it back over to Fred.

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Thanks, Sam.

We continue to invest in our technology stack. Very generally, this is taking a step back and seeing

the forest rather than the trees and is a holistic review of our architecture and an update to our

programming languages. These efforts are largely done behind the scenes and in conjunction with other

improvements and additions. It’s really only worth mentioning because we think that these investments

will increase the cadence of product additions.

At the beginning of the year we hired a new Director of Engineering. Sergei is now had sufficient

time to review our needs and the team and we are addressing identified improvements to increase the

cadence of software additions. Ultimately, added functionality, services that competing services,

competing platforms do not offer, and a superior user experience will complement business development

activities.

Supporting our Latin music initiatives, we established our Mexican distribution list. This follows the

completion of the US Latin lists in Q2, and we translated our Play MPE product page into Spanish. This also

follows on the translation of our release creator into several new languages, including Spanish. We are

preparing for the needs to the Latin music market, which we believe is a very large and relatively untapped

market.

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We also launched the left-side navigation version of Caster, our release creation software. This is

a more current standard of presentation with software but also allows for us to add functionality to the

menu to future versions, some of which will attract new service revenue.

In the past quarter we established our Instagram Live and panel series. This marketing initiative

has a few benefits. They raise the Play MPE profile, educate our clients, and engage our clients in a

collaborative endeavour with Play MPE. These videos are now available through our Play MPE website

and on our YouTube channel.

We have received engagement from numerous stakeholders, media, press, record labels,

promoters, and on every continent, with the exception of Antarctica of course. It’s difficult to know the

long-term benefits of this endeavour, but it’s our intention to be viewed as a thought leader in this space

and I think our reputation is of that, but we are intending to expand on that and to help shape how music

promotion is done.

Also during the quarter we established our beta testing program. Internally, we completed the

testing of an alpha version of a new release, a new version of Caster. This update is designed to be a bit

easier and intuitive, but also prepares us for the free trial version and a self checkout functionality of Play

MPE. This will allow us to scale and allow many more users in more markets. This version also adds

functionality that will improve lead conversion.

For the sake of clarity, we have additional items to build before the self checkout is complete, but

in releasing this version we began sourcing volunteers from our higher volume users around the world to

test the beta version. We received invaluable feedback. This has a few benefits. First, it identifies more

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edge cases that we may have missed in testing, it enhances product loyalty, and we think it engenders a

sense of ownership with our clients, but it also helps us build the software that really meets the needs of

our clients. This has been very successful and we’ll be launching the new version in Q4.

One question I received during the day, well, it was more of a comment I guess, was a sense of

surprise that I had made a large insider purchase during the quarter when we had a relatively flat quarter

from revenue. And so it’s a little bit difficult to address that, but while our sales cycle is a relatively long

one, I think we’ve really made some great progress during the year. We have really improved the platform.

We are improving the engineering team significantly. Earlier in the year we replaced our director of

engineering, replaced our marketing manager, and replaced our product manager. And our director of

product management has a year under her belt. I was talking with Glenn this morning and I think in each

of these replacements we are much stronger and with him coming on board we are much stronger than

having nobody in that position.

Sorry, joking aside, I’m really happy with the progress we have made in the business development

group in a very short period of time that Glenn has been with us. This is the first time we, again, I said it

before, but this is the first time we’ve had a leader in that department. I think we’ve completed the circle

of our management group internally and I think we have a very strong team now and I’m very happy about

that. But ultimately it’s the reception that we’ve seen from our newer platform users. Our strategy is to

get more and more use and then, when the volume of use is at a sufficient level, we will start charging,

and I think we’ll see the results of that very shortly.

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One last comment before I turn it over to Glenn. On our investor website you can sign up for

investor e-mails. Those of you who want a bit more information can also sign up to marketing and business

development announcements. That’s on the same investor page. This will give you greater feedback on

what we’re doing on a day-to-day basis.

With that, I’ll turn it over to Glenn.

Glenn Mattern — Director, Business Development, Destiny Media Technologies, Inc.

Thank you, Fred. I appreciate the intro.

It’s been a busy few months getting up to speed, mid-pandemic I might add, but it’s a fantastic

group and I’m excited and optimistic about the road ahead. I’ve had an opportunity to review the job

performance of my new team and, as you know from our Q2 call, there were some business development

staff changes prior to my arrival. Since then we’ve pared down one additional employee, added additional

inside sales staff, and adjusted some roles. We were building a team carefully and strategically and I expect

another US hire in Q4 and we’re focused on ensuring our staff are well trained and coordinated with the

other teams.

The pandemic restrictions have altered the way we interact with many of our customers. In-person

meetings are on hold and traditional networking strategies such as trade shows are cancelled. Since

customer engagement is now virtual, it’s a shift in how we’re all doing business. Yet, our lead flow was up

4.2% for the quarter over Q3 of 2019 and up 10.98%, to be exact, year over year.

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Since artists can’t tour, live shows are on hold. It seems artists are keen to produce and promote

more content. Our releases are up 8.17% for the quarter over Q3 of 2019 and 4.2% year over year. And

releases from indie artists and labels are up 8.8% over the same three quarters last year. So I give, well,

distributions are up as well, 13.34% year over year. So I give kudos to our hardworking team in staying

connected with all our customers.

We’re actively improving our reseller engagement and new agreements in various territories, such

as the Nordics, Australia, and South Africa. As Fred mentioned as well, we’re working with our marketing

team on several initiatives to continue a healthy lead flow, Instagram Live events, panel discussions, and

interviews. We’re really excited about our new release creator. It’s a few weeks away from full release

and it’s a great opportunity for us to increase engagement with many of our customers and we’ll have a

large marketing push.

Much of our focus in Q3 was ensuring our existing clientele was engaged with our platform as we

adjusted to the pandemic restrictions and I’ve enjoyed meeting virtually, in air quotes, all of our major

customers around the globe, along with many new customers and potential partners.

As you know, there are essentially two sides to our platform, the caster and the player. Our caster

side includes our paying customers, such as independent artists, promoters, and labels, and we continue

to have very active engagement from UMG with distributions up 23.8% year over year. We continue to

expand engagement from major US sub-labels and formats, which we have not historically been as strong

with, and we have seen some success in that endeavour. We have also renegotiated pricing structures

and one- and two-year commitments with several other major sub-labels and independent labels.

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Part of our growth strategy is to offer free trial periods to potential customers to increase comfort

and reliance in our system. Clearly, free trials can’t go on forever and I’m working with our team to

establish timeframes and strategies to convert these to paying accounts. We’ve also updated our price list

to ensure we’re consistent and current across all territories. We’re also exploring an entirely new

simplified pricing structure. That’s under careful review and something we’ll look at in Q2 or Q3 of next

fiscal.

On the player side, our recipients, we’ve increased our regular outreach to radio and a variety of

other influencers. We worked hard to maintain and strengthen these critical relationships. We continue

to be the go-to platform in many global territories and genres and I tip my hat to the business development

team who have helped ingrain our system so well in these territories. The strategy of simultaneous

promotion and adoption within the Play MPE platform of both content from senders and usage from

recipients has proven effective and we’re refining the strategy of leveraging our current global label

partnership agreements with limited free trials in new territories.

As discussed on previous calls, we have a couple of bigger initiatives in the works. Our Canadian

initiative was launched January 24, 2020. In under six months, we’ve established ourselves as a primary

source for content in Canada. We’re the preferred service for largest broadcasting networks in the

country, including Bell, Rogers, Corus, Stingray, and Pattison. And UMG is now hosting albums with Play

MPE exclusively.

Our trial usage is growing considerably and we are now hosting deliveries on all new content for

Sony as well, as well as content from a variety of major independents in Canada such as eOne, Arts &

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Crafts, and BMG. The feedback on trials has been overwhelmingly positive from both the recipient and

the label side and we are very optimistic that we’ll see a considerable displacement from other services

to our platform in the coming months. We expect to be converting these trials to revenue in the fall of

this year.

Our second major initiative is the Latin American market. As Fred mentioned, we’ve launched our

US and Mexican Latin lists and we’re building our foundation in the US by leveraging our UMG agreement

and content. We are beginning to host content on a trial basis from several major independents, such as

Azteca, Dell Records, Empire, and BMG. And once the flow of content and recipient usage is strong, we

will convert these users to usage or contract-based revenue, depending on the volume and the type of

content. We’ll then continue to push south into Mexico, Central and South America, as well as Spain.

In addition, we’re actively building strategies for new (inaudible) and formats which lack cohesive

promo distribution channels. We’re listening carefully to feedback from our customers and actively

strategizing for other products and features and verticals. All of these initiatives are focused on increasing

current revenue and looking to the future. As we continue to gain momentum and expand our global

reach, revenues will snowball.

Thanks and I’ll turn it back over to you, Fred.


Well, I think that’s what we have so far. So, if there are any questions, you can dial in.

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Q & A

Operator

Thank you, sir. Ladies and gentlemen, if you do have a question, please press star followed by one

on your touchtone phone. You will hear a three-tone prompt acknowledging your request. And should

you wish withdraw your question, simply press star followed by two. We ask that, if you’re using a

speakerphone, to please lift the handset before pressing any keys. Thank you. Your first question will be

from Derek Zaremba. Please go ahead.

Derek Zaremba — Private Investor

Hi. Thanks for taking my questions. So, I have a few questions. My first question, I guess with the

development of more features, I understand, I guess, for usage-based models you either offer a free trial

or potentially charge for them. For the fixed-price agreements, is the idea to have better renegotiations

when it comes time for renewals or is it new contracts? How does the revenue get captured, I guess, in

that part of the business?


Well, that’s a good question. There’s a combination of answers to that. We think that fixed-fee

agreements, there’s a few right now and I think ultimately we’re going to try to move to a more of a fixed-

fee agreement to increase usage. But in doing so we will leverage new features to either increase use and

use that increased use to negotiate a better fee or have those new features toggle on and off for additional

fees. That picture will become a bit clearer as we move further down the product roadmap.

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So I guess, if I remember correctly, like for UMG for example, it was like a two- or a three-year

contract. So potentially it will be maybe a bit lagged but it’s something that’s eventually expecting to be

captured?


Exactly. Yeah. With UMG they have, I mean Play MPE is, they’ve said to us, is the most widely

dispersed piece of software that they have, but we do know that certain departments use different things

and we’re conducting a review with them right now, but we think that we will be able to expand into

different departments and then leverage that into, you know, hopefully increased fees or at least an

increased presence, which we will leverage into that sort of anchor tenant and then sell to more users.


Okay. And I guess on that note then, do you think the best opportunity with these new features,

at least in the short term I guess, it’s going to be more from usage-based agreements like independents

whereas if you’re focusing on a larger client like UMG, who you’re trying to renegotiate based on use, like

it might not directly translate, increased use might not translate dollar for dollar for increased dollars later

on, there might be some negotiation to do with it, but for independents or usage based, I guess, there

might be more of a one-to-one correlation.


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I think that’s a fair comment. Yeah.


Okay. All right. I have two other questions. So the other one was, I guess based on, ah, just to kind

of understand the scaling of the business from here, how much incremental expenses are you expecting

with incremental revenues from the new features? Or at what point do you need to start adding new staff

to support increased revenues?


Well, I think, as in the shorter term, as we grow revenue, we certainly will have a greater cash flow

to invest, to reinvest in the product, but ultimately our strategy is to be a software-as-a-service to sort of

leverage our own clients’ scalability to increase use rather than having a larger growth in staff. You know,

with growing usage you’ll have worldwide usage, you’ll have potentially reseller agreements or added

tech support and sort of minor costs like bandwidth and that sort of thing, language translations, more

language translations, but ultimately we plan to leverage like a trial or self checkout feature that really is

almost a hands-off type sale.


Okay. All right. And then just my last question, in terms of the legal proceedings with the prior CEO,

if there was any updates or if there’s like an estimated kind of resolution date or anything like that.

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Well, we were supposed to go to trial in April, but because of COVID that got delayed. I don’t know

exactly when it’s going to be rescheduled for, but we remained very confident with it. I would like to put

it to rest but, at the same time, it’s not a big concern for us.


Okay. All right. Thank you.

Operator

Thank you. As a reminder, ladies and gentlemen, if you do have any questions, please press star

followed by one on your touchtone phone.

And your next question will be from Ben Babcock. Please go ahead.

Ben Babcock — Private Investor

Hey, Fred. How is it going?


Not too bad.


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Thank you for the detailed update. I appreciate it. And thank you for answering my comments.


I tried to answer a few of them, anyway.


No, no, thank you. Question: I know that you have—thank you for the detail regarding the

restructuring costs. I know you mentioned in the press release that there was the renegotiation with one

customer that brought revenue down a bit this quarter. If it wasn’t for, like can you comment on the

impact of that? Like was that a $50,000? $100,000? Like how much of an impact was that on the quarter?


Well, we had a small decline and if we didn’t have that we would probably have a small increase.

It’s not, ah, I guess I would have to say it would have toggled us into growth but it wasn’t a huge impact

to the Company generally. It was just, it’s worthy of mentioning because we are re-pricing that agreement.


Understood. And I know that you did the buyback program, which I thought was very smart. Do

you plan on reinitiating that once you’re able to once the new fiscal year starts?


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We’re just going through our business plan for 2021. I mean we obviously have a longer product

roadmap and that sort of thing that’s already in place, but we’ll do a bit of a review of that during July we

think. That might spill over into August. But I’ll circle back with the directors later in the month and we’ll

announce any decisions with respect to that decision.


Great, thanks. And with respect—it seems like you guys are making great progress in Canada and

as well as the Latin American market as you outlined. What would you attribute that success to, if you had

to like break it down to one or two things?


One or two things? Probably our relationship with Universal is one of them. I would say a vastly

superior system is another. Displacing a system or a method of how an industry does business is a

challenge, just because of the network of use. I mean it’s good for us in some ways but, you know, when

we try to expand into a market that has an entrenched competitor that’s been here for more than a

decade, it can be a challenge.

But we are vastly superior on both sides of the platform. I mean I could list the advantage. And

Glenn talked about that both recipients and customers, clients, senders of content, had very rave reviews

of the system. That can’t be understated. They love the platform and see so many advantages. It’s faster,

it’s easy to use, the sound quality, all sorts of things are beneficial, but then you still have to displace an

existing network of use. And we are doing that. We’re growing use with UMG, obviously. They started

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doing that in January. We added Sony and now, ah, we’ve added some major independents to the use

during the quarter.


And it sounds like a lot of the new ones you listed, they’re still in the trial period. Am I

understanding that correctly?


Yeah. For the most part, yes, that’s true. There’s some weird, ah, I don’t know how to say this, but

what you do find is a lot of labels overlap between Canadian and Latin coverages, like the people that are

doing promo are doing promo in Canada and Latin areas, and that’s a surprising combination, I would say.

But it also helps. You get that client that loves the system because we’re testing it out in Canada and then

they are starting to distribute it in the US to Latin radio stations as well. But for the most part they’re on

trial. So you do get distributions to areas where we’re not in a trial phase, so you do see a little bit of

increase and that’s where you see growth, part of where you see the growth in indies in the US.


Great. Thanks for the comments I appreciate it. That’s all the questions I have.

Operator

Thank you. Once again, ladies and gentlemen, as a reminder, if you do have any questions, please

press star followed by one on your touchtone phone.

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And next we have a follow up from Derek Zaremba. Please go ahead.


Thank you. Just one other question, I guess, because I’m not super familiar with the space, and I

don’t know how far back this goes, but I guess the industry has become increasingly digitized. How has

that kind of played out in terms of Play MPE’s offering or what kind of changes have happened or are

happening? I don’t know if there’s some general industry commentary you could share.


It’s kind of a broad question. I think the industry is evolving in a number of ways. How streaming

services are becoming very popular but, you know, whether that’s streaming from a terrestrial radio

station or a streaming services like that you think of as Spotify. Royalty reporting is evolving. You get really

interesting and exciting opportunities for us to monitor how a song does digitally around the world. So

you really get a more data-driven decision-making process when it comes to music promotion.

So, if you see a song is getting traction in a particular area, you have the artist tour in that area or

capitalize on that in different ways and you adjust your marketing dollars to go into that area. But that

requires a synthesis of that data reporting and that is, ah, it’s not a very well-developed process yet and

we hope, Play MPE hopes to be involved in that. And I think we’re on the front lines of that, especially

when you get the promo people who are making those decisions using the platform. You know, if we can

ingest more and more data reporting into our system, we can connect them to more distribution channels,

we think we can be a real big influencer in the industry. We just have to keep developing the product.

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Okay. Thank you.

Operator

Thank you. Once more, ladies and gentlemen, if you have a question, please press star followed

by one on your telephone keypad.

And at this time, Mr. Vandenberg, we have no other questions. Please proceed.


Okay. Thanks for joining the call, everyone. I see quite a number of people this time. If you have

any questions, you can always e-mail us directly or, again, if you want more information you can sign up

for our marketing announcements. It’s right on our investor webpage. Feel free to do that. You might get

more information than you want, but you can always sign out of that as well. Okay. Thanks again.

Operator

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once

again, thank you for attending and at this time we do ask that you please disconnect your lines.

Destiny Media Technologies, Inc. Third Quarter …...Sam Ritchie — Chief Financial Officer,...

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