Jul 26, 2017
Executives
Tom Hearne - Chief Financial Officer John Levy - Chairman and Chief Executive Officer Benjie Levy - President and Chief Operating Officer
Analysts
Rob Goff - Echelon Nikhil Thadani - Mackie Research Capital
Operator
Good morning, ladies and gentlemen, and welcome to theScore's Third Quarter Results Conference Call. At this time, all lines are in a listen-only mode.
Following the presentation we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Wednesday, July 26, 2017.
And I would now like to turn the conference over to your host, Tom Hearne. Please go ahead.
Tom Hearne
Hello and good morning, everybody. Thank you for taking the time to join us today on our Q3 2017 call and webcast.
On the call today is Founder and CEO, John Levy; President and COO, Benjie Levy and myself, CFO, Tom Hearne. At this time, I would 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. Any additional information on items of note, theScore’s reported results and factors and assumptions related to the forward-looking information are all available in our annual information form and our MD&A for Q3 2017, both of which are now available on SEDAR.
And with that, let me turn the presentation over to John.
John Levy
Thanks, Tom, and welcome to everyone. Thank you for joining us today for this review of our Q3 results for fiscal 2017.
Revenue for the quarter grew to $6.4 million versus $6.1 million last year. This puts us at $21.6 million for the year to date versus $18.9 million for the same period in fiscal 2016.
Coupled with our diligent focus on managing our expenses we remain clearly on track to achieve EBITDA profitability in fiscal 2018. Brands and agencies continue to trust theScore as an integral part of ad campaigns on both sides of the border.
In Q3 we secured one of our most lucrative deals to date in Canada with our partners at Chevrolet. The major car manufacturer bought a presence throughout our app to promote the launch of the new Silverado.
We also welcomed some new partners in theScore family including Sugar Crisp, who supported some of our great eSports video content. In the U.S., NBC return to again promote its NHL Stanley Cup playoff coverage while GM also invested heavily in theScore.
Our highly engaged audience makes us top of mind for some of the biggest brands in the world. We continue to make strides in our ad tech offering by working to improve our ability to segment audiences as well as offering greater transparency around viewability.
We look forward to building on this throughout the continued experimentation on how we deliver advertising to our user base. App sessions were up again reaching a monthly average of $379 million for the quarter versus $358 million last year.
This means users are opening up our app on average 92 times a month. That is incredible engagement.
In terms of our audience, our flagship app remains the number one challenger to ESPN in North America. With average monthly active app users of 4.1 million versus 4.3 million last year.
The past couple of quarters have seen our product and content teams primarily focused on executing our strategic and data driven future roadmap for theScore while also building what's become extremely strong audience off platform for visitors to ensure we continue to amplify our brand. Before I turn things over to Benjie, let me bring you up to speed on where we are with theScore app and what we're doing to ensure we not only strengthen our market position but convince more sports fans to use what we truly believe is the best sports scores and news app on the market.
theScore app has been and remains the cornerstone of our business. This is why we restructured our product team to drive the development of new features and the experiences we believe take our offering to the next level.
While we are not ready for the big unveiling as of yet, we have already begun to test some of these features through a small percentage of our user base, both on iOS and Android devices, as well as our external Beta testing groups. The feedback we have received to date plus the real-world data we have been tracking in terms of how users are interacting with our new experience has been very encouraging and makes us very excited to roll out these new features to a larger portion of our audience very soon.
This undertaking has been a large scale project. It's also important to stress that once we do unveil these new developments to sports fans everywhere, that's not when we are finished.
We won't be done there. Iterating and improving theScore app will be an ongoing process aided by fast and nimble development cycle which sees us push updates out every two weeks.
Another benefit from this project has been what we have been able to look with a fresh perspective on how we deliver advertising in our flagship app. We are already monetizing our user base extremely efficiently here but we see further opportunities in gains to be made through the cross team collaboration of our ad tech and product development teams.
We really can't wait to show you what we have been working on. Now for some more detail on the progress we have been making in growing our audience and our footprint elsewhere, let me turn things over to Benjie.
Benjie Levy
Thanks, John and good morning, everyone. As John said, our primary focus has been on the development of theScore app these past few quarters.
At the same time we also been making significant progress in growing our footprint on other platforms. Areas that have significant and promising growth potential and help us introduce theScore brand to millions of more fans globally.
You are already familiar with our eSports offer. Launched just over two years ago we have quickly established theScore eSports as the leading independent app devoted to covering competitive gaming.
With that foothold already in place, we have now turned our attention to focus on the production, growth and monetization of the original video content being produced by us in this space. This focus on video makes sense from a business standpoint with research showing that ad spending on video, specifically mobile video, is set to reach $18 billion next year surpassing that spend on desktop platforms.
This goes hand-in-hand with our strategy to broaden the appeal of our eSports content. Having already become the go to source for news and live sports among hard-core fans of eSports, we are now broadening our content to appeal to gamers in general.
This approach is paying off in our video strategy and we have already seen brands like Sugar Crisp jump on board and sponsor some of our content. As our audience and engagement continues to grow, so will our opportunity to grow revenue.
Barely a year old, our chatbots platforms have also come a long way. After launching theScore Bot for Facebook Messenger in the spring of 2016, we have grown the offering in terms of both quality and audience.
Today theScore Bot is comfortably the leading independent provider of sports news and scores with our product team turbo charging our offering by layering in videos and other social content, working with Facebook directly to become one of the first bots that users can pull into their group conversations. While bots as a concept remain in their infancy, we have already taken up a strong position on a platform that has more than a billion monthly active users and provides us with considerable reach.
I will now turn things over to Tom who will run through our financials in more detail.
Tom Hearne
Thanks, Benjie. Q3 2017 revenue compared to Q3 2016 revenue grew from $6.1 million to $6.4 million, an increase of 4%.
For the first nine months of FY 2017, revenue grew from $18.9 million to $21.6 million which is an increase of 14%. Our revenue growth in Q3 was driven by better direct sales in Canada, which offset slightly lower sales in the U.S.
In Q3 2017 expenses declined to $8.8 million from $10.4 million in the prior year. The reduction is mainly driven by reduced external contractor and personnel cost as well as lower marketing cost.
In Q3 2017 personnel cost were $4.1 million compared to $4.6 million in the prior year. For the first nine months of the year personnel cost decreased to $13.2 million from $13.6 million in the prior year.
Marketing costs are down year-over-year due to less external discretionary spend and more investment in our social content strategy as a way to build up the company brand. Headcount at May 31 was 195 full-time staff versus 204 at May 31, 2016.
As we commented in previous quarters conference calls, we see an approximately 200 person contingent as the right base for the company and maintaining growth opportunities which will help drive us to profitability. Adjusted EBITDA loss in Q3 2017 was $1.5 million versus $3 million in the prior year.
This combination of revenue increases and reduced expenses are allowing us to improve profitability each quarter this year. We finished the quarter with $12.7 million in the bank, cash used for the first nine months of 2017 was $2.9 million.
We recently received the payment of the $5.2 million tax credit which was part of the overall improvement in our cash balance at May 31, 2017, and our operational cash used is down over 35% compared to the previous year. And with that, operator, we will now open it up to questions.
Operator
[Operator Instructions] And your first question comes from Rob Goff from Echelon Wealth Partners. Rob, please go ahead.
Rob Goff
My first question, could you dive perhaps a bit deeper into the U.S. revenue trending versus the Canadian revenue trending?
And then as a second question, sort of a broader question, would just be your thoughts on DAZ as a streaming service into Canada and whether that by extension, broad extension makes you think about a potential subscription service or subscription tier of service.
Tom Hearne
All right, Rob. I will take the first part of that and then I will let Benjie take the second part of that.
Our U.S. revenue, our U.S.
direct sales team has always really been focused on the larger deals, like the Chevy deal that John talked to you about. And therefore our U.S.
revenue can tend to be a little spotty. We will either have quarters where they blow the number out or sometimes they have quarters where things get a little dry.
That’s just part of how the U.S. sales operation goes because we are more focused on the programmatic revenue versus the direct in the U.S.
Canadian sales. Here we have a lot broader base of agency relationships and we tend to be a bigger player in this market certainly from the mail demographic, if you want to go after that.
In Canada on mobile, theScore is the way to do that. And so that’s why we continue to see a good consistent trend in Canadian revenue.
On the U.S. side we expect to see some ongoing improvements in our U.S.
revenue base. Direct sales will be here and there depending on the quarter and we are doing a lot on our programmatic side to look at what we can do to continue to improve our overall base of revenue in the U.S.
And I will let Benjie answer your second question.
Benjie Levy
Hi, Rob. I mean, certainly we have been watching Perform's announcement of the new streaming service with interest.
And while they have not put out a lot of detail about the service, certainly having a broad base of NFL streaming rights is a good anchor and a good base for them. Ultimately it's not competitive with our platform and ultimately there may be opportunity to work together from a marketing perspective in the Canadian market.
But we do know when we look at how they have rolled out in other markets, they are making significant investments in technology. They are looking at creating a bonafide sports streaming subscription service across multiple platforms.
So we think, it furthers our thesis about how fans are consuming sports content and they are looking for consuming sports content on their terms and on the platforms they are looking for and I am expecting Perform to come to the market with a very high quality offering there.
John Levy
Hey, Rob. It's John.
Rob, just on those two questions. Just some of our perspective.
Tom is absolutely right. The U.S.
direct sales has always been chunky. We will be pushing, pushing, pushing, nothing will show up and then all of a sudden, as Tom suggested, we get a big $0.5 million transaction comes through or something like that.
I think what's significant is, what we look at is our year-over-year in total. And year-to-date we have seen some pretty significant progress in the direct sales market in the U.S.
And we are hoping that that will continue in the future. And again you got to remember, living up here in Canada versus the States.
We traditionally kick ass in Canada because everybody knows our brand and we have been at this business for quite some time. theScore was the TV network.
A lot of the advertisers and agencies are familiar with us. And I think that’s part of the reason that’s carried over our success in Canada on the direct basis because our guys really do kill it up here on a direct basis.
I think what we are starting to see in the States is, and it's got to be supported by numbers obviously in terms of increased users and engagement. But we are starting to see some movement in a positive way in terms of brand recognition.
And that’s probably something to do with a lot of the brand exposure we get from distributing our content on other platforms but also just by being in the business for a number of years. So Do we like to see a quarter where it's a little soft?
Absolutely, freaking not. But I think we are encouraged by what we see year-over-year and I think we are pushing for bigger and better things in the States.
In terms of the second question. I think Benjie had hit it actually at the end with respect to Perform.
I think this is just more evidence of the changing landscape and this is what we have been saying for the last five years. The way sports is being consumed is different today than what it was before.
And while that might be kind of in a shifting within the traditional, I mean that in terms of some broadcast rights going to over the air broadcasters or some pay rights being distributed on different platforms, I think that’s all part and parcel of why we are so excited about the position we have staked out and how we are going to be able to capitalize on the future. So I just wanted to add that comment to what was said earlier.
Operator
Thank you. Your next question is from Greg MacDonald from Macquarie.
Greg, please go ahead.
Unidentified Analyst
This is [Chang] [ph] calling on behalf of Greg. I got two questions.
The first question is, you guys recorded a summer $60,000 impairment on your investment. Can you just elaborate on like what this impairment relates to?
Tom Hearne
Yes. When we were -- actually it was back early in the TV days.
A company called New Layer helped us build one of our original versions of the app. And we made an investment in them.
They went through multiple rounds of financing over the years but ultimately didn’t get to a full, kind of productization and marketing and selling of their products. They recently just sold their company.
They had some venture debt and really the venture debt holder took the remaining pieces of it. And so we wrote off our investment in it at that point.
So it's related to an old investment. There is nothing kind of related to the day to day business that we have today.
Unidentified Analyst
Got it. Okay.
That’s very helpful. And I guess my second question is, now my understanding is you guys have a lot of user data of what articles or what content that people like to consume.
And data is very valuable in the Internet these days. The Internet transition from the information age to the artificial intelligence age.
And we have seen media outlets, right, so like Washington Post, Bloomberg, or even news media in Asia have invested in artificial intelligence either for content generation or driving user engagement. So I am just like curious to know, have you guys ever thought about making investments in like AI or like predictive analytics to re-drive the user growth and the engagement.
Benjie Levy
Thanks, [Chang] [ph]. It's Benjie.
I will comment on this one. The short answer is yes.
We use predictive analytics today when we are looking at things like optimizing our marketing funnels and our demand sources for user acquisition and predicting how sources will perform based on small sets of data that allow us to optimize our marketing spend and therefore manage our cost very carefully to make sure we are investing in the right areas and cutting areas that aren’t performing. Before waiting, kind of traditionally you will have to invest, you will have to wait 90 days to see how users will perform then you would be making these decisions after having continued to spend for significant periods of time.
With things like predictive modeling, as you mentioned, this allows us to say, okay, how do a cohort of new users perform after two days, five days, seven days, and on the basis of the data sets we have, be able to predict with pretty good accuracy how they will perform and be able to make decisions after a week instead of 90 days. This is obviously a big difference when you are in market doing a lot of user acquisition.
From a content perspective, you are equally right. There are people out there who are generating automated content.
Certain of our partners and vendors do that where they take sports data and use that to create automated content. We have not done a lot in that area but as we start to rollout new versions of our application and some of the new features, over time there is, as you said, with the data that we have and as we see how users are consuming the app, to be able to customize and recommend on an individualized basis content that maybe of interest to them.
So that’s not today but it's also not years away either.
Operator
Thank you. Your next question is from Nikhil Thadani from Mackie Research.
Nikhil, please go ahead.
Nikhil Thadani
I had a few quick follow up questions here. Well, first of all congrats on the near record engagement in a seasonally soft period.
I wanted to go back to the cost structure, Tom, and I think you kind of alluded to this a little bit. Is it fair to expect then that your cost structure should be relatively flat going forward?
And I only ask because if you sort of overlay this cost structure on your seasonally strong periods then the business is pretty much EBITDA breakeven. Is that kind of the right way to think about the fiscal '18 EBITDA breakeven comments that you have in your press release.
Tom Hearne
They are certainly connected, yes. I mean we think that we can obviously manage our costs at a reasonable rate.
I mean obviously you give everybody a little raise every year and all that type of stuff and so they don’t stay at flat zero. But we can manage very moderate growth in the expenses over the next little while.
The base of people that we have both from our development team perspective as well as our sales and marketing teams are well in place and we can grow with the people that we have got. And so we think that most of what we can do from new revenue generation capability and growing of our business, we can take to the bottom line.
And that’s why we generally have a fair level of confidence in our ability to go out and say to people, 2018 is the year we are pushing to be and EBITDA positive company.
Nikhil Thadani
And if I just may, just sort of on that 2018 comment, just for a little bit more color. When you see EBITDA positive in 2018, do you mean for the year overall or on a quarterly basis.
Because with this existing cost structure and if you do have some big deals coming in the U.S. then it's kind of hard to see how this business would not be EBITDA positive on a quarterly basis.
Right?
Tom Hearne
Correct. I mean obviously we talk about it for the year.
Our business has, like the sports calendar, a fair bit of seasonality. So in Q1 we tend to do our best quarter and that’s the quarter most likely that is the first quarter to be EBITDA positive.
And then Q4 being the summer quarter, is always a little slower and may take a little longer to get EBITDA positive. But for the year, that’s the plan.
Nikhil Thadani
Got it. And just one last question then on the chatbot strategy.
There seems to be a fair bit of speculation around Facebook sort of monetizing the chat channel in calendar '18. How should we think about that from theScore's perspective.
Is this something for potential upside on the revenue line that we haven't thought about or how we just sort of think about that going forward?
Benjie Levy
I think at this point we don’t have much more insight, Nik, than you do in terms of exactly what Facebook is going to bring to bear in terms of, kind of ad products for chat. Obviously, it's been talked about.
To the extent that they do bring something like that forward, that’s something we will look to, obviously we will look to participate in. But in terms of the magnitude of that, it's going to depend on the product and how they bring that forward.
So it would be too early for us to comment on what impact that would have on us.
Nikhil Thadani
Got it. And it seems like there is lots of ongoing investment and excitement around eSports as well, just in general beyond theScore as well.
Is there any sort of data or qualitative information that you can provide at this point in time?
John Levy
It's a good question and the simple answer is, not as of yet. And I qualify that because, not because we are not excited and not because we are not seeing progress in what we are offering.
But as you know, the whole eSports landscape is something that’s evolving. Some people are having success in it, some people aren't.
You have been reading about certain companies that have invested and then shutdown their eSports investments. Certainly not where we are at.
We have taken a leadership position. And as you know on theScore side, everything is ad focused and then now we are starting to look at other ways of distributing our content through other platforms.
With eSports, it was a little different right of the bat in the context of how people consume eSports and where they are consuming eSports, and how to monetize those numbers. I think there is lots of very interesting opportunity.
We are seeing some success in some of our efforts over the last -- I don’t know that we recorded anything in terms of the specifics.
Benjie Levy
Not the specifics but if you are looking through some more qualitative stuff, then I would urge you take a look at our eSports channel on YouTube, and some of the eSports content, video content that we are putting out on Facebook. And you will start to get a sense for the type of content we are outputting.
The traction that that content is starting to get with users. The various formats and franchises that we are creating.
And I think that’s where we are starting to see that resonate with the market place. So that’s a good first place to start.
John Levy
Plus, just to continue then thought, that whole effort aligns perfectly with what everybody is talking about in terms being able to provide video content and that’s what our advertisers are looking for. So early days, but pretty encouraged as to what we have created over the last six to 12 months and we are hoping with continued growth and with continued effort on bringing this team on eSports has done a very solid progress.
So, Nik, hopefully pretty soon we will be able to not only tell you what we are talking about but actually, hopefully, show you some of the way [indiscernible] to monetize that as well.
Operator
Thank you. That concludes today's Q&A.
I will now turn it back over to your host for closing remarks.
Tom Hearne
Great. Thank you.
Once again, thank you everybody for joining our Q3 2017 conference call. We look forward to presenting our fiscal year-end results to you sometime in October.
Operator
Ladies and gentlemen, this concludes today's conference call. We thank you for participating and we ask that you please disconnect your lines.