Stingray Group Inc

TSX:RAY.A

Earnings Call Transcript

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Stingray Group Inc. Presentation Conference Call for Q2 of fiscal 2021. [Operator Instructions] Before turning the meeting over to management, I would like to remind everyone that this conference call is being recorded today, November 5, 2020.I will now turn the conference over to Mathieu Peloquin, Senior Vice President, Marketing and Communications. Please go ahead.

[Mathieu Péloquin]

Thank you. [Foreign Language], and good morning, everyone. Thank you for joining us for Stingray's conference call for the second quarter results for fiscal 2021 ending September 30, 2020. Today, Eric Boyko, President, CEO and Co-Founder; and Jean-Pierre Trahan, CFO, will be presenting Stingray's financial and operational highlights.Our press release reporting Stingray's second quarter fiscal 2021 result was issued yesterday after the market closed. Our press release, MD&A and financial statements for the quarter are available on our investor website at stingray.com and also on SEDAR.I will now give you the customary caution that today's discussion of the Corporation's performance and its prospects may include forward-looking statements. The Corporation's future operation and performance are subject to risk and uncertainties, and actual results may differ materially.These risks and uncertainties include, but are not limited to, the risk factors identified in Stingray's Annual Information Form dated June 3, 2020, 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 reminded that some of the financial measures discussed over the course of this conference call are non-IFRS. Please 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.Now let me turn over the call to Eric.

[Eric Boyko, Co]

Thank you, Mathieu. Good morning, everyone, and welcome to our Q2 results conference call. We continue to successfully operate our business in the shadow of COVID-19, and I would like to thank all of our employees for their dedication and hard work. We are extremely pleased with our second quarter results as adjusted EBITDA and adjusted free cash flow both increased by 12.6% and 21.9% over the same period last year. In both cases, these financial metrics were at near all-time highs.We achieved 5% organic growth in revenues for Broadcasting and Commercial Music, or 3.7% organic growth without FX. The U.S. market achieved organic growth of 11.7% in the quarter. Adjusted EBITDA increased 24.1% to $18.9 million, mainly due to wage subsidies and reduced operating costs.Looking at the Broadcasting and Commercial Music segment, the pivot was initiated several years ago is now fueling future growth vectors us to achieve new revenue milestone. In what we would consider a traditionally seasonally soft quarter, streaming subscription for SVOD services and apps reached a new high of 480,000, up 10% on a sequential basis and 31.5% year-over-year. Growth continues organically through deployment to new markets and new distribution platform, including Amazon and Click Digital.After Amazon rolled out in July, we officially launched our Qello Concerts services on Amazon and Spain earlier this week. Retention is strong, and should remain, as we grow organically and continue profitable user acquisition strategies.Turning to over-the-top and connected TV FAST channels, we have taken a leading position in the audio and video music category with our suite of free ad-supported TV channels, ensuring a strong representation of our brands across the most important and rapidly growing platforms. Streaming time for Stingray's services has grown another 50% over last quarter as consumers adopt these new services. As a result, Q2 advertising revenues increased more than fivefold. Early on, we identified the potential to leverage our radio and video channels with the goal to expand our share of advertising dollars and reach millions of new listeners. We are now realizing on that potential.At the end of Q2, streaming business signed its first in-store digital media solution in the U.S. with Boston Market, making an important milestone for future expansion. We also announced a partnership with Space Factory Media, setting the groundwork for the deployment to North America of our business services in January 2021. Going forward, we see the U.S. market providing significant growth opportunities.Last, in terms of highlights for the quarter in this segment, we are happy to announce the renewal of our affiliate relation agreement with TELUS. Our partnership has always been a great springboard, product innovation for Optik TV subscribers. As anticipated, Stingray Radio segment continued to improve in recent months and Q2 adjusted EBITDA was down only 4.3% to $13.1 million over last year. This result reflects the benefits of government programs and the extensive cost-control measures we quickly put in place. Post-COVID market-related conditions, we remain convinced in the fundamental and the potential of radio.In terms of capital allocation, debt reduction remains our top priority. Our strong result allowed us to further reduce our leverage ratio to 2.77x. This, combined with our recent refinancing, clearly puts us in a solid financial position and provides ample operational and M&A flexibility. In fact, we remain active on the M&A side and have available a number of various tuck-in in acquisitions to complement and accelerate our significant organic growth opportunities.In conclusion, we have a great track record of adapting ourselves to evolving industry trends and market conditions. Our pivot to streaming and over-the-top platforms accounted for most of our recent growth and now represents more than 60% of that component of our business. This ship will further accelerate as we leverage our extensive and diversified portfolio of premium music and media brands to address the ever-expanding need for content. We are truly excited about the future.Now I will pass you to Jean-Pierre for more financial overview. Jean-Pierre?

[Jean-Pierre Trahan]

Thank you, Eric. [Foreign Language], everyone. For the second quarter of fiscal 2021, our revenues decreased 16% or $64.3 million compared to $76.6 million a year ago. The decrease was due to the impact of COVID-19 on Radio, and to a lesser extent, on Broadcasting and Commercial Music. This was partially offset by the acquisition of Marketing Sensorial Mexico and Chatter Research.By geography, revenues in Canada decreased 24.7% to $39.7 million, representing 61.8% of total revenues, reflecting the same factors, as I've just described, for total revenues as well as a decrease in equipment and installation sales related to digital signage. As expected, this part of the business came back gradually during this quarter after being almost shut down in the first quarter due to the COVID-19.In the United States, revenue rose 11.7% to $10.1 million or 15.7% of total revenues due to the organic growth in the streaming subscription and in advertising revenues in Broadcasting and Commercial Music. Finally, revenues in other countries decreased 2.2% to $14.5 million or 22.5% of total revenues, again due to COVID-19 and also to streaming subscriptions, partly offset by the acquisition of MSM.Looking at our performance by business segment, Broadcasting and Commercial Music revenues increased by 1.1% to $39.2 million due to the acquisition of MSM and Chatter research and the increase in advertising revenues, partially offset by the impact of COVID-19. Radio revenues decreased 33.6% to $25.1 million, largely due to the impact of COVID-19. This marks a significant improvement over the more than 60% decline recorded in the first quarter.Consolidated adjusted EBITDA for the second quarter increased 12.6% to $31.2 million or a margin of 48.5% compared to $27.7 million or a margin of 36.1% a year ago. The increase in adjusted EBITDA was due to the wage subsidies and to the reduced operating costs, partially offset by the impact of COVID-19 on revenues.By business segment, Broadcasting and Commercial Music adjusted EBITDA increased 24.1% to $18.9 million. As indicated by Eric, the adjusted EBITDA margin was 48.2% this quarter compared with 39.3% last year. As for the Radio segment, adjusted EBITDA decreased by 4.3% to $13.1 million. The adjusted EBITDA margin was 52.2% this quarter compared with 36.3% last year.In term of bottom line, the Corporation recorded a net income of $11.9 million or $0.16 per share compared to $5.2 million or $0.07 per share last year. The increase was mainly related to higher operating results, FX gain, positive change in mark-to-market on the derivative instruments and lower legal expenses, partially offset by higher income taxes. Adjusted net income was $16.3 million or $0.22 per share compared to $12.4 million or $0.16 per share a year ago. The increase was mainly related to higher operating result and a FX gain, partially offset by higher income tax and negative change in fair value of contingent considerations.Turning now to liquidity and capital resources. Cash flow generated from operating activities amounted to $25.4 million compared to $19 million a year earlier. The increase was mainly due to higher operating results, higher unrealized gain on FX and lower legal expenses. Adjusted free cash flow was $22.9 million compared to $18.8 million a year ago. The increase was mainly related to higher operating results and lower interest rate, partially offset by higher income tax paid.Turning to our balance sheet. At the end of the second quarter, the Corporation had cash and cash equivalents totaling of $10.9 million, a sub debt of $39.7 million and credit facilities of $299.4 million, of which $63.3 million was available. In October, right after the quarter ended, we increased and extended our existing credit facilities to $420 million, which consists of a $325 million revolving credit facility, $75 million in term loan, both maturing in October 2023 as well as a preexisting $20 million term loan maturing in May 2021.The renewed terms had an incremental commitment up to $100 million upon request, subject to predetermined condition. The preexisting sub debt of $40 million maturing in October 23, combined with the new credit facilities I just described, account for total flexibility of up to $560 million.Total net debt at the end of Q2 stood at $328.1 million or 2.77x pro forma adjusted EBITDA, a great improvement compared to Q1 when the leverage ratio was 2.9.This end my presentation. I will now turn the call back to Eric.

[Eric Boyko, Co]

Okay. So this concludes our prepared remarks. I really appreciate all the analysts for being here today. I know it's a busy day. A lot of companies are reporting today. So thank you for your time and attention.At this point, Jean-Pierre and I will answer any of your questions you might have. So I'll let go -- who will be the first -- first question?

[Operator]

[Operator Instructions] Adam Shine from National Bank.

[Adam Shine, MD, Head of Montreal Research & Research Analyst]

Maybe the first question, just on Radio, obviously the improving trend sequentially. Can you talk to how the early Q3 trend is evolving?

[Eric Boyko, Co]

Yes. Radio is minus 33% for the quarter, but for September, we were minus 25%. So -- and I think October will be better. So it's getting better every month. But for sure, always tough to predict with a second wave. But right now, for sure, September was strong, and October will be our strongest month of the year. So it's looking good for the start of October. But right now, everything is -- moves quickly, but we had a couple of excellent weeks.

[Adam Shine, MD, Head of Montreal Research & Research Analyst]

Just in relation to the government relief programs, I mean, $8 million or so in the Q2. How do you see that trending obviously, as that radio trend improves?

[Eric Boyko, Co]

Oh, it's -- even by September, our -- the numbers are minimal. So I think for the quarter, we can expect less than $1 million. So for sure, numbers are getting better, and that was the goal of the program. And as you know, the rest of the business -- Stingray business, now that is also increasing. So I guess it's good news. It's good news that we don't need it. So I guess if we can -- happy with there. I think it was the right move to help us to keep all of our employees and keep the relationship. But the good news is we're out of it now, so.

[Adam Shine, MD, Head of Montreal Research & Research Analyst]

So strong jump in the SVOD subscribers. Can you give us a sense as to what annualized revenues are tracking at right now?

[Eric Boyko, Co]

Yes, roughly at $3.7 million a month. So if you do times 12, I didn't do -- roughly, I'd say, $44 million -- $44 million. So we're at the right trend. And as you know, October, November, December will be our strongest quarter. Very pleased that we launched Japan, and we talked this morning, we just launched Italy, and we've just launched Spain. So every country, you should think a product is anywhere between 10,000 to 20,000 subs that we will add over a year. So those 2 countries, 20,000 subs at $5, you're looking about $100,000 of recurring revenues. So all this is good news, every new country and hopefully, Amazon, many more countries to launch and many more services on mobile. So our mobile segment is also increasing. So it's all good news.

[Adam Shine, MD, Head of Montreal Research & Research Analyst]

And just lastly, just on Commercial, obviously, you touched on the fact that you start going hunting in the U.S. more aggressively in January. But obviously, you've already started to make moves in that direction. Can you speak at all to sort of the prospects and the -- maybe the early sales cycle as to how that's evolving?

[Eric Boyko, Co]

Yes. In the U.S. for us, we had a noncompete agreement for 10 years. It's the first time that U.S. market is open. Rule of 3, if we do $50 million in Canada, we should be doing $500 million in the U.S. over time. So it's a huge market. And for sure, Boston Market, the [ beauty ] in the U.S. is a big account for us; Metro in Canada's 1,400 locations. In the U.S., a big account is 15,000 locations. But it's the same work. It's the same sales process. It's the same technology.So for sure, we're -- I think that Stingray U.S. business will be a biggest vector growth for the next 5 years just because we're starting at 0 in the biggest market in the world. And as you know, both of our competition, we know Mood restructured this summer, so it's [indiscernible]. And also even PlayNetwork is owned by another equity fund. So we're well positioned to get a lot of organic sales. And there's plenty of small tuck-ins that we can buy all over the market to accelerate that growth also. So very excited about that. It will be our #1 focus for the management team.

[Operator]

Deepak Kaushal from Stifel.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Deepak, not Tupac, I'm not that famous. I have a follow-up on Adam's and a couple of others. Just on the U.S. commercial opportunity. So Boston Market, that's not in the numbers right now, right? That's something that's going to start in calendar '21, is that correct?

[Eric Boyko, Co]

Yes, it should come in Q3 and Q4 because most of our businesses have a blackout starting mid-November that you don't deploy anything. You don't affect the stores. So we're delivering a lot in November and then December is -- then we restarted installing and everything and deploying in January.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Got it. And the…

[Eric Boyko, Co]

And that's about a $6 million deal.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Well, excellent. Okay. And then how did that deal come about? Was that an organic sales effort? Or did that come through Space Factory? And maybe you can follow that up with the opportunity with Space action would have had in the business?

[Eric Boyko, Co]

Hey, a very good question. So that one was purely organic. We were working to different contacts in signage. I think we have good technology there. And also with our partner Samsung, we're very well positioned with Samsung as their preferred partner worldwide. And that's why I went to Korea to meet them this spring or winter. And Space Factory, we're working with them. When you think about it, Space Factory is the top management of PlayNetwork that Bill play for 20 years. So we have the best CEO, CROs, technology person, legal. So for sure, when your partners have been in the business in the U.S. for 20 years, they have all the contacts.So every big chain, every big name that you can -- Starbuck, [ General Pools ], Walgreen, Apple, they have the contacts everywhere because of 20 years of relationship. So it really gave us a huge push. And also, we're going to be hiring a few other salespeople that were colleagues of theirs. So we're starting the U.S. running. So we're not starting like -- so I think that's why we're very confident. And I think the pipeline will be very impressive in the next few months. And I think that people will see the U.S. market grow for us.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Okay. And what's the biggest pitch to get retailers to switch providers given the incumbency of some of the other players out there? Is it -- are you seeing a general technology upgrade? Or is the COVID disruption really changing the way that stores want to communicate with their customers?

[Eric Boyko, Co]

I think the biggest advantage is we're fully -- we're a very strong streaming platform. That's what we do around the world. We do the same streaming for Amazon. We did the same stream for Comcast. And that's the advantage we have compared to peers who have been more store-forward disc and still have the old technology. So which had the advantage of coming with the brand new technology because we don't have any legacy.

[Jean-Pierre Trahan]

And we have Chatter as well.

[Eric Boyko, Co]

Yes. And we also have the Chatter service, it was helping us a lot. So no, I think we have a strong combination of digital signage, music and chatter, the insight. And like I say, just the music segment in the U.S., we estimate roughly at $1 billion market. So can we get 20%, 30% market share in the next 3 years, 4 years? I think absolutely. There's no reason.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Okay. Excellent. And then when I think of your broadcast business, I think you mentioned Commercial is about a $50 million business. Now the last time we had specific disclosures of that was in 2019. It was -- I think we had a $36 million, $37 million annual number. That's implying like growth of 80% a year. Is that correct? And can you maybe parse out broadcast and Commercial Music and the rest?

[Eric Boyko, Co]

Yes. Exactly. So last year, I think -- sorry, the Stingray business was roughly close to $50 million. So it was $48 million -- $40 million, around that range. And for sure, we can expect good growth in that division. And that's one discussion we had with the analysts. Maybe we're going to start next year, because we want to finish the year, separating the Stingray business and the Stingray and the streaming division separately because that division will grow quickly. And I think that by having more information for the analysts and the market, it will give us all more clarity.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Okay. But in terms of setting an expectation, are you looking at broadcast kind of mid-single-digit organic growth and Stingray business low double-digit organic growth? Is that the way --

[Eric Boyko, Co]

Yes.

[Deepak Kaushal, Director and Technology & Communications Analyst]

To think of it?

[Eric Boyko, Co]

I think that -- I think both units could be achieving high to close to teen organic growth, like a Boston Market deal is $6 million over a $5 million -- $50 million. So just Boston Market is 10%. Most of it is E&L, so we got -- again, it's not recurring. But for sure, any deal we sign is almost 10% organic. We're expanding our deal with our friends in Scotiabank and Mexico. Scotia, all these big clients, it's -- we're talking about thousands of locations when they make a decision. So that's why it's very exciting for us. So we feel like we made it to the big leagues.

[Operator]

Jerome Dubreuil from Desjardins.

[Jerome Dubreuil, Associate]

Yes. [Foreign Language]. Just regarding the radio review that the CRTC launched earlier this year, maybe the CRTC's ones right now, but what are your expectations with regards to this review? And does that impact your M&A strategy on Radio at all?

[Eric Boyko, Co]

Yes. Good point. So radio review should be announced any time again, and the review should happen in the spring, and we should get results for the market in the fall next year. But again, all of this we don't control, but that's the timing we've been told regarding the [ CAB ]. And the good news is we've been -- all the independents and the big -- smaller guys and big guys are hoping or working on 4 radios per city. What would that do to us? It would give us more scale in the big cities. And it would permit us maybe to sell some radio stations in smaller cities where we're not as competitive.So it would certainly increase the EBITDA evaluations of our radio across Canada, and it will make each one of us stronger. So I think it's good news, but we'll see. So because of that, I must say everything is pretty much stalled because nobody wants to sell at 6 or 7x if the thing is going to be worth 9 to 10x. And nobody is going to buy at 8 to 10x if that's not happening, and it's between 6 to 7. So I think right now, everybody is waiting and standing by.We were very happy with the government policy on Tuesday. We feel it's a positive step. We're analyzing that, but the new broadcasting act, that hasn't changed since 1991. So I think it was still in high school. But that's -- I think it's amazing that we -- they're looking at it. I think they're proposing the right things. And for sure, it will equalize the market where we were facing unfair competition from Spotify and even Netflix and different people that are coming to Canada. Now at least everybody will be contributing to the system, which we're happy to do as long as everybody contributes. So great news for us.

[Jerome Dubreuil, Associate]

Okay. Great. And regarding your foray in the U.S. market, that might have happened a bit faster than expected. Does the ramping up of the sales team, could this have a material impact on the margins maybe before the sales start ramping up?

[Eric Boyko, Co]

No. No. I think we're -- the south cycle is still pretty quick. We already have some very strong liens, very strong -- or the negotiation. We're drafting the agreements. So like I said, so I think there will be no impact. And I think that we could expect some sales in January, February, March. So we can expect some sales as early as January. So that's how quickly we're turning around. And as you know, every one of those customers is material for Stingray business because you get 3,000-4,000 locations at $100, it's USD 400,000 a month. It's CAD 0.5 million. It's $6 million. So that's the size of the customers, the bids that we're doing, but $6 million is almost 12% organic recurring.So -- and that's one customer. So that's why I think we're well positioned. And our technology that we've developed in Canada over the last -- and Mexico and Europe over the last 10 years probably makes us the most advanced technology for digital signage and music in the world.

[Jerome Dubreuil, Associate]

Okay. Great. And maybe one last regarding your renewal with TELUS, was it done at similar rates to previously or maybe you're counting more on other services to make up this difference?

[Eric Boyko, Co]

No, very similar rates. For sure, we're not in a market where we have a CPI index. So we're not at that stage, but very similar rates. Plus for us, the most advantage is them launching all of our SVOD services. They've also launched Classica, which we're having good returns. And we also have great numbers with them with their business customers. So TELUS and Optik have been great penetration in the business segment and there are big growth there that's helping us. And also TELUS and Optik is one of the few operators that have seen growth, so their plan, but we'll see.Now Shaw, as you know, has the new X1 platform. So for us, the more competition in technology, the more -- the better it is. But Canada for us is very stable right now. And we're getting organic sales in that segment because we were adding the advertising on the musical channels and our Naturescape. So Canada has seen, for the first time, positive organic growth this quarter.

[Operator]

Tim Casey from BMO.

[Tim Casey, Equity Research Analyst]

Just, Eric, can you talk a little bit more about these U.S. opportunities? You're talking about $6 million contracts. Is that an annual number? Or does that grow over time? And…

[Eric Boyko, Co]

No. Sorry.

[Tim Casey, Equity Research Analyst]

Go ahead.

[Eric Boyko, Co]

No, go ahead. Tim, sorry.

[Tim Casey, Equity Research Analyst]

No, no. Is that an annual number? Or is that…

[Eric Boyko, Co]

Yes, absolutely. This December…

[Tim Casey, Equity Research Analyst]

Like a 3-year deal?

[Eric Boyko, Co]

Usually, the deals in the music market, digital signage is 3 to 5, but most deals in U.S. is 4 years. So absolutely, it's a $6 million a year. So it's a $24 million deal. But as you know, in our business, once we get into a company and we install our equipment and our technology, I think our churn rate is below 3%. I mean it's -- our churn rate is getting lower and lower because you've got that advantage. So that's what we're excited.

[Tim Casey, Equity Research Analyst]

And in terms of the partnership with Space Factory, like what's the economic model for you there? Is it a revenue share deal? Is it -- are they just a commission? Do they -- how does that work?

[Eric Boyko, Co]

Yes. It's -- what we did with Space Factory was more or less of a agent agreement. So they represent us, they're agents. We pay them a fee. And then we have a call option if we get a lot of deals just to limit and to buy the company and buy their technology and the team. So I think for us, there's a lot of flexibility, but I must say the team for Space Factory has been outperforming my expectations. We always want to see the proof it's in the pudding. And at this time, the number of relationships they have over 20 years is incredible.

[Tim Casey, Equity Research Analyst]

Do you think -- should we expect that they'll be the more, I guess, successful funnel for new business? Or do you think you'll complement that with your own organic initiatives?

[Eric Boyko, Co]

No, absolutely. At the start, I think that the team -- the number of leads coming from the Space Factory team is so strong that they're taking all our time. So it's like if you know you get kids and you get triplets. So you're like -- so we're running. And so that's why it's exciting. And also, we're going to be adding -- we're already adding in the next month 2 to 4 new salespeople across the country to help Space Factory. But again, all these people are coming from their reference because they've been in the market for 20 years. So they know who the right salespeople are. So it's easier to hunt when you have the dart pointed exactly at the target. So that's why we have -- we were able to really start running quickly.And our competitors, for worse or good, have had a few bad times. And even if you look at why did they leave, I guess, or why do they believe there are friends at PlayNetwork. Well, PlayNetwork merged with TouchTunes. It was a Quebec owned company, owned by [indiscernible]. TouchTunes does jukebox in bars. You can imagine that the jukebox market in bars right now with coins is not very popular. So for sure, our competitors are financially in a -- let's say, not difficult, but uneven ground. So it's giving us an advantage.

[Tim Casey, Equity Research Analyst]

Right. Okay. That's encouraging. Just switching gears to the SVOD and the streaming initiatives. You talked about Italy and Spain launching. Can you just sort of maybe go down and talk the trends you're seeing with your major distribution partners? I guess, specifically, Apple, Amazon and then traditional more B2B players, the Comcasts and cable companies of the world, could you just flesh out what you're seeing on those?

[Eric Boyko, Co]

Yes. And Tim, that's a good question because sometimes we ask what's the churn on the SVOD market? So when we go B2C directly, we see the churn at 8% to 12%. But on the B2B side, all we see is the net. Amazon doesn't tell us who left, who came. We just get the net. So let's say, Amazon U.K. at 10,000 subs. Oh, this month, they have 10,500. So if you look at it as a platform, there's just positive organic growth from each platform increasing. So we have no more platform or seeing any decrease. We only had one decrease with one platform with Karaoke that I think we got lucky, and they came back to markets.But we expect the SVOD numbers to be steadily growing up because Amazon indirectly is like an ETF. It's a basket of different customers. And as long as Amazon does well, then we're piggybacking their back. So the same thing with everybody that's launching more SVOD service. And the same thing for the FAST channels. The FAST channels, we're doing this month 12 to 16 deployment in the U.S. with all the brands that -- I even know like TV manufacturers. So I think that you'll see in the next -- by December, we'll be willing to announce when all the launches are done. And I think we are by far the #1 in the market, and we're generating right now, Tim, which is surprising, close to USD 0.16 to USD 0.18 of revenue -- ad revenues per hour with those channels.So very lucrative. And this is U.S. cents. So we'll see. But I think if that market grows, as it's expected to grow, we are in every platform right now in the western world.

[Tim Casey, Equity Research Analyst]

Can you -- are you able to quantify what the advertising dollar run rate is right now out of…

[Eric Boyko, Co]

Yes. Run rate, we're…

[Tim Casey, Equity Research Analyst]

U.S. [indiscernible]?

[Eric Boyko, Co]

Yes, roughly, we're hitting the close to $200,000 a month. So it's still small, but don't forget that it's doubled since last quarter. That's why you see our advertising revenues went from $200,000 last year to $1.1 million. So a big part of that are the FAST channels coming in. And last year, it was 0. So that's why we're excited by it. And excited to see the numbers for November, December because all the platforms are very aggressive. And as you know, we've launched with most of them the audio channels, the music audio channels, just like you have on TV. And we've launched with them the holiday channels, which is, by far, for us like the good old Stingray on your TV box. It's by far best at the time of the year. It is. People love holiday music and they love putting on their TV a bit like the fire log.The fire log ratings were probably #1 during the holiday season. So very -- and that's why it's getting -- and -- but we're able to sell 8 minute of ads on Naturescape an hour, and the demand is there. And if you have a Samsung TV in Canada, and it's a new TV, you should put our channels and you'll be impressed with the quality of advertising. That's all done by Samsung. So it's really a great partnership. And the same thing with all the LG and the Sharp and Vizio and [ Racadon ] and TCL, which is the second-largest manufacturer of TVs in the U.S. So it's impressive and excited to report November and December to the markets.

[Tim Casey, Equity Research Analyst]

So how does that work, Eric? So they -- when you say they manage the advertising, are they provisioning the sites and then collecting the dollars and taking a fee and remitting them to you? Is that how it works?

[Eric Boyko, Co]

Exactly. Roughly, we were at 4 minutes an hour of ads. So let's say, 8 ads an hour. Most channels have 8 to 10 minutes. So now we're going to be doubling our number of minutes in November, December. So this will increase the revenue per hour. But they sell, and more or less, they take an agency fee like most advertising firm and give us the net. So -- and we're also allowed to up-sell directly. So that's why we built up an advertising team, and we're also doing direct sales on our channels to increase again the ARPU or the revenues per hour and also to make sure partners are making more money and making this segment bigger. So that's why it's so quick to make revenues because Samsung has -- and also Samsung has such a great network in all these big groups.Our big partner there is Xumo, but Xumo is -- just got bought by our friends at Comcast, and that's why we're also on Peacock, which is their another FAST channel. So we have great partners with these partners. So very happy about that segment and excited to see in December. December for us is the holidays. And so it's like -- it's like Thanksgiving. So we're waiting.

[Operator]

Matthew Lee from Canaccord.

[Matthew James Lee, Associate Analyst of Telecom and Media]

So back on the Boston Market deal, I just want to get the breakdown of the equipment revenue versus kind of the recurring service revenue from that type of deal. So is $6 million is the service for you?

[Eric Boyko, Co]

No, that's a very good question. So thanks for -- so when we do digital deals with where we get the RMR after, there's a big part is we've got to install all those TVs all around the Boston Market. So that deal is a good example. It's $5 million of equipment, E&L, which, by the way, that we started disclosing. On what page do we disclose on E&L?

[Jean-Pierre Trahan]

Thirty.

[Eric Boyko, Co]

Yes, on Page 30, you're going to -- we really clearly identify the E&L.

[Jean-Pierre Trahan]

For the first time.

[Eric Boyko, Co]

Yes, for the first time because it's not recurring. So Boston, that will be a great E&L in November and January, February, March, and it's $1 million of recurring after. So roughly over a period of 4 years.

[Matthew James Lee, Associate Analyst of Telecom and Media]

So what is the margin like on the equipment versus the service?

[Eric Boyko, Co]

Yes. We always say to the market on the equipment with the installation, and we put some software in there. So all in together, we're making around 30% we aim because we install the TVs and the software and all in, so there is a bit of technology. So around 30%. So for -- it's not -- and for sure, on the recurring, the recurring is above 80% margin. So that's why you can't compare E&L margin, equipment and labor margin and recurring because recurring is -- but some of the other deals that we're talking about, these 4,000-5,000 location, when we say $100, it's a month.So very excited about the potential. And Boston Market was our first deal in the U.S. and they got a lot of attention, by the way, from all the other customers because it more or less told the market that we're going to be present. So now we're being called or at least when they do an RFP, suddenly we're on the list. So it's great to be there.

[Matthew James Lee, Associate Analyst of Telecom and Media]

Right. Okay. So when you say $6 million per year, what you mean is $5 million of equipment that you install their network, and then $1 million?

[Eric Boyko, Co]

Just a -- very direct for this one. The Boston Market is a strong digital -- it's a digital deal. So $5 million equipment, and $1 million recurring. Some of the other deals that we're talking at is pure music. It's pure recurring. So it's 100% recurring.

[Matthew James Lee, Associate Analyst of Telecom and Media]

I see. And then when you talk about your competitors in the state, one of them being Mood, but the other one, the smaller player there PlayNetwork. I mean that's an under-$100 million business. Is that potentially for sale? And would you look at that?

[Eric Boyko, Co]

Yes. Absolutely. As you know, I think Mood public information went out in the market when they restructured and listed their evaluation because in that process, you're forced to, you're forced to -- and I don't think there was any buyers for Mood this summer. And for us, it was a bit complicated when you're dealing against an Apollo or some big U.S. funds that have all the information and where we don't see the deck of cards. And right now, I think indirectly, when you're owned by an equity partner, your sunset is 7 to 10 years, and both of these assets were owned by equity partners with a large -- that are getting close to sunset. So absolutely, I think that these players are always looking to see if they can sell their assets, so.

[Matthew James Lee, Associate Analyst of Telecom and Media]

Right. Okay. Fair enough. And then just on the SVOD B2C ARPU, what was that looking like in the quarter?

[Eric Boyko, Co]

Yes. Our B2C -- but our ARPU for SVOD is going down because we're doing more and more mobile subs, SVOD on mobile. SVOD on mobile, the pricing is a bit lower. So it's affecting ARPU. So ARPU is around $7.70, $7.80, so going down a bit. I think that by December we should stabilize around between the $7.50 to $8 range long term. But the more that we do mobile subs, which are having a lot of success with Click right now, the more we do those, it will affect our ARPU.

[Jean-Pierre Trahan]

It's a mix, yes.

[Eric Boyko, Co]

Yes. But right now we're very happy with the ARPU total.

[Matthew James Lee, Associate Analyst of Telecom and Media]

Right. Okay. And then just -- and just lastly in terms of OpEx in the Radio business, excluding the benefit of the wage subsidy, I calculate you guys have $17 million of OpEx in the quarter. Is that kind of where you're going to be for Q3 and Q4? Or could you potentially drive it further down to improve the margins?

[Eric Boyko, Co]

Yes. So just to clarify, excluding the subsidies, you see the OpEx at what?

[Matthew James Lee, Associate Analyst of Telecom and Media]

$17 million.

[Eric Boyko, Co]

Yes. We were lower. We -- really the Radio team was very, very efficient to reducing cost. And so we're trending lower than that right now. So for sure, we're remarketing. It's important that we do more marketing right now because it's a big season time for ratings. But no, I think our OpEx compared to last year will be down double-digit, and some of it is forever. So you can estimate about $10 million, $15 million in saving in OpEx for the year. So last year, OpEx were at $70 million.

[Matthew James Lee, Associate Analyst of Telecom and Media]

Very helpful. And that's excluding the weight of the ARPU?

[Eric Boyko, Co]

Yes, always assuming wage subsidies, well, I agree. But I think we've done a good job. On our side, broadcast, we took our OpEx down more than 10%; on the corporate side, 30%; and Radio took the OpEx down by 26% this quarter. So I think we've been -- as a management team, we've been doing the right moves. But now the good news is business is back and we're rehiring people. We're expanding, hiring new sales reps. So we're taking advantage of the comeback.

[Matthew James Lee, Associate Analyst of Telecom and Media]

Very helpful.

[Operator]

Bentley Cross from TD Securities.

[Bentley Cross, Equity Research Associate]

Just to follow on with Matt's question. Could ask it another way. At the beginning of the year, you said you're going to have $30 million in savings with roughly 1/3 of that being recurring. How are you thinking about it now? Is that -- has that crept up?

[Eric Boyko, Co]

Yes. Sorry, I missed the start of the question.

[Bentley Cross, Equity Research Associate]

I'm just trying to get a little bit more clarity on Matt's question. At the beginning of the year, you said you're going to have $30 million in annualized savings with roughly --

[Eric Boyko, Co]

Yes.

[Bentley Cross, Equity Research Associate]

-- 1/3 of that recurring. Has that 1/3 increased to half or something along those lines? Is that the right way of viewing it?

[Eric Boyko, Co]

It's a good question. So I would say $30 million, it's going to be between $10 million to $15 million recurring right now, $10 million to $15 million. It's just like travel with travel and entertainment was $6 million a year. So as you can see, we're not traveling and there's not much entertainment going on in Quebec. So for sure, that's $6 million, and it's going to come back. How much, but I don't think we're going to travel the same way we used to. We used to do monthly sales meetings in Montreal for 3 days, and we had 40 people over from L.A., Amsterdam, London and even around the world.Well, that's -- I don't see that coming every month. So we do know, we do Zoom calls, it's very efficient. And also, we started digitizing most of our payables, receivables because we were forced to, but that's also making us more efficient. So I guess the good side of the pandemic, it forced us to become more e-commerce. And so we're -- that's where we're getting the savings and the efficiency.

[Bentley Cross, Equity Research Associate]

Okay. And on MSM, it seems like pro forma revenues are a little less than $2 million. I don't know if I was off base, but I was previously expecting that to be close to $3 million on an annualized basis. Is that just being hit by pandemic? Should we expect close to $3 million kind of normalize going forward?

[Eric Boyko, Co]

No, no. We're deploying [ Scotia ] in Mexico, and that's going to be close to $70,000 to $80,000 a month. So you'll see those revenues coming in only by November, December. It will be done before the holidays.

[Jean-Pierre Trahan]

Take time.

[Eric Boyko, Co]

But yes, they -- we got a call last week, and they want to do an extra 400 stores in January, February, March. So we'll see. But every store roughly is you're looking about $100. So it's an extra $40,000. So it's -- that's what I'm saying working with big partners is fantastic because when they move, it's not 10 stores or 20 stores, it's 200, 300, 400. So you'll see those numbers picking up quickly because of that. And that one is an organic sale. So we took this customer from 0 in June.

[Bentley Cross, Equity Research Associate]

Okay. And last one for me. Any insight into the cash tax outlook for next year?

[Eric Boyko, Co]

And the? Sorry.

[Bentley Cross, Equity Research Associate]

Cash tax outlook?

[Eric Boyko, Co]

Yes. It's -- for us, this year, we've been very efficient. Don't expect that much taxes for the year, I'd say, below $5 million because, again, we have lot of tax losses in the -- in Europe because of some acquisitions as you know, in U.K. We have some tort losses in Switzerland from an acquisition, and we're well positioned with our -- how do we call this, with --

[Jean-Pierre Trahan]

Tax planning.

[Eric Boyko, Co]

Yes, tax planning and all that. So we're very -- I think we'll be below $5 million again this year. And in -- so that's why we're confident to maintain and to be very -- maintain the same cash that we got last year of $78 million. So we're very confident that we'll have the same cash flow for this year because we're being very efficient with CapEx. CapEx have gone down, as you can see. Our income tax is very low. And the only negative that we're going to have is the new deal that we signed, including [indiscernible] Bank. For sure, the banks increase our pricing by 50 bps roughly.So we will have an extra cost and interest for the first few months because of the new deal. We were ready to pay a bit more to secure this deal…

[Jean-Pierre Trahan]

3 years.

[Eric Boyko, Co]

Three years. So I think it was good by the Board and management, but it's going to be a bit more expensive. But the good news is we're, as you saw, I think we've paid like $55 million of debt in the first 6 months. So our debt repayment has been very strong. And like we told the market, we do feel that there'll be a secondary on our app direct investment. All of that would be going down to pay the debt. And if you do a pro forma with that, our debt will be below 2.5. So hopefully, we'll see how that comes along, but I think we're positive on that.So -- which is our goal now, by the way. Our goal is to be more in the below 2.5, 2 to 2.5 range, instead of 2.5 to 3. So that's why we've been very aggressive at paying down debt.

[Bentley Cross, Equity Research Associate]

Okay. And forgive me if I'm wrong, but I thought there was also a catch-up next year on cash taxes related to Music Choice. Can you give any insight into next year's tax planning at this point?

[Eric Boyko, Co]

Yes. No, I think the -- it's for tax planning purposes, we have a second payment for Music Choice that's due in February, but that tax loss was taken last year.

[Jean-Pierre Trahan]

Fully deducted…

[Eric Boyko, Co]

Yes. We were about to deduct it in last year's numbers. So even without that, we're still below $5 million in taxes for this year. So -- and again, unless the numbers are so amazing and we get so much sales in the U.S. and you never know. Maybe if we get some huge sales in the U.S., then -- but we'll be very happy to pay our 20% income tax rate there.

[Jean-Pierre Trahan]

Yes, it's a good problem.

[Eric Boyko, Co]

Yes. So -- but for sure, for now, our structure has been good because of all of our revenues coming via the U.K. because all our deals are done with our U.K. division.Thank you for your time again, guys. I really appreciate -- oh, we have Drew.

[Operator]

Drew McReynolds from RBC.

[Drew McReynolds]

On the subsidies in Q2, just remind us, is all of that in Radio, just given the trend?

[Eric Boyko, Co]

No, no. Last quarter, it was roughly about $2.5 million on Stingray -- Stingray digital side and about $5 million for the Radio. But all of that is, like I said, it's going to be below $1 million and going down to -- and existed in Q4. Don't forget the way they changed the rules. We used -- if you were down 30, you were getting 75% of the salary. Now if you're down 22, you get 22% of the savings. So it's a big difference for everybody unless your sales are down 75%, which is not our case.But in your model, less than $1 million for Q3 and $0.5 million for Q4 based on the existing terms. And again, very happy because it means that our sales are up and we're back in the positive. And another thing I can answer, but I think our organic sales was 5% with FX, so 3.7% without and September organic sales hit 8%. So I think our trends are good. We're very optimistic for October, November, December because we started September very strong on the Stingray streaming and Stingray business.So -- and also, I don't know, we mentioned in our speech today, that segment now, 60% of the revenues are coming from streaming and over-the-top. So our reliance on cable CPS is getting -- so you think about it, that's a segment that you want to be -- you want to be a streaming service, and you want to be with the over-the-top platforms, and that's where Stingray is getting Stingray business and Stingray Broadcasting is getting 60% of this revenue. So we're excited about that growth for the future.

[Drew McReynolds]

Okay. On the -- just quick housekeeping on CapEx. Just remind us what range you're comfortable with consolidated?

[Eric Boyko, Co]

Yes, it's good. Where's the CapEx? I'm trying to see our page last year, the CapEx at GP is…

[Jean-Pierre Trahan]

Around $2.7 million.

[Eric Boyko, Co]

This quarter, $2.7 million.

[Jean-Pierre Trahan]

Yes.

[Eric Boyko, Co]

So -- yes. Okay. Yes, CapEx, yes, $2.7 million. And so we'll be way lower than last year. For sure, the CapEx in Radio are very small and the CapEx in broadcast also decreased a lot. So I think that our CapEx will be down maybe 25% to 50%. The only one that we kept on going is, for sure, we're investing in our apps, and we're doing a lot of CapEx R&D, which is around $6 million a year. So that -- we're not stopping that. But all the rest -- first of all, I don't think many companies are adding new rent.Most people working from home. So everybody has their computers. So for now, until the market opens up, I don't see much new CapEx increase. So I would play the down 25%. And maybe after the call, I'll give you an exact number because there's 4 lines and no point for me adding it like this.

[Drew McReynolds]

Yes. No worries. Just understand all kind of the different data points that have been thrown out. Just for us to forecast radio margins going forward ex-subsidy, I know you've taken some costs out. Like are we looking at comparable margins in Radio to where you were pre-COVID? Is there a step down? What -- just any directional guidance you can give.

[Eric Boyko, Co]

Yes. Good one. So the rule of thumb with the savings we did right now, and again, if -- and if the pandemic goes on and we -- or keep the cost savings, if we're down 20% on sales, we'll have the same EBITDA. So that's how much savings we're able to do, so. Right now we're saving about $20 million compared to last year unless things come back. So if sales are down by $30 million for the year or 20%, then we're breakeven. And I think we do the calculation for the Board. We compare our numbers with the course numbers for the same 3 months. I think a big difference with the radio team, by the way, which is -- they've been very, very lean.And again, we're again synergizing. We have a lot of leases around the country that we don't necessarily need any more in the small towns. So a lot of leases are expiring. So a lot of -- that's another $1 million in savings that we think we'll get over the next 12 months. So that over time makes us more and more efficient. And our Radio also as we're doing more and more cross-sell audio cells and digital cells and radios are having good news there. So for us, the rule of thumb, if we're able to be at 20%, we're back to last year, and they were up 20%, then it's good news. But then we will start expensing and more marketing. So is that a good number for you?

[Drew McReynolds]

Yes. That's fantastic, Eric. I appreciate that. That's it for me.

[Eric Boyko, Co]

Okay. All right. I guess we have -- so I think there's nobody else. Okay. So…

[Operator]

There are no questions at this time.

[Eric Boyko, Co]

Okay. So thank you very much for joining the conference call today. We know you're very, very busy. I know some of you woke up at 4 a.m. because today with Bell, it's…

[Mathieu Péloquin]

Quebec Call.

[Eric Boyko, Co]

Quebec Call, it's WSP, it's [indiscernible]. So a busy day, so good for you. So it's good to see all these great Canadian companies. So -- and we appreciate your time catching up with us over the last few weeks, a great partnership. So we look forward to speaking with you again in February. Our next result is going to be early February. And excited to present our Q3 numbers, which for us is -- will be a very important quarter because of all these new over-the-top FAST channels and SVOD becoming more and more important. So it's going to be fun to see those trends. So -- and the U.S. market. So we really appreciate your time, everybody. [Foreign Language].

[Operator]

This concludes today's conference call. You may now disconnect.