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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Stingray Digital Group Inc. Third Quarter 2018 Results. [Foreign Language][Operator Instructions]Before turning the meeting over to management, I would like to remind everyone that this conference call is being recorded today, February 8, 2018. I will now turn the conference over to Mathieu Peloquin, Senior Vice President, Marketing and Communications. Please go ahead, Mr. Peloquin.
Thank you. [Foreign Language] Good morning, everyone. Thank you for joining us on Stingray's conference call for the third quarter, ending December 31, 2017. Today Eric Boyko, CEO and co-founder; and Jean-Pierre Trahan, CFO will be presenting Stingray's financial and operational highlights. Our press release reporting Stingray's third quarter results was issued this morning before the market opened. Our press release, MD&A and financial statements for the quarter are available on our investor website at stingray.com and on SEDAR.I will now give you the customary caution that today's discussion of the corporation's performance and its future prospects may include forward-looking statements. The corporation's future operation and performance are subject to risks and uncertainties and actual results may differ materially. These risks and uncertainties include, but are not limited to, the risk factors identified in Stingray's Annual Information Form dated June 8, 2017, 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 looking forward-looking statements. Thank you. And I will now pass the call on to Eric.
Good morning, everyone. Before I provide you with key operational highlights for third quarter of fiscal 2018, I'll give you some financial summary of the quarter.So Q3 results clearly demonstrate the driving force of our business of several fronts, and organic growth reached 15% of which 2/3 is coming from recurring revenues. Revenues and adjusted EBITDA increased by 32% and 28%, respectively. The primary revenue drivers for this strong performance were acquisitions, exceptional growth of SVOD. We now have close to 350,000 SVOD subscribers, up from just over 210,000 at the end of Q2. Also the ARPU on SVOD increased from 560 to 625, mainly driven by doing more B2C subscribers. These results [accomplished] generated solid free cash flow and our confidence in the future have allowed us to increase our dividends by 10% to $0.055 per share. This was mainly due to our free cash flow, which [stood] at $8 million for this quarter and we also had about $1.7 million of one-off CapEx, including the renovation of our building. So I'm proud to say that we've increased the dividend 6 times since our IPO less than 3 years ago. Our strategic aim at expanding our business outside of Canada has tremendous momentum. In Q3, we continued to make significant progress in the U.S. market, supported by Yokee and SVOD organic growth. With a 61% increase in revenues, this market now represents close to 20% of our revenues and we expect continued momentum in the upcoming quarters. Our other countries segment, which accounts for 33% of total revenues, was also up an impressive 45% fueled by the acquisition of Classica, Yokee, Satellite Music Australia, and SBA. As part of our mission of becoming a destination choice for customers wishing to discover and enjoy music across all platforms on all devices, we announced in January the acquisition of Qello Concerts. Qello is a world-leading over-the-top streaming service for full-length on-demand concerts and music documentaries. Qello has an effective reach with over 70,000 subscribers in a 160 countries. This acquisition will further enhance Stingray's library content. It should add 2,000 concerts and music documentaries. This acquisition also confirms our position as the market leader in music SVOD services worldwide.Since the beginning of the year, we have more than doubled our number of subscribers. December marked another important step forward in our B2C strategy as we completed a new agreement with Amazon for the German and U.K. market. As you know, we completed a similar agreement for the U.S. market in June 2017. The growth potential with over-the-top and Pay-TV providers such as Amazon and Comcast is sizeable and we will pursue aggressively over the coming months. To fuel the support of growth momentum, we closed in October a $45 million equity financing, putting us in a solid financial position to take advantage of the growth opportunities in our industry estimated at more than USD 230 billion. As for new developments relating to the claims made by Music Choice in November, the court proceeding over the patent infringement lawsuit in Texas acknowledged that the Patent Appeal Board instituted IPR proceedings with respect of the remaining patents and suits, granted the corporation a motion to adjourn the lawsuits. So the good news is we will have much less legal fees. And ordered that the current trial date and all remaining scheduled deadlines be suspended pending resolution of the IPRs. And in December, the court granted the corporation motion stay delegation pending resolution of the IPRs. So with all this growth and opportunities, I will pass you to Jean-Pierre.
Thank you, Eric. Good morning, everyone. Before I begin, let me remind you that all amounts are expressed in Canadian dollars unless otherwise indicated. For the third quarter, revenues increased 31.8% to $34.2 million compared with revenues of $25.9 million a year ago. The increase was primarily due to the acquisition of Yokee Music and Classica, combined with organic growth of SVOD services in the United States as well as additional music and equipment sales related to digital signage. Recurring revenues were up 27.5% to $28 million or 81.9% of revenues from $21.9 million a year ago. When compared with last year recurring revenues as a percentage of total revenues, decreased from 84.6% due primarily to a major non-recurring contract in Commercial Music. Geographically, Canadian revenues increased 15.7% to $16.2 million or 47.4% of total revenues. U.S. revenues increased 61.4% to $6.6 million or 19.4% of total revenues. Whereas revenues of other countries increased by 45% to $11.4 million or 33.2% of total revenues. Music Broadcasting revenues increased 23.2% to $22.8 million, mainly due to the acquisition of Yokee Music in May 2017 and of Classica in fiscal 2017, as well as organic growth in the U.S. market primarily related to Subscription Video On Demand services. Commercial Music revenue rose 56.5% to $10.4 million, mainly due to the organic growth in sales of equipment, and installation related to digital signage and the acquisition of SBA Music and SMA Australia in July 2017. In order to keep pace with increased customer and customer demand on the corporate grew in SVOD in B2C development teams and concentrated research and development effort on important SVOD and B2C capital projects. As a result of these new projects and their anticipated future benefits, the corporation began to capitalize the qualified development costs. Accordingly, for Q3 2018 the corporation capitalized a total of $800,000 of development costs net of $100,000 of related R&D tax credits compared to none for Q3 2017. Adjusted EBITDA increased 27.9% to $11.2 million from $8.7 million a year earlier. The increase was primarily due to the acquisition realized in fiscal 2018, in fiscal 2017 into organic growth partially offset by higher operating expense related to international expansion. Adjusted EBITDA margin decreased to 32.6% from 33.6% a year ago, mainly due to the recent acquisition of Yokee Music, SBA Music, and SMA Australia; equipment and installation sales and the overall change in the product mix which present lower margins. For the third quarter, the corporation reported net income of $700,000 or $0.01 per diluted share, compared to $2.7 million to $0.05 per diluted share last year. The decrease was mainly attributable to the negative change in fair value and contingent consideration, higher legal fees and higher amortization expense of intangible assets, partially offset by higher organic operating results. Adjusted net income was $6 million or $0.11 per diluted share, compared to $6.2 million or $0.12 per diluted share a year ago; as higher finance expense and income net tax expense were offset by higher adjusted EBITDA. Cash flow from operating activities increased to $6.6 million in the third quarter versus $5.6 million last year. The increase was mainly due to higher operating results and lower income tax paid, partially offset by higher music programming cost of services and content and general and administrative expenses. Adjusted free cash flow increased to $8 million or $9.5 million excluding one-time CapEx, from $7.1 million a year ago. The decrease was mainly related to higher adjusted EBITDA and lower income tax paid, partially offset by higher capital expenditures. Looking at our financial position, Stingray concluded the third quarter with a cash and cash equivalent of $4.5 million. Our net debt position was $22.1 million, resulting in a net debt to last 12 months adjusted EBITDA ratio of 0.57. As of December 31, 2017 the corporation had $100 million revolving credit facility of which approximately $72.4 million was unused, allowing us to pursue our strategic acquisition program and investment to achieve our growth objectives. I'll now turn the call back to Eric.
Okay. Thank you, Jean-Pierre. This sums up the conference call for today, very short but direct. Thank you for your time and attention. At this point, Jean-Pierre and I would be pleased to answer any questions you may have.
[Operator Instructions] Your first question comes from the line of Adam Shine of National Bank Financial.
So good numbers, obviously the SVOD ramp is moving nicely. Eric, I want to go back to the comment you made earlier on ARPU. Can you just repeat what the metrics are and give maybe a bit more context around it?
So the ARPU at the end of Q2 was CAD 560 per subscriber. And since this quarter, we have a lot more B2C. So on Yokee we sell some karaoke apps at USD 18 a month. So because of that, our ARPU increased to 625. So we had a good increase in subscribers and ARPU and we believe that 625 should be the ARPU that we see in the future.
Okay, and you've told us before that you get reported the number on a sort of post facto basis and it's sort of representative of an average. Are you getting these numbers just as a reminder, on a post-quarterly basis or a post-monthly basis? So for example, do you have any sense as to how the early Q4 run rate is tracking?
Yes, so the number we have is like a balance sheet. It's a photo of that number of subs as of December 31. So it's the actual number. So it was at 346,000 subscribers. And just the SVOD market is still increasing for us. We're getting more subscribers. For sure it's going to be a slower pace in Q4 than Q3. There is a seasonality factor with karaoke and concerts during the holiday.
And then I want to go to JP for a second. You talked about the capitalized-- what was it again? It was development costs, or--?
Yes, exactly related to B2C karaoke stuff.
Okay, and obviously that helped a little bit in terms of the margin. Is this -- this is the way you're going to obviously start accounting for things going forward. Do you have a sense as to what an annualized number might be?
Yes, for us since we're doing a lot more B2C, and for example we are launching a Stingray video B2C to be able to sell Classica jazz, concerts directly to individuals, including yourself, without going via Comcast or Amazon or Videotron or Bell. So those costs, just like a video game, are developed and are capitalized. And we estimate that we'll be doing anywhere between $3 million to $5 million a year right now in development costs.
Okay, perfect, then last question--
Which represents, I think this year in terms of B2C we're going to be doing close to $30 million in sales. So this is a brand new vector. So for sure, we're investing to have a better product offering.
Okay, great, and just one last question, maybe one for you, Eric, as a point of clarification. It was highlighted in the press release that you've launched I think something like 8 new linear channels in Canada. I guess a number of us remember that 2 years ago you bought the 4 Bell channels. There was just, I guess, some kind of CRCT approval belatedly a few weeks ago on that. I think that's what we're talking about, right?
Yes.
So I want to clarify that those channels have been in existence and contributing to results over the past year and a half to your numbers, but now it's kind of an official launch plus and extra 4? Is that the way we look at it?
Exactly, we're going to have-- we have 4 music video channels in English. We're going to have 2 in French. Plus we have Classica and 4K now. So we'll have the chance of having 8 linear channels and you also add the Ambiance channel, which is the fire log and Festival 4K. So we're going to have 10 channels in Canada. The advantage there again is for [Lincoln] rules. It helps our customers that are VI to have channels for the 1-to-1. So we're [indiscernible] independent in Canada.
Your next question comes from the line of Maher Yaghi of Desjardins Bank.
I wanted to ask you a question regarding the growth you're seeing in SVOD in the B2B, okay? So continued nice growth in the quarter, 40,000; are you starting to see some kind of churn metrics you can share with us on initial subscribers in that vector? And what are you guys doing in terms of launching new products that can accelerate or keep pace of those net additions that we're seeing on the SVOD market in the B2B?
So the SVOD market, as you know, on the B2B side we get net results. We don't necessarily see the end customer. We've been told that our churn is around 14% to 15%. And we've been told that that's good. So that's the feedback we're getting. The most important for the B2B market and for you guys, the analysts, is our reach. So the more we launch platforms, so we want to launch with Cox. We launch with Videotron. We want to launch with Rogers. We want to launch with our friends at Shaw. We want launch with our friends at Altice and Charter. So the more we have reach and what's important to have the reach is we need set-top boxes that are IP connected. So the more that everybody invests in their new IP platform, including Bell and Telus which are going to be going with media first, the more than we can increase our SVOD offering. So our SVOD offering should be 1% to 2% penetration of these connected IP boxes. So a good example is X1. X1 now has roughly 12 million subs. But when it's fully deployed with all the 5 partners, they're going to have 25 million subs. So you should expect, based on the same penetration that the B2B subs on X1 will triple over the next 3 to 5 years. Do you follow my thinking?
Yes, yes.
Okay, so that's important. So when people say there's cord-cutting in the market, for us it's irrelevant. What's most important is how many IPTV cable boxes get installed and how quickly can our partners arrive to the 2.0 digital boxes and be able to do a single sign-on billing.
Yes, and that churn rate you mentioned is a monthly churn rate, right?
Yes, and again, it's what's important is our numbers always keep increasing. And we get weekly results with some of our partners and we get those results Wednesday night and Thursday morning we're always having Mimosas.
Okay, and it's not the full story without your acquisition dynamic here. A little bit slower than what I had thought in terms of adding on the acquisition side. Can you talk about what are you looking at? What are the valuation metrics? How much money can you deploy?
Yes, so last year, so we did a calendar review from January to December, and we gave that to our board. And in calendar 2017 we invested $42 million for acquisitions and once that's fully synergized, the EBITDA will be about $10.4 million. So we're roughly at-- last year's acquisitions after synergies are at 4x EBITDA. So we had a great year. There's still more synergies coming up in the next few months. But I know we were very pleased to be deploying that much capital and having this increased EBITDA.
And are the vectors that you're looking at to deploy more money in, are you focusing on a specific place, a specific sector, a specific region?
So for us right now, there's 3 vectors that we're investing and that gives us more flexibility. So the first vector is always TV channels. As you can see, we're always looking at those. The second vector is the Stingray business. We've been aggressive in Mexico. We've been aggressive in Australia. So we're looking for Stingray business operations in Europe, in the U.K., in Latin America, even countries like Israel; so we're excited by that segment. And the third vector is the B2C space. So Qello is a good example of B2C. And Qello for us was an asset deal. So we brought over the assets to contracts and have very few employees coming on board with that. So the synergies are pretty immediate.
Okay, and one last question from me, the 15% organic growth; can you break it down in terms of SVOD, in terms of maybe also traditional platforms on TV, et cetera?
Yes, so roughly on the 15% for sure, this quarter was exceptional. The 15% organic growth was in our title, when we first did the press release. But after looking at it, we didn't want to put too much focus on it. So that's why we hid it in our remarks. But roughly we're looking at 9% that's based on recurring and 6% based on [ENL]. So we had a very strong ENL quarter. We had a large sale with Jean Coutu. It was an almost a $2.5 million to $3 million sale with Jean Coutu. We installed all the Jean Coutu with digital signage. So for sure ENL is non-recurring. So we're having a nice growth with that one. ENL is going to be quarter-by-quarter, depending on when we get big sales.
It's success-based, yes. I understand.
Yes, so we'll take it because it's money. We're making good money. But we can't say it's not non-recurring.
Your next question comes from the line of Tim Casey from BMO.
Just to confirm the Jean Coutu number is the $2.5 million to $3 million; that's what you cited in the disclosure as the one-time benefit in Commercial?
Yes.
Okay, looking at those SVOD numbers, can you talk a little bit more about churn and seasonality? Because if we look at the trend, in the June quarter you added 75,000, then September 64,000, now 58,000 organic in December quarter. But you mentioned there was seasonality and I thought you implied that the December quarter would actually be better. Look, I know the delta of 75,000 to 58,000 isn't huge in absolute numbers. But it is a softening trend. Can you talk a little bit about how we should think about those numbers from a seasonal perspective? And that churn number you mentioned of 14% to 15% that's B2B I think you said. What are you seeing on the B2C side in terms of churn?
Yes, so before the part also, we're adjusting our pricing. So the Yokee pricing for karaoke went from $9 to $18 in one quarter. So that's why the ARPU increased from $560 to $625. So we're also adjusting and we expect to also adjust our pricing on Classica and DJAZZ. And so I think that's going to be interesting metrics. There's seasonality and there's new platforms. The more we launch a platform, the more we're increasing SVOD subs. I think we have to be careful of saying 60,000 subs per quarter. Because if we do that, every 20,000 subs is $1.2 million of EBITDA. So that means we will be adding $3.5 million of incremental organic growth per quarter, which will be $14 million per year. So we don't want to-- so for sure Q4 will be, we expect Q4 to be lower growth. And what's most important is launched on new platforms. And in terms of B2C, I'm not sure. What's our B2C churn? It's a good question.
It depends on the product, so anywhere between some products 5%, 8% per month up to 15%. Obviously with a product like same machine you have seasonality, most of the machines being sold during the holiday season.
Does that answer your question, Tim?
Thank you.
Your next question comes from the line if Bob Bek of CIBC Capital Markets.
Just a couple of follow-ons here, just you talked about the Amazon opportunity on over-the-top, Eric. Can you kind of expand a bit about what it takes to kind of develop that further within Amazon, other territories, whatever? Are these ongoing negotiations or what does it take to kind of drive further onto the Amazon platform?
For sure Amazon is one of our biggest prospects of growth. Amazon in a period of 6 months became a bigger customer than any other Canadian customer, so just to give you a perspective. For the U.S. and the world, it's a great market. Amazon with their service have launched only in 4 countries. And they are already have teams in place and expect to launch in 43 countries, including Japan, India, Australia, all of LATAM, Canada, and Europe. So we're very well-positioned with them, a very exciting partner. And let's be honest. If you go on the Amazon platform, the discovery rate now and Amazon also agrees with this; the discovery rate now is to be improved. If you say I want to see a David Gilmour concert, it's going to send you to a David Gilmour DVD. So they have to improve the discovery. And our biggest opportunity is those functions, which we're investing with Amazon. So for us discovery and more countries is only positive growth. Because when we launched in Germany, when you start at zero there's only one way to go is to go up, so for sure. And right now you're seeing strong organic growth in those countries. So the more Amazon launches, the more that Stingray is well-positioned, so very exciting for us.
So on that discovery idea, on the Comcast platform it's very strong with the X1 on finding your products. Do you think that the other partners are going to establish a similar platform for discovery that you think you could--
Absolutely. So one of the main-- even Amazon themselves will say that this was launched quickly with their channels and they're experimenting. But one of the main issues is going to be increasing that. And for us, a big advantage-- the biggest change in discovery is all the voice recognition. So the Alexa and the X1 platform that you can do voice recognition is going to be a game changer for discovery content and will be very-- so when you say karaoke frozen or I like frozen, it's going to show you Frozen karaoke. And then so we're excited about the growth there.
Okay, great and just one last one from me; the Qello acquisition December, early days; how long before you can kind of ramp this thing to find some synergies? Obviously bolting it on, it's a very big and nice asset. But how long do you think it takes to get onto your platform to kind of really make more out of it?
So the Qello acquisition was-- how do you say-- synergetic on day one. So we took a business that was EBITDA neutral to positive. And we should be easily in a range of 5x EBITDA that we paid for the asset in the next few months. So it's been a very good acquisition, because we only bought the assets. And so we had no rent, no employees. We really bought the contracts. So we were lucky that way. It was an asset deal.
Your next question comes from the line of Bentley Cross of TD Securities.
I first wanted to dig into your organic numbers a little bit. I'm having trouble reconciling all the data points. So essentially we did 15% organic growth. Eric, you've said that 9% of that was recurring, 6% from non-recurring. But if we look at the non-recurring delta year-on-year, that's $2.2 million or 8.5%. So I'm just wondering how that reconciles. And then I have a follow-up after that.
Yes, also because we decided last quarter, we told you guys that we don't do the FX. We always do net of FX. So this quarter we had a negative FX part. So overall it's roughly, you're looking at about 8.5% organic, 6.5% non-organic.
Okay.
So it's the FX that fudges the number and Q4 we'll see what dollar is. But Q4 the FX is going to be-- right now, just to give you a number, every point, every cent is $200,000 EBITDA, every point. So the more we become international, the more--
More and more U.S. dollars.
The more U.S. dollars, the more we have an FX component. But we always decide to give you all the numbers in Canadian and not get mixed up with the FX.
And then maybe related, but also on the SVOD contribution, I mean if I make some assumptions here and just say B2B ARPU at $4 net to you guys, that alone should have contributed 8% to organic growth. So I'm just wondering, does this mean that kind of some of the other pieces are maybe going the other way a little bit?
Don't forget that we get-- we're seeing growth right now. So we finish at 346. So in Q4, we're going to get the full benefits of the 346. Because if you dilute the average every month that we get paid after, so it takes a few months to get the full benefits of the subscription. So when we ramp up, it takes a few months to get the accounting and cash. Do you follow what I'm saying?
But even if I take the average between Q2 and Q3, multiply by a $4 ARPU, which is I think low relative to what you've expressed before, that works out to $2.1 million in incremental growth that should be kind of 8%-ish.
Yes, we're closer to about 6.25% for the VOD organic growth.
Okay. So does it then imply that--
We're at $1.5-1.6 million organic growth for SVOD and about-- and I guess at about 6%, so in that range. The rest of the TV business, Canada is very stable and no growth. And the rest of the world, the TV business also very stable, so no real growth. And we're not forecasting big growth on the TV side. We're using the TV channels more and more to promote SVOD services.
Okay, and then last one from me, the last couple acquisitions have been focused on the B2C side. Should we read anything into that or is that just a function of the opportunity set?
It was an opportunity for sure. The Yokee one, we own the largest karaoke catalog. And by the way, we're very happy to announce that since we bought Yokee, we were able to sing, not exclusively but we're of a few, so we've signed Bon Jovi. We signed Adele. We just signed ABBA. So for us it's huge. So ABBA was always illegal for karaoke. But so I know you're going to say, Eric, it doesn't sound that big. But these are big brands. And we also signed Queen. So we've become the #1 supplier of karaoke worldwide for the publishers. The publishers appreciate that it's legal karaoke. We're legalizing the market. And because of that, they're giving us more and more artists. So it's really helping the organic growth, both Yokee and both with us. And the second one, Qello for sure. We want to be the #1 SVOD music provider in the world. Concerts is a key segment. The margins are not the same on concerts. The costs of those big-name concerts, the gross margin is much lower. But it's a great brand for Stingray and a great addition to help us sell more SVOD products.
Your next question comes from the line of Ruben Sahakyan of GMP Securities.
Going back to Qello Concerts, are you able to provide more color on the margin profile licensing agreement? And to follow up on that, so Qello is also on Apple TV. What's the process like for you guys to start cross-selling other products on it and have you started it?
Yes, so the first one, now we're always careful with margins. Because it's in our business, we have a few suppliers and a few labels. So we try to stay-- but for sure the margins on the concerts are much lower than we do on karaoke. Because on karaoke, we are the label. And on Classica, we own a lot of the concerts. So our margins are extremely high. Regarding Qello for sure, the cross-selling for us is a key vector. It's going to be interesting. We are launching a B2C SVOD product. So we're going to be launching a Stingray app where you can Classica, Qello and DJAZZ and also other long-form content. For us that's a big investment. We're going to be investing $1 million to $2 million this year. But we do want to be in a position that everybody in the world can have access to Classica and not only Amazon Prime customers. So for us it's a big vector and we're going to be using part of the Qello platform for that. So very exciting times for us on the B2C space and also when you do B2C you get $10 ARPU instead of 50% of USD 8, USD 4. So it's great for the margins. Does that answer your question?
Yes, and just an overall big sort of a higher level strategy, so you guys have been growing really well and built quite a bit of extensive video library. And so when we look at your audio side of business, how does the model change from that end or does it change at all?
No, it's interesting. So we ask ourselves the same question. In this quarter, our sales are roughly 50% video, 50% audio. So we really hit that segment. All of the SVOD by nature, SVOD is subscription video on demand. So it's for sure all video. But it's putting us in a position to try to leverage and management is looking, is there a way that we can launch a subscription audio channel in the U.S.-- not in Canada-- and use the linear channels to push the consumer towards a linear audio that we would sell at $4.99. So since we have all that visibility, it's how can we leverage and make these audio channels for the operators, make it net ARPU contribution instead of just a CPS cost. So it's turning it from a CPS and adding revenues for the operators, like we did with Comcast for karaoke. Because Comcast, we became the supplier to them and now they're inviting us for dinner, because we became a customer, because they're making money with Stingray. So it's great to be in a position where you get invited for lunch. We're going to save on Q&A costs. JP is very happy.
Your next question comes from the line of Drew McReynolds of RBC Capital Markets.
On the margins, you've spoken before about 32% to 34% margin guidance range for fiscal '18. Just given all the moving parts here in terms of your mix, et cetera; can you just give us an update on just how we should be modeling margins kind of for the rest of the year and into next year?
Yes, so again this quarter if you take away the ENL, because ENL roughly we saw a 30% to 40% margin. So those are great sales. We get paid for them. But it's not the same margin as in the other part of our business, which is around 80%. So when you take away the ENL, our margin would have been 33-34% this quarter. If we do a lot less ENL, then our margin jumps up to above 35%. So given the margin is going to be really based on the product mix, this quarter we were at 81% recurring revenues. It's not that recurring revenues were down, it's just that ENL was so far up. So that's the part, when Stingray was created, we want to be a digital company, recurring revenues and high margins. For sure ENL is-- we do ENL because we get the recurring with Jean Coutu, they pay us a monthly fee to take care of all of their digital signage. But it's not the same amount on the cost of a TV. So the margins are-- we feel the margins are going to be again around 32% to 35%, depending on how much ENL we do. And the margin-- the more we do SVOD, the margin will keep on increasing.
Understood. On the R&D capitalization, and I apologize. I haven't yet kind of made it through the release this morning, if there's detail in there. Just on the R&D, you commented about $3 million to $5 million annually in terms of what you're going to capitalize going forward. I'm just wondering, just trying to put that into context. How does that ultimately flow through your P&L and what were you kind of expensing on R&D previously?
Yes, so and that's very important is that research, you cannot capitalize research as an expense. It's the development side. So with Yokee we're working on a new piano app, piano training app. We're having a lot of success with the piano Yokee app. We want now to do piano classes, which fulfills a big segment. So that's an example of a product that we're developing. So while we're developing this, we're not having any sales. And this is not a question of choice. It's an obligation under IFRS, and even more under the new IFRS 15 coming in for April 1. So we're positioning ourselves with IFRS. And the more that we do B2C product, like example we want to launch the B2C Stingray direct to consumer app. So that product also we're developing it right now. We have a ream working on it. So that also is being capitalized until the sales come in. And then it will be amortized. So we're following the new IFRS ruling.
And just so I'm clear, Eric, the amortization once these things get launched, is that above EBITDA or below EBITDA, just for--
It will be below EBITDA and depending on the apps, anywhere from 3 to 5 years. We're still in discussion with KPMG. And also we're positioning ourselves for IFRS 15, which we are going to be launching April 1. So this is an obligation by the accounting.
And it's good to talk about that before year-end.
And for us the good news, it focuses the team and development team, what's going to be the ROI of the projects. So every project we do now it focuses the team to be very much financially driven. So it's a positive thing in terms of governance for Stingray, because it really focuses the development to be focused on what's going to be the return of a project. And if there's no return, then let's not do the project.
[Operator Instructions] Your next question comes from the line of Tim Casey of BMO.
Just wanted to follow up, could you talk a little bit-- you mentioned how voice discovery is going to be so much more important on Alexa and a number of other platforms like Comcast. Can you talk a little bit about what you're doing to prepare your products and services for that type of discovery and how confident you are that--
Yes, for us there's a lot of working with the company called Universal Search. But at the end of the day and as you know, I'm a tech person but I'm not an engineer. We're working on our APIs to make sure that every karaoke music video that when you click for it, when you say, Alexa I like Rhianna, it's going to show you the Rhianna concert, the Rhianna music video and then the Rhianna karaoke. Right now if you go-- I dare you to go on Amazon and try to find Classica or karaoke or Qello. So it's very complicated. But the more that we get these APIs and the more that the videos are included in the Amazon system and are recognized, the more that will be popping up. So it's a function of discovery and also of the more you're present the more you can discover. So it's almost like a rating on iTunes or on Apple. So it's going to be one of the main functions for Stingray and also for our partners. Because it's also to their advantage that we get discovered and the channels get discovered, and they're also higher margins for them. The video channels for Amazon are a great margin product compared to selling a DVD or I don't know the margin, but Amazon on a DVD maybe makes 10%. But with us they make 50%. Is that a good answer Tim?
There are no further questions at this time. I turn the call back over to the presenters.
Okay, thank you for your call today. We're excited for this quarter. Again, the organic growth I would say was extremely good, but exceptional. I would not put in your forecasts 15% organic growth for the rest of the year. No, we as management always, we want to beat the 5% organic growth and we want to beat the 5% EBITDA acquisition. So 5-5, and we're happy that so far this year, like we say, so far so good. So that's our motto at Stingray. Thank you, everybody.
This concludes today's conference call. You may now disconnect.