Stingray Group Inc

TSX:RAY.A

Earnings Call Transcript

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Stingray Group's Third Inc. -- welcome to Stingray Group Inc.'s Third Quarter 2021 Results Call. [Operator Instructions]Before turning the meeting over to management, I would like to remind everyone that this conference call is being recorded today, February 4, 2021.I will now turn the conference over to Mathieu Péloquin, Senior Vice President, Marketing and Communications. Please go ahead.

[Mathieu Péloquin]

Thank you, Bomatang. Good morning, everyone. Thank you for joining us for Stingray's conference call for third quarter results ending December 31, 2020. Today Eric Boyko, President and CEO, Co-Founder; and Jean-Pierre Trahan, CFO, will be presenting the financial and operational highlights.Our press release reporting Stingray's third quarter of fiscal 2021 results 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 future prospect may include forward-looking statements. The corporation's future operation and performance are subject to risks and uncertainties, and actual results may differ materially. These risks and uncertainties include, but are not limited to, the risk factors identified in Stingray's Annual Information Form dated 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're 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.With that, I will now turn the call over to Eric.

[Eric Boyko, Co]

Good morning, everyone, and welcome to our Q3 results conference call. Today's results actually reflect our ability to effectively manage our expenses under exceptional circumstances while taking full advantage of the new and evolving market opportunities in Broadcast and Commercial segment. Despite a decrease in revenues, we posted a 9.5% increase in adjusted EBITDA to $34 million. This is unprecedented. Great work from all the team in aligning expense levels with revenues. We did, in fact, remain quite busy during this quarter. Among other things, we delivered ourselves -- divested ourselves of the non-core investment in AppDirect, which resulted in proceeds of $18.9 million. We launched a premium SVOD channel with 7 additional partners worldwide. We introduced FAST channels with 11 partners delivering a potential audience of 200 million. And finally, we successfully extended and increased our credit facilities up to $560 million. This provided additional liquidity for operation as well as for future M&A.Looking at our operations, in particular, we know that Broadcasting and Commercial Music revenues increased by 0.7% to $40.2 million. This reflects our acquisitions and fast-growing advertising revenues, which were partly offset by decrease in E&O and the impact of COVID-19.One number I'd like to call your attention in this segment is our 6.3% organic growth, excluding FX and COVID impact. Marked organic growth for the U.S. market was 13.7%, and we see this will accelerate in the future quarters. We are proud of this outperformance, which attests to our ability as well as our progress in pivoting our business towards new and much larger vectors for growth. Again, in Broadcasting and Commercial Music, adjusted EBITDA increased by 47% to $21.9 million due to the settlement with SOCAN as well as a reduced operating cost, partly offset by a special bonus to employees. Our operating expense materially decreased by 26.9%, or 27%, to $18.3 million from $25 million last year.Third quarter results also showcased the resilience of our Radio business. From the lows experienced in fiscal 2021, we saw our revenues steadily bounce back while comparable year-over-year declines were much less important despite ongoing headwinds related to the pandemic. Still, revenues remain under pressure, dropping by 22%, or 21.8%, but beating the Canadian Radio market in most comparable measures. We are very pleased with the adjusted EBITDA margin, which not only remained healthy, but actually improved compared to last year to 42.6%.With regards to Stingray Business, we put in place and experienced sales team and continue to lead the transition for capturing significant growth opportunities in the U.S. market. In fact, at the end of December, we concluded a second deal to provide curated stream music to ClubCom, a division of Zoom Media. We now have more than 5,000 locations in the U.S., along with a healthy sales pipeline, which allow us to look to upcoming quarters with some optimism. We continue to add streaming subscribers at a quite a pace. By the end of the quarter, we have more than 0.5 million subscribers, an increase of 31% over last year. Our next milestone is 1 million subscribers, and we are confident that we will be reaching that goal in the foreseeable future, thanks to new distribution agreement and continued organic growth.As mentioned earlier, we are pursuing our push in FAST channels with new partners and access to new geographic markets. As a result, our viewership has grown by 22% in streaming time versus Q2. This is primarily reflected in the 140% increase in revenues for the quarter, which hit $1.6 million.In short, over the past 5 years, we responded to rapid changes in our industry by pivoting fully towards streaming services and diversifying our revenue base. As a result, we are now positioned as a leading music distributor audio and video channels as well as apps and fast channels. In the process, we've also significantly expanded our total addressable market, and that bodes well for an exciting future.Now I'll pass you to Jean-Pierre for the financial review, and I'll conclude this presentation.

[Jean-Pierre Trahan]

Thank you, Eric. Good morning, everyone. For the third quarter of fiscal 2021, our revenues decreased 10.8% to $72.6 million compared to $81.3 million last year. As for the past few quarters, the decrease was due to the impact of COVID-19 on our radio business and to a lesser extent, on broadcast and commercial music. The sales of equipment and inflation related to digital sign has also decreased. This was partly offset by the acquisition of MSM in Mexico and Chatter Research as well as the increase in advertising revenues in the Broadcast and Commercial Music segment. For the quarter, advertising sales increased by 140% to reach $1.7 million.By geography, revenues in Canada decreased 17.6% to $47.4 million, representing 65.2% of total revenues, down from 70.7% last year. The decrease in revenues reflect the same factors I just described for global revenues. In the U.S., revenue rose 11.7% to $10.7 million or 14.7% of total revenues due to organic growth in advertising revenues in the Broadcast and Commercial Music and streaming subscriptions.Lastly, revenues in other countries increased 2% to $14.5 million or 20% of total revenues due to the acquisition of MSM in Mexico, partially offset by the impact of COVID-19.Looking at our performance by business segment, Commercial Music in Revenues increased by 0.7% in the third quarter to $40.2 million due to the acquisition in Mexico and Chatter Research. And the increase in advertising revenues, partially offset by a decrease in equipment and installation sales in the impact of COVID-19. Radio revenues decreased 21.8% to $32.4 million in the third quarter mainly due to the impact of COVID-19. As Eric indicated, the Radio segment has rebounded nicely from the -- more than 60% decline recorded in our first quarter.I also wanted to highlight that consolidated operating expenses for the third quarter decreased by 20.7% to $40.6 million from $51.2 million last year. The decrease was related to reduced operating costs to a settlement with SOCAN to reduce variable expenses in wage subsidies and other subsidies, partially offset by special bonus to employees.Consolidated adjusted EBITDA for the third quarter increased 9.5% to $34 million or a margin of 46.8% compared to $31 million or a margin of 38.2% a year ago. The increase in adjusted EBITDA was due to reduced operating costs in a settlement with SOCAN and the subsidies. We did also benefit from a more favorable product mix translating in a higher gross margin. These factors were partially offset by the impact of the COVID-19 and special bonus to employees. By business segment, Broadcasting and Commercial Music adjusted EBITDA increased 47.1% to $21.9 million. The increase was due to the settlement with SOCAN and reduced operating costs, partially offset by special bonus to employees. The adjusted EBITDA margin was 54.5% this quarter compared to 37.3% last year.As for the Radio segment, adjusted EBITDA decreased by 20.8% to $13.8 million. Adjusted EBITDA margin was 42.6% this quarter compared with 42% last year.In terms of bottom line, the corporation recorded net income of $14.1 million, or $0.19 per share, compared to $8.1 million, or $0.11 per share, last year. Adjusted net income was $21.1 million, or $0.29 per share, compared to $16.7 million, or $0.22 per share, a year ago. The increase was mainly related to higher operating results, positive change in fair value and contingent consideration and the FX gain, partially offset by higher interest expense and income tax expense.Turning now to liquidity and capital resources. Cash flow generated from operating activities amounted to $16.3 million in the third quarter compared to $28.8 million a year earlier. The decrease was mainly due to negative variation in noncash operating items, partially offset by lower legal expenses and higher operating results.Adjusted free cash flow was $19.6 million in the third quarter compared to $21 million a year ago. The decrease was mainly related to higher interest paid, income taxes paid and capital expenditures, partially offset by higher operating results.Turning to our balance sheet. At the end of the third quarter, the corporation had cash and cash equivalents totaling $9.8 million and a sub debt of $39.7 million and credit facilities of $290.4 million, of which $116.7 million was available. We made good progress in reducing our leverage ratio. Total net debt at the end of the quarter stood at $320.2 million, or 2.65x from our adjusted EBITDA. We started the current fiscal year with a ratio of slightly above 3x.This ends my presentation for today. I will now turn the call back to Eric.

[Eric Boyko, Co]

Okay. Thank you, JP. This concludes our prepared remarks. Thank you for your time and attention. At this point, Jean-Pierre and I will be pleased to answer any questions you may have. So to you.

[Operator]

[Operator Instructions] Your first question today comes from the line of Adam Shine with National Bank Financial.

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

Eric, maybe we can start with the SVOD traction. Can you give us a little color in terms of maybe some of the new mandates that you've picked up perhaps markets that have been penetrated in any sort of pricing initiatives that could help move ARPU higher? And then within the context of that, maybe as a point of clarification, we don't know what ARPU is obviously of late. But can you give us a sense as to what annualized revenues might be running at? I kind of see it somewhere above $46 million, reaching almost $47 million.

[Eric Boyko, Co]

Okay. Adam, great question. So the reason for the decrease in ARPU is the more we do B2B2C, the more we do sales via Comcast or Amazon, because we share our revenues with them. Our ARPU on these products are between USD 4 to USD 5. So for sure, those are increasing rapidly. One of our best partners right now that's growing and almost doubling is Amazon. And in the last quarter, we launched Amazon, Spain and Italy. We also expanded Japan, and Amazon is increasing every week. So our future plans of launching our products with Amazon is we're looking at Mexico, Canada, Denmark and some Nordic countries in Europe. So amazing partnership. So very happy with that. Absolutely. So you're right. Our run rate in December was about $4.1 million, $4.2 million. So $4.2 million times 12, we have a business run rate of $50 million in SVOD. And we do believe that, that business can double over the next 2 to 3 years since all of our partners are increasing the products and the geography. So we're getting a double positive hit.

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

Okay. No, that's great. Just quickly on Stingray Business. Maybe two questions, and I'll give it up to others. There's always a bit of COVID issues, as you alluded to, presumably, obviously, equipment and installation, sales were down given some of the government restrictions, maybe you can talk to the decline there in revenue as well as any evolving customer credits? And then just one other one on the Stingray Business. And as much as we look to the big opportunity that you have in the U.S., are you seeing any moves whatsoever out of Mood Media actually in Canada, given that, obviously, they still have the opportunity to look here?

[Eric Boyko, Co]

Good question. So the COVID credits this quarter were just $500,000. So it was smaller. But we do expect in January, February, March, that there'll be more credits. For sure, when our customers are shut down, it's tough for us to tell them we're going to charge them for the music and the services. So we're very fair. So it was limited. And E&O, for sure, E&O delivery, when you're shut down in fecal services, there's no more delivery of equipment. Even January, as you can imagine, we almost had no E&O, but the deals get pushed on. So like one of our U.S. deals in the U.S. will probably be delivered in March, April. So on a yearly basis, we'll get it, but per quarter, it is difficult. And that was a -- it's about -- E&O was about $1 million less -- $1.5 million less than last year. So I think those numbers are readily disclosed. And no, the answer is no, so far, so good, meaning there's been really no -- I think Mood is busy with the restructuring, busy with the new management team. And I'm not sure the priority for them is to come to Canada. We love Canada, but it is a small country. So -- and for us, the U.S. and our team, very confident. Our pipeline in the U.S. is -- for us is incredible because the U.S. is 10x larger than Canada. So every account is 10x bigger. So very, very excited about the U.S. market, and we're doing this all organic for now. We have a few tuck-ins, but mostly, we're looking at great organic sales coming from the U.S.

[Operator]

Your next question comes from the line of Matthew Lee with Canaccord.

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

Can you maybe tell -- quickly talk about the trends you're seeing in Radio with more geographies moving back into lockdown? Should we be expecting a larger decline rate than we've seen this quarter?

[Eric Boyko, Co]

Yes. It's -- we finished -- we were very excited in December row, excited or happy because we were down 11%. So Radio was back. And even on a month-to-month basis with the saving in OpEx, we're almost back with the EBITDA compared to last year. But for sure, the lockdown in January, February, we're seeing the effect. And I think we're looking more like maybe a minus 20% right now. So we'll see how the quarter finishes. One thing we're seeing, and this even from our large customers, they used to buy orders and events. They used to make it. But now with the new rules changing, every -- and I'm talking -- I'm talking to customers like Tim Hortons and McDonald's and all these big fast foods, with the rules changing, they wait for the last minute to put their ads because they don't know what the new rules is going to be. So they -- so I think that we're in a good way back, and we feel very confident that once we get the vaccination, that we should be back to normal on the Radio side and back to our $150 million in sales we had 1.5 years ago. So I'm confident about that. And that's -- yes. But for this quarter, it is -- January, February will be soft for sure.

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

And then maybe we can talk about -- I heard you saying 140% increase to $1.6 million, but I didn't catch what that was relating to.

[Eric Boyko, Co]

Okay. Yes, it's just one of the metrics we said when we did the Radio deal is that we will get $5 million of positive synergies from us selling ads. We have 0 advertising on the Stingray streaming site. And now this quarter, we hit $1.7 million. So that's a run rate of 6.8. I think that for advertising will be one of our biggest vector of growth in Stingray, Broadcast and Commercial. And so that's why we're excited to tell the market that we're easily beating our target of $5 million, and we're closer to $7 million.

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

Great. And then maybe lastly on the Commercial Music front. I expect you're seeing pretty good progress in your discussions with potential new U.S. clients despite COVID. Do you feel like you're gaining traction on that side of the business? And can we expect to see some contract wins upcoming?

[Eric Boyko, Co]

Yes. It's -- we are -- with our team in place, we already have in the U.S., we have a team of close to 8 individuals that are all experienced and from former Mood or our friends at play networks. So we are talking -- we presented the Board yesterday. Now we are speaking to the top 100 brands and having discussions with all of them. I think it's the first time they hear about Stingray in the U.S. We were a bit like a hidden gem. So it's very exciting, and the top 100 brands represent 1 million locations. So it's a big number. Some of these brands are, like I said, very exciting. And I think Stingray -- and the reason why we're unique is Stingray Business, we offer the music. We offer digital signage, and we also offer Chatter, which is like an inside program. So we come in with all 3 angles, and I think the brands really like it. And I think we should expect before our next call in June that we should have a lot -- we should have a few or maybe even more interesting contract sign in, not necessarily delivered, but at least sign in.

[Operator]

Your next question comes from the line of Deepak Kaushal with Stifel GMP.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Eric, you talked about the organic growth opportunities in Commercial Music in the U.S. and also on the advertising side with the expansion of the FAST channels. What about the M&A side for growth? What percentage of growth going forward should we expect from M&A? Do you guys have a target for capital deployment? And then I've got a couple of follow-ups on that.

[Eric Boyko, Co]

It's a good question for sure. We've been more shy during the COVID to make deals. It's -- there's more uncertainty. So in that case, what we do is we decrease our cash at closing and are more aggressive on our deals, which indirectly slows down the deals. Openly, we try at closing to only pay 3x EBITDA after -- with our synergies. So maybe one thing we discussed at the Board yesterday, maybe we go a bit more aggressive and go for 3.5x or 4x upfront once we take away the risk of COVID. And also, there's also the COVID traveling. It's tough when you don't meet people. It's tough to do deals. It's tough to get married by Zoom. So it makes it more difficult to create the trust. Hopefully, we can travel soon, and we have over dozen targets that we're talking to, but we love to just go to the U.S. and meet them all in person and give them, like we say, the Stingray [indiscernible] and the advantage of partnering up with Stingray. So for now, I agree for -- we try to do $25 million a year of acquisitions. That's a bit of a what we'd probably like to do out of $80 million of cash, $25 million minimum, but we've been slow in the last year, which is something we'll see. I think we're confident in the next quarter that the sub activity will happen.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Okay. That's helpful. And then when I think of diversification into the broader or the long tail of the music industry as we put in the past, can you give us an update on your thoughts there? And like what are the segments that you see opportunities in, in the post-COVID world, like we think of opportunities to acquire in the podcast industry or live events industry to catch the recovery when it comes or broader international markets? What are the strategic opportunities for you?

[Eric Boyko, Co]

Yes. So for us, as you know, we did an investment. We're the #1 podcast in Canada. We did an investment last year. We took 30%. That division is growing well, but we don't see profit or EBITDA or cash flow in the podcast business. We -- I know Spotify and some other people are doing this, but we don't see right now at this time, EBITDA margins of any way. It's an interesting product mix for us. So I think for now, maybe that's going to change. Our focus -- our 3 big growth opportunities that you can see for Stingray, $100 million or more, it's SVOD. We do feel SVOD. We will reach 1 million subscribers at an average ARPU of $8 a month. So I think that's about $100 million business. We're very confident with the FAST channels, which are the free advertising channels on the TV like Samsung and LG. And we have 11 partners now, a lot of growth, as you can see in there. And I think that could be $100 million business in the next few years. And the third segment, which is our focus is going to be Stingray Business U.S. If we do $50 million in Canada, we should be in the next 5 years, be doing 5 to 10x more in the U.S. because it's the size of the market. So I think those are 3 vector growth focused on actual products that we have right now.

[Operator]

Your next question comes from the line of Tim Casey with BMO.

[Tim Casey, Equity Research Analyst]

Just following up on Deepak's questions, Eric. Should we assume that you're -- you've moved away strategically from some of the acquisition opportunities you pursued in the past in, what I'll call, more of the legacy businesses as well as you feel you have enough, I guess, critical mass on the content side for Classica and some of the live music opportunities? And then I'll just throw out a couple more. The SOCAN agreement is that going to have any material implications on how we should think about margins going forward? Or is it too small to move the dial? And then lastly, a question for you and in the financing, I guess, how should we think about Radio margins on a sustained basis? You've done a lot of work to remove cost there. As revenues recover, I'm assuming some costs will come back, just how are you thinking about a sustainable Radio margin within Stingray Radio?

[Eric Boyko, Co]

Okay. Thanks for these questions. So just a good question on live TV. Now, we don't see a market for live TV concerts. There's -- it's -- we do some of it. We like it, but it's not a big business segment, and we don't see a lot of growth in that. We have a few competitors that are in that space, but we haven't seen any success so far. So that's -- so we're really focusing on our existing products. So I think it's good. I think the Classica, Classic [ Quello ] the concerts, the karaoke, we have 3 strong segments there that we get good growth. So we'll stay focused on that. The second deal is it's not a big impact because we already had -- we knew the new rate was coming in. So we've already accrued the new rate in our financial statements. So I would say no, it's already in our numbers, Tim. So no impact. And the SOCAN back or windfall is offsetted by the special bonuses. And for Radio, yes, it's going to be the -- we -- when we took the Radio business, there was $90 million of OpEx. Last year, we finished at $70 million of OpEx and more or less, second, our new run rate for OpEx and Radio, thanks to technology, thanks to more efficiencies is closer to $60 million now. So we have a $10 million in OpEx savings that is going to be permanent on the Radio side and $5 million on our side that right now is recurring. So we are able to cut down expenses in total by about $50 million recurring right now, and we'll see when we start traveling on our side on both sides, there's going to be more OpEx. Does that answer all of your 3 questions?

[Tim Casey, Equity Research Analyst]

Yes. Maybe I'll just follow-up on the M&A targets. So where -- what type of -- are you targeting in terms of potential acquisitions?

[Eric Boyko, Co]

Okay. Sorry, I missed out. So absolutely -- so as you can imagine we have many opportunities in the Stingray Business U.S. We are looking -- we liked -- there's many small players that have 10,000, 15,000, 20,000 locations that don't have the scale, and we love to partner with them. So many discussions on the Stingray Business side. On the Music side, one segment that we're looking into is the meditation or the relax music to sleep at night. So there's a few small competitors in that space. We like that type of music. So we're looking also, that could be one diversification of product. And on the TV side, right now on like good old broadcasting or the legacy segment, I agree. We're not really looking at any -- on the TV broadcast side. We're looking more on the streaming side and on Stingray Business.

[Operator]

Your next question comes from the line of Bentley Cross with TD Securities.

[Bentley Cross, Equity Research Associate]

Eric, congrats on the organic growth in the quarter. I was hoping you might be able to dive into kind of some of the puts and takes. And related to that, how is the penetration scaling with the Altice contract that you put in a couple of years ago that I think you were hoping to have a little more commercial penetration there?

[Eric Boyko, Co]

Good question. First of all, the 6.3% organic growth has for now almost no U.S. sales. So once we start Stingray Business U.S. sales, that would all be organic. So that's really going to help us a lot. So we're excited about that. I think 6.3% is our best quarter, probably in the last 3 years. So very happy with that. And Altice, a very good question. It's a blood bath in the U.S., very lucky that we're not -- we don't have more CPS revenues. DirecTV announced last week that we lost 800,000 subs or 700,000 subs in the quarter. The U.S. market for cable subscribers is down more than 10 million subscribers as of last year. And it hits all of our customers. So Comcast, Altice, AT&T, all of our customers are losing subs. But we're very lucky, as you can see with organic growth that the pivot is working, and we're compensating with the over-the-top. But I think the fact that we didn't buy one of our competitors last year was probably the best thing that happened to Stingray because we would have been stuck in the old model. So -- and the second question?

[Bentley Cross, Equity Research Associate]

No, all on the same line. Wondering if you might be able to dig into that 6% growth a little bit more. I mean [indiscernible] it's a drag on that in years past. Wondering how that's sharing. Yes, just break it down a little bit, please.

[Eric Boyko, Co]

Okay. Yes. So the 6.3%, we had our organic sales of -- on streaming and broadcast of 6.38%. The impact of the credits -- the impacts of the credits, if you take away the COVID, COVID was 0.5 million of credits. So without -- if you take the COVID in the numbers, you go from 6.3% minus 1.35%. But the COVID, we really see them as a one-off. Hopefully, next year, there won't be any credit in October, November, December. So a good mix, both Stingray Streaming and Stingray Business is growing roughly around 6.5%. So very happy about it. And it's the number one KPI for the management, for the Board and our colleagues.

[Operator]

[Operator Instructions] Your next question comes from the line of Drew McReynolds with RBC.

[Drew McReynolds]

Maybe following up on Tim's margin questions, but appointed to Broadcasting and Commercial Music. Once the dust settles here post COVID, can you give us any sense of where you're landing on margins in that segment?

[Eric Boyko, Co]

I think for Stingray Streaming and Broadcast and even for Radio, our benchmark that we can deliver is 40%. So right now, we're getting an upswing, sales are lower and with lower expense or EBITDA margin increases. But we should be more around 40% when sales are back. I think that's a better measure. Maybe on Streaming and Broadcast, we're getting a lot of scale. Like for example, the Amazon deal, once we deliver to Amazon and every time we add a new country, there's no new work to do. It's one bill, it's one payment every month. So the more we get scale, the more we get efficient. So maybe I would say 40% to 42% could be your goal in the Stingray Broadcast and Business.

[Drew McReynolds]

Okay. Super. That's helpful, Eric.

[Eric Boyko, Co]

And the same for Radio, we should be around the 40% EBITDA margin rate.

[Drew McReynolds]

Okay. Got it. Perfect. And just by implication of listening to your response to your bonus announce in the quarter to employees, this was largely kind of similar to the SOCAN benefit?

[Eric Boyko, Co]

Yes. I know it was. We were happily surprised with our results and our positive bounce back also, the -- we got a lot of help from most countries in the world, we're very generous towards wage subsidies, even more than Canada. So we were surprised with all these help that we got from different governments, the rent relief. So yes, I think we're in a good position.

[Drew McReynolds]

Okay. And...

[Eric Boyko, Co]

And the answer is a wash. SOCAN -- and again, the bonus is a wash. So that's the quick answer. I didn't want to make a long answer for a short answer.

[Drew McReynolds]

That's why I got it. Two bigger-picture questions. I guess, first, your pivot has clearly worked. And obviously, the market continues to evolve on the music side just broadly. Do you see any necessity to kind of further pivot at this point relative to kind of what you've done in the last 3 or 4 years? In other words, is the industry kind of settling into kind of a better visibility on what the kind of new norm is? And then second, kind of big-picture question maybe for JP. On the free cash flow priorities, obviously, you've spoken to M&A. Just can you comment on dividend growth and share repurchases and where your thinking is at with those two?

[Eric Boyko, Co]

Okay. Two quick questions. So the first one is sorry, I don't remember. The first question again was?

[Drew McReynolds]

Yes, just on like any strategic pivot that you've done...

[Eric Boyko, Co]

Okay, yes. Sorry, the pivot, yes. So we have a great slide in our investor deck. We went from, I think, 80% of revenues, I can look at it, of CPS down to 30%. CPS will continue to -- which is a cost per sub, the legacy model will continue to decrease in percentage of sales because all of the over-the-top platform, Amazon, LG, Samsung, that are being launched around the world is a big benefit. So we're very -- and I think our pivot is done, and we are -- this will help increase organic sales because the cable business and legacy business is decreasing by 2% to 4% a year. So the less that we're dependent on that, the more that it will increase our organic sales. So I think that's -- I think should be looking good for us for the future. And also, regarding -- we generated around $80 million of free cash flow a year. $20 million of it goes to dividends. So we have $60 million of capital allocation left to do share buyback, to do acquisitions or to pay down the debt. In the last 3 quarters, you can see that we've focused on reducing the debt. So -- and we're at 2.65%. I think in the future, we'd like to be closer to 2% and 2.5% after experiencing this pandemic. So I think we'd like to be safer. But we have a lot of flexibility for M&A. And in terms of dividend, no, right now until this COVID-19 issue is finished, we are more conservative not to raise the dividend. Because, as you know, a dividend is a contract for like getting married. So we want to be very careful and make sure we're really out of the woods, and hopefully, the vaccinations and everything is perfect. So no, I do not expect any dividend increase but more NCIB. I think more share buyback on our side, that will be the capital allocation for the next few quarters and decreasing our debt.

[Operator]

Your next question comes from the line of Deepak Kaushal with Stifel GMP.

[Deepak Kaushal, Director and Technology & Communications Analyst]

I have a follow-up question, Eric, for you and Matthew, if he's on the line. When we look at the broader media industry, a lot of companies are aggregating audience data around particular consumer groups, whether it's demographics-related or common interests-related, and they're using that data to improve the revenue they get from advertising. Are you getting this kind of data back from your new SVOD and AVOD services? And what point do you think you might be able to start monetizing that? And is that baked into your $100 million target for advertising only?

[Jean-Pierre Trahan]

Yes, great question, Deepak. So you have to realize the connective TV environment is in its infancy. And Samsung, one of our biggest partner, is pretty stringent on all privacy data. So we're working with that. I mean in terms of aggregate data, we'll be -- we're getting more and more sophisticated obviously, probably, being used through the programmatic buying that happens on those platforms. But we're so diversified in terms of platforms that to say, per se, that we're going to build a specific data business that's going to fuel that $100 million business. I'm not sure at this point that we can, for sure, say that.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Okay. So that's something that perhaps you look forward to in the future?

[Eric Boyko, Co]

Yes. But I think interesting stats. We hit revenues per hour with some of our partners hit UDS 0.26. So there's a lot of people buying ads on those TV channels. We had -- our budget was $0.10 of revenues per hour, and we had $0.26 in December. For sure December is a great month. But this vector of growth, if you get more listenership and you get these revenues per hour and if we're able to increase also those metrics, it makes a very interesting business segment and growth for Stingray for the next 3 to 5 years.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Okay, okay. And is there any investment required from you guys from a capital perspective or [indiscernible] to accelerate that?

[Eric Boyko, Co]

Well, we realize this, we're probably in the top 3 companies in the world to be able to deliver content to different platforms with APIs and different delivery mechanism. We developed this technology because we want -- we had many cable operators around the world. And so our capacity to deliver to over-the-top products is much more efficient. We still have $2 million a year for satellite costs that will disappear. So it's more efficient. There's very little CapEx and the cost of bandwidth is decreasing every year by half. What we have more bandwidth, we use more. So I think that's where we're seeing better margins and that's where the CapEx that are very low this year, and we expect CapEx to be at the same level and no more increase. So it's -- for sure, the beauty about digital and about the internet is you just become much more efficient, and we are very good at deploying many platforms in one week.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Okay. Excellent. I'll keep checking in with you on that to see if you can figure a single sign-on for all your Stingray services across all platforms. Maybe there's a wholly [indiscernible].

[Eric Boyko, Co]

Okay. And by the way, thank you for the analysts for all your questions and time. We know it's a very busy day. There's some bit bigger companies that give the numbers today like BCE, just a bit bigger than us. But that's something we'll look at. And I mean, we'll probably look to see if we don't do our Board meetings on the Tuesday, so we could post results on the Wednesday because I think Thursday is a big traffic day. So something that we're thinking about. So all this to say, thank you very much for taking your time today and being involved with Stingray. And thank you for everybody listening today. Have a great day, and see you guys in June. Thanks.

[Operator]

And this concludes today's conference call. Thank you for your participation. You may now disconnect.