ANNUAL REPORT
2017
Year Ended March 31, 2017
Stingray Digital Group Inc.
table of content
03 Word from the CEO 06 Management’s
Discussion and Analysis 08 Company Profile
10 Business Strategy 18 Competitive Strength
20 Key Business Risks 22 Executive Team and
Board of Directors 49 Consolidated Financial
Statements
word from
the CEO
Dear shareholders, clients, partners and colleagues,
Fiscal 2017 caps our first decade on a high note! While there
is no proven recipe or how-to guide to success, I have learned
in Stingray’s first ten years that creativity, meticulous analysis
of market demands, technological
innovation, and bold
exploration of new ideas should always be part of the equation.
A Year in Acquisitions
In an industry where consolidation is the watchword, and
where growth and scale define success, acquiring premium
quality music content is one of Stingray’s primary development
strategies and key differentiators.
In June 2016, we closed the acquisition of Festival 4K, one of
the first television channels to broadcast entirely in native
4K UHD. Since rebranded since as Stingray Festival 4K, the
channel complements Stingray’s existing 4K offering, Stingray
Ambiance 4K, putting us resolutely at the forefront of the 4K
revolution. That same month, we announced the acquisition
of four (4) specialty music video channels from Bell Media:
MuchLoud, MuchRetro, MuchVibe and Juicebox. These channels
have already garnered interest from pay TV providers wishing
This year, we’ve once again met our key objectives through
to reconnect with diverse demographics.
a combination of strategic acquisitions,
technological
development, expanded distribution agreements, diversified
client base, exciting marketing initiatives, and, of course, expert
music content curation.
I am proud to share another solid performance in Fiscal 2017.
In October, we grew our classical music offering with the
acquisition of hundreds of exclusive concerts and documentaries
from Berlin-based EuroArts, an
internationally renowned
producer and distributor of classical music film productions.
This agreement will benefit our services for years to come and
Stingray’s dedicated team outdid itself, breaking the $100
exponentially grow our linear and On Demand offering.
million revenue mark. Revenue increased by 12.8%, reaching
$101.5 million (compared to $89.9 million in Fiscal 2016.) We
achieved a strong operating performance with an Adjusted
EBITDA(1) of $33.9 million and net income of $10.7 million ($0.21
per share). Furthermore, we achieved cash flow from operating
activities of $22.8 million and an adjusted free cash flow(1) of
$26.5 million. We continued to raise our dividends and returned
over $8.2 million to you, our shareholders.
In the past twelve months, we’ve grown our offering by an
astounding nine (9) brands: Stingray Brava, Stingray DJAZZ,
Stingray Classica, Stingray Festival 4K, Stingray iConcerts,
Stingray Juicebox, Stingray Vibe, Stingray Loud, and Stingray
New and Expanded Distribution Agreements
If there is one thing I am particularly proud of, it is the long-
term relationships we have built with our clients in 156 countries
servicing over 400 million households and 74,000 commercial
locations. This year alone, we renewed and/or expanded
agreements with eight (8) European pay-TV providers: Vodafone
Portugal, Orange Polska, Vodafone España, UPC Hungary,
T-Mobile Netherlands, United Group Balkans, Sat-Trakt Doo and
PT Telecom Hungary. These strategic deals represent a significant
growth of Stingray’s current European distribution, increasing our
potential reach by more than one million subscribers. We have
also signed a renewed and expanded distribution agreement
Retro. We have proven, beyond a doubt, our ability to integrate
with Shaw, a key player in the Canadian market.
and bring to market new acquisitions quickly and efficiently;
creating a more valuable Stingray for our internal and external
stakeholders.
With an enviable portfolio of 16 distinct yet complementary
services, Stingray is uniquely positioned to respond to demand
from entertainment content providers and commercial clients
As our global reach grows alongside demand for curated, “lean
back” music products, we look to the Asia-Pacific region as a
major growth market. Only five (5) months after the opening
of a Stingray office in Singapore, we concluded distribution
agreements with StarHub and Singtel for a range of services that
includes Stingray Music, Stingray iConcerts, Stingray Brava,
wishing to implement impactful music and customer experience
Stingray DJAZZ, and Stingray Karaoke.
strategies.
I can say with confidence that the stage is set for continued
growth and diversification in the years to come.
In July, we signed a multi-year contract renewal with the National
Cable Television Cooperative (NCTC). In October, KlowdTV - an
online subscription platform for streaming television - chose to
include Stingray Music’s audio channels in its basic subscription
package. In July, we signed a multi-year contract renewal with
the National Cable Television Cooperative (NCTC). In October,
KlowdTV - an online subscription platform for streaming
television - chose to include Stingray Music’s audio channels in
its basic subscription package. We also renewed and expanded
a distribution agreement with Comcast, bringing thousands of
new music selections to Xfinity On Demand platforms.
Annual Report 2017 | Stingray Digital Group Inc. | 3
Our commercial division, Stingray Business, also reached major
milestones this year. We rolled out in-store music and digital signage
services in thousands of locations across Canada. Amongst the
commercial clients signed or renewed this year: Couche-Tard, La
Source, Opa!, CDMV, Chapters Indigo, New Look Eyewear, and Telus.
Our ability to adapt to an evolving technological landscape and
adjust our product offering to state-of-the-art distribution platforms
are key to Stingray’s continued success. In the coming years, we
expect to sign distribution agreements with prominent OTT providers,
mobile operators, and commercial clients.
Marketing Initiatives
In order to fully benefit from the cross-selling and cross-promotional
opportunities offered by each new acquisition, services are rapidly
reintroduced under the Stingray brand. Through inspiring product
design and effective, multi-platform marketing strategies, we aspire
to the highest levels of B2B and B2C brand awareness that will make
Stingray ubiquitous in the market. This year, our team completed,
in record time, the rebranding of Stingray Brava, Stingray DJAZZ,
Stingray Juicebox, Stingray Loud, Stingray Vibe, Stingray Retro and
Stingray Festival 4K. We also introduced the refreshed look and feel
of our flagship brand, Stingray Music.
Giving Back
With success comes a responsibility to give back to our community.
Of all our achievements, the one that truly marks this year for me
is our first campaign benefiting Centraide of Greater Montreal, a
network of 350 agencies that help individuals and families break
social isolation and build caring communities. Through a series
of initiatives supportedby the entire Stingray family, we raised
$100,000, far exceeding our initial objective.
Thank you
I wish to take this opportunity to thank our 350 talented employees
around the world for their passion, support, and drive to excellence.
Without each and every one of you, we would not reach the ambitious
goals we set for ourselves. I also wish to acknowledge the unwavering
support and vision of Stingray’s board and executive team.
Thank you!
As I look to the year ahead, I am confident that together we will
continue to realize our mission with ambition, a sense of purpose, and
unrivaled innovation.
Eric Boyko
President, Co-founder and CEO
$101.5 M
12.8% from 2016
Revenues
$10.7 M
Or $0.21 per share
Net income
$33.9 M
9.2% from 2016
33.4% margin 1
Adjusted EBITDA 1
$22.8 M
20.0% from 2016
Cash flow from
operating activities
$26.5 M
8.7% from 2016
Adjusted free cash flow 1
1 Refer to “Forward looking statements” and “Supplemental
information on Non-IFRS measures” on page 24 and for
reconciliations to the most directly comparable IFRS financial
measure, refer to “Supplemental
information on Non-IFRS
measures” on page 29.
Annual Report 2017 | Stingray Digital Group Inc. | 4
‘‘Our ability to adapt to
an evolving technological
landscape and adjust
our product offering
to state-of-the-art
distribution platforms
are key to Stingray’s
continued success.’’
Annual Report 2017 | Stingray Digital Group Inc. | 5
management’s
discussion and
analysis
The following is the annual report and Management’s
Discussion and Analysis (“MD&A”) of the results of
operations and financial position of Stingray Digital
Group Inc. (“Stingray” or “the Corporation”), and
should be read in conjunction with the Corporation’s
consolidated audited financial statements and
accompanying notes for the years ended March 31, 2017
and 2016. This MD&A reflects information available to the
Corporation as at June 7, 2017. Additional information
relating to the Corporation is also available on SEDAR
at www.sedar.com
Annual Report 2017 | Stingray Digital Group Inc. | 6
Annual Report 2017 | Stingray Digital Group Inc. | 7
company profile
Stingray Digital Group Inc. is the world-leading provider of multiplatform music services and digital experiences
for pay TV operators, commercial establishments, OTT providers, mobile operators, and more.
Clients in 156 countries trust our comprehensive product portfolio and content curation expertise to develop and
implement powerful music and customer experience strategies that help achieve business objectives.
Every day, more than 400 million households and 11,000 commercial clients enjoy one or many Stingray services.
company highlights
HEADQUARTERS
Montreal, Canada
OFFICES
United States, United Kingdom, Netherlands, Germany,
Israel, Singapore, Australia, Japan and South Korea
Annual Report 2017 | Stingray Digital Group Inc. | 8
‘‘In an industry where
consolidation is the
watchword, and
where growth and
scale define success,
acquiring premium
quality music content
is one of Stingray’s
primary development
strategies and key
differentiators.’’
Annual Report 2017 | Stingray Digital Group Inc. | 9
Our long-term objective is to aggressively continue growing Stingray’s business and create value to
investors. We believe that we can achieve our goals by expanding and diversifying our client base, by
developing new products, technologies, and digital platforms, and by continuing to pursue strategic
acquisitions.
business strategy
Our long-term objective is to aggressively continue growing Stingray’s business and create value
to investors. We believe that we can achieve our goals by expanding and diversifying our client
base, by developing new products, technologies, and digital platforms, and by continuing to pursue
strategic acquisitions.
Expand and diversify our client and partner base
Stingray’s continued global success is due in great part to leveraging our
clients’ trust and providing them with the highest level of services. This year,
we continued to grow and strengthen our customer base and the distribution
of our services.
1
New Clients
Renewed and Expanded Contract Agreements
COMCAST
VOO
VODAFONE
T-MOBILE
SINGTEL
STARHUB
ORANGE
SHAW
ZIGGO
HOT
MEGACABLE
TELEVISA
FOXTEL
Annual Report 2017 | Stingray Digital Group Inc. | 10
Develop new products, technologies and
digital platforms
Stingray invests overs $10 million in research and development each year. To
maintain our position as the world-leading multi-platform music products and
services provider, we strive to constantly be at the cutting-edge of technology.
2
Highlights
Introduce second generation of UBIQUICAST
allowing multi-product distribution
Release of 2,000 Vibes channels in the Stingray
Music mobile app which has now over 1.6 million
downloads
Launch of SB3, allowing simultaneous distribution
of digital display and HD music
Introduction of Stingray Pass, a proprietary
audio-watermarking technology
Launch of Stingray Music mobile app on tablet
and Sonos
Acquisition of Festival 4K, one of the first channels
in the world to broadcast nonstop in native 4K UHD.
Annual Report 2017 | Stingray Digital Group Inc. | 11
Continue to pursue strategic acquisitions
Stingray has a track record of acquiring established, dynamic, and creative
companies and partnering with industry leaders to achieve its aggressive
global expansion plan.3
Highlights
Stingray is now the world’s largest digital live music concerts TV broadcaster
Stingray diversified its product offering and expanded its European distribution
Stingray is now a world-leading provider of classical music content on television
Annual Report 2017 | Stingray Digital Group Inc. | 12
‘‘With an enviable
portfolio of 16 distinct yet
complementary services,
Stingray is uniquely
positioned to respond to
demand from entertainment
content providers and
commercial clients wishing
to implement impactful
music and customer
experience strategies.’’
Annual Report 2017 | Stingray Digital Group Inc. | 13
Annual Report 2017 | Stingray Digital Group Inc. | 14
proven
acquisition strategy
$202
million spent
on acquisitions since inception
Stingray became the undisputed world-
leading provider of classical music
programming, demonstrating our ability
to act as an industry consolidator.
2009
Canadian Broadcast Corp. (Galaxie)
2010
Marketing Senscity Inc.
MaxTrax Music Ltd.
Concert TV Inc.
Chum Satellites Services (CTV)
2007
Slep-Tone Entert. Corp/
SoundChoice
(Karaoke Channel)
2011
Music Choice International Ltd.
2012
Musicoola Ltd.
2013
Executive Communication
Zoe Interactive Ltd.
Emedia Networks Inc.
2014
DMX LATAM (Mood Media)
Archibald Media Group
Stage One Innovations Ltd.
DMX Canada (Mood Media)
Intertain Media Inc
Telefonica – On the Spot
2015
2016
Les réseaux Urbains Viva Inc.
Nümedia
Brava Group (HDTV, NL and Djazz TV)
Festival 4K B.V.
Digital Music Distribution
iConcerts Group
Bell Media’s specialty
music video channels
EuroArts Classical catalogue
2017
Classica
Nature Vision TV
Annual Report 2017 | Stingray Digital Group Inc. | 15
Annual Report 2017 | Stingray Digital Group Inc. | 16
Canada. Australia. United Kingdom. United States.
Netherlands. Japan. Russian Federation. Germany.
Norway.
Ireland. Finland. Togo. France. Belgium.
China. Denmark. Zambia. Taiwan. Iceland. Austria.
Suriname. San Marino. Peru. Cayman Islands. Czech
Republic. Venezuela. Curacao. Congo. Pakistan.
Portugal. Monaco. Nigeria. Estonia. Nepal. Mexico.
Brazil. Ukraine. Nicaragua. Equatorial Guinea.
Uganda. El Salvador. Dominican Republic. Bahamas.
Ecuador. Montenegro. Cyprus. Cameroon. Argentina.
Panama. Mongolia. Bolivia. Mauritania. Bahrain. Chile.
Angola. Kazakhstan. Hungary. United Arab Emirates.
Costa Rica. Croatia. Egypt. Indonesia. Ivory Coast.
Mali. Singapore. Colombia. Madagascar. Namibia.
Honduras. Uruguay. Burkina Faso. Guatemala.
Macedonia.
Romania. Macau.
Luxembourg.
Liechtenstein. Lebanon. Oman. Malta. Korea. India.
Hong Kong. Mozambique. Gabon. Morocco. Puerto
Rico. Holy See. Haiti. Greece. Senegal. Georgia.
French Guiana. Tanzania. Viet Nam. Paraguay. East
Timor. Malaysia. Qatar. Mauritius. Congo. Anguilla.
Korea. Philippines. Reunion. Chad. St Martin. Central
African Republic. Sudan. Brunei Darussalam. Italy.
Guadeloupe. Bhutan. Grenada. Benin. Montserrat.
Belarus. Bangladesh. Israel. Jamaica. Andorra. New
Caledonia. Martinique. Slovenia. Papua New Guinea.
Bulgaria. Barbados Serbia. Rwanda. Slovakia. Guinea-
Bissau. Poland. Latvia. Kenya. Saint Vincent and the
Grenadines. Libya. Kuwait. Ethiopia. Eritrea. Cape
Verde. Burundi. Grand Cayman. Turks and Caicos.
Turkey. Tunisia. Trinidad and Tobago. Lithuania.
Thailand. Switzerland. Spain. South Africa. Saint Kitts
and Nevis. Botswana. Bosnia and Herzegovina. Aruba.
Armenia. Azerbaijan.
Annual Report 2017 | Stingray Digital Group Inc. | 17
competitive
strengths
We believe that the following competitive strengths will contribute to our ongoing commercial success
and future performance:
Leading B2B multi-platform
music and in-store media
solutions provider
Strong and predictable cash
flow from long-term contracts
and client relationships
With 400 million subscribers in
156 countries, our total reach
is one of the largest relative to
our peers. Our products and
services are distributed through
numerous platforms including
digital TV, satellite TV, IPTV, the
Internet, mobile devices, Wi-Fi
systems, and game consoles.
Our business model is based
on subscription revenues and
long-term agreements with pay-
TV providers, which gives us
significant predictability of future
cash flow, reduces cyclicality of
earnings, and increases customer
retention. As a result, we have
established deeply integrated
relationships with many of our
customers, providing recurring
annual revenues of $87.6 million
at the end of Fiscal 2017 (86.3%
of our total revenue).
Proprietary innovative
technologies
We are a leader and innovator
in the digital music space,
and as such have developed
a unique set of proprietary
technologies that provide us
with an important competitive
advantage.
We have extensive experience
in developing technologies
to distribute digital music on
multiple platforms such as TV,
mobile devices, and the Web.
For instance, we introduced
a second generation of
UBIQUICAST allowing multi-
product distribution and a third
generation of our Commercial
platform – the SB3 allowing
simultaneous distribution of
digital display and HD music.
Annual Report 2017 | Stingray Digital Group Inc. | 18
High employee retention
rate and low turn-over
As an entrepreneurial and
growing Canadian company,
we attract and retain talented
professionals. Our team of
350 dedicated individuals is
comprised of experienced and
knowledgeable operations,
financial, technology, marketing
and communications, sales, and
legal and regulatory experts
who, prior to joining Stingray,
garnered extensive experience
with other industry leaders.
Track record of successful
acquisitions and integrations
Leading content
curation expertise
Since Stingray’s inception in
2007, we have completed 29
acquisitions representing outlays
of approximately $202 million,
which brought new clients, new
products and new geographical
markets to our business. In Fiscal
2017, we have completed five
(5) acquisitions for an aggregate
purchase value of $21 million.
Stingray’s proven track record
of successfully integrating
these acquisitions is a result of
our experienced management
team’s rigorous and disciplined
acquisition strategy. The
versatility, portability and
flexibility of Stingray’s products
and technologies permit us
to efficiently integrate and
support the complementary
products and technologies of the
businesses we acquire.
Our business strategy is based
on a lean-back, rather than lean
forward, music consumption
model. Stingray provides
some of the world’s most
comprehensive music libraries
and channels, all programmed
by 100 expert programmers
around the world. Our music
products and services are
adapted to local tastes and
trends to create the ultimate
user experience, all without
advertisements or interruptions.
In Fiscal 2017, we became the
undisputed leading provider of
classical music programming
worldwide. With the acquisition
of Classica, we will have
unfettered and privileged access
to UNITEL’s exclusive catalogue
of more than 1,500 titles and
2,000 hours of premium content
that perfectly complements
Stingray’s existing world-class
classical music offering, which
includes the recently-acquired
440 titles from EuroArts and
the Brava TV channel. Those
transactions will accelerate
our growth and strengthen our
relationship with cutting-edge
providers that are always on the
lookout for new and exciting
content.
Annual Report 2017 | Stingray Digital Group Inc. | 19
key
business risks
The key risks and uncertainties of our business drive our operating strategies. Additional risks and
uncertainties not presently known to us, or that we currently consider immaterial, may also affect us.
If any of the events identified in these risks and uncertainties were to occur, Stingray’s business,
financial condition and results of operations could be materially harmed.
For further discussion of the significant risks we face, refer to the Annual Information Form for the year
ended March 31, 2017 on page 18 available on SEDAR at sedar.com.
Our key risks, in terms of severity of consequence and likelihood, are displayed as follows:
Public performance
and mechanical rights
and royalties
We pay public performance
and mechanical royalties to
songwriters and publishers
through contracts negotiated
with labels and music rights
collection societies in various
parts of the world. If public
performance or mechanical
royalty rates for digital music
are increased, our results
of operations and financial
performance and condition
may be adversely affected. We
mitigate this risk by operating,
whenever possible, under
statutory licensing regimes
and structures applicable to a
non-interactive music services.
The royalty rates to be paid
pursuant to statutory licenses
can be established by either
negotiation or through a rate
proceeding conducted by the
Copyright Board; such royalty
rates are generally stable and
are not likely to fluctuate from
year to year.
Integrating business
acquisitions
Long-term plan to expand
into international markets
The Corporation has made or
entered into, and will continue
to pursue, various acquisitions,
business combinations and joint
ventures intended to complement
or expand our business. The
Corporation may encounter
difficulties in integrating acquired
assets with our operations.
Furthermore, the Corporation
may not realize the benefits,
economies of scale and synergies
we anticipated when we entered
into these transactions. To
mitigate this risk, the Corporation
has committed to develop and
improve our operational, financial
and management controls,
enhance our reporting systems
and procedures and recruit, train
and retain highly skilled personnel,
all of which will enable the
Corporation to properly leverage
our services into new markets,
platforms and technologies.
A key element of our growth
strategy is to continue to
expand our operations into
international markets. For Fiscal
2017, approximately 45% of
our revenue is derived from
customers outside of Canada.
Operating in international
markets requires significant
resources and management
attention and will subject
us to regulatory, economic
and political risks that are
different from those in Canada.
To mitigate this risk, the
Corporation has committed
to develop and improve our
operational, financial and
management controls, enhance
our reporting systems and
procedures and recruit, train and
retain highly skilled personnel,
all of which will enable the
Corporation to continue to
expand into international
markets.
Annual Report 2017 | Stingray Digital Group Inc. | 20
Dependence on
Pay-TV providers
Rapid growth in an
evolving market
Competition from other
content providers
The majority of the Stingray
Music pay-TV subscriber base is
reached through a small number
of significant pay-TV providers
who are all under long-term
contracts. Packaging decisions
made by pay-TV providers in
respect of service offerings can
impact the subscriber base.
Moreover, the contractual
obligations of pay-TV providers
in Canada to distribute Stingray
Music are subject to changes
in CRTC rules, including the
CRTC’s new policy framework
set forth in Broadcasting
Regulatory Policy CRTC 2015-
96. See “Recent Developments
in the 2017 AIF”. We mitigate
this risk by understanding
the business needs of pay-
TV providers and offering
compelling services, distributed
across multiple platforms
and proprietary technologies,
with a demonstrable value
proposition. Based on our
strong relationships and our
interpretation of the long-term
contracts with pay-TV providers,
Stingray expects that all
Canadian pay-TV providers will
continue to carry Stingray’s pay-
audio service on the most widely
distributed unregulated first-tier
package (where available).
The audio and video
entertainment industry is
rapidly evolving. The market
for online digital music and
videos has undergone rapid
and dramatic changes in our
relatively short history and is
subject to significant challenges.
In addition, our growth in
certain markets could be
impeded by existing contractual
undertakings with competitors
which forbid us to solicit
customers in such markets. To
mitigate this risk, our skilled and
experienced sales personnel
have placed a greater emphasis
on cross-selling our growing
suite of products and our
capable engineers continue
to innovate and develop new
products and proprietary
technologies to distribute digital
music, which in turn allows us
to attract and retain customers
and expand our service offering
on multiple digital platforms
beyond the TV. To manage
the growth of our operations
and personnel, we continue
to improve our operational,
financial and management
controls and our reporting
systems and procedures.
The market for acquiring
exclusive digital rights from
content owners is competitive.
Many of the more desirable
music recordings are already
subject to digital distribution
agreements or have been
directly placed with digital
entertainment services. We
face increasing competition for
listeners and/or viewers from a
growing variety of businesses
that deliver audio and/or video
media content through mobile
phones and other wireless
devices. The growth of social
media could facilitate other
forms of new entry that will
compete with the Corporation.
To mitigate this risk, the
Corporation continues to rely
upon human programming and
content curation by award-
winning music experts from
around the world, each of whom
adapt to the tastes and trends
of listeners in order to create
the ultimate user experience.
In addition, the Corporation
remains determined to create
and acquire original long-form
content in order to grow its
proprietary catalogue.
Annual Report 2017 | Stingray Digital Group Inc. | 21
executive
officers
Eric Boyko
President, CEO, Co-founder
and Director
Jean-Pierre Trahan
Chief Financial Officer
Lloyd Feldman
Senior Vice-President,
Corporate Secretary
and General Counsel
Marie Ginette Lepage
Senior Vice-President, Global
Sales and Mobile Solutions
Mario Dubois
Senior Vice-President and
Chief Technology Officer
Mathieu Péloquin
Senior Vice-President,
Marketing and
Communications
Sébastien Côté
Vice-President,
Human Resources
Stephen Tapp
Senior Vice President,
Business Development
Ratha Khuong
General Manager,
Stingray Business
Valéry Zamuner
Senior Vice-President,
Mergers, Acquisitions &
Strategic Initiatives
Annual Report 2017 | Stingray Digital Group Inc. | 22
non-executive
directors
Claudine Blondin
Director and Member of
the Corporate Governance
Committee
François-Charles Sirois
Chairman of the Board of
Directors and Member of the
Human Resources and
Compensation Committee
Gary S. Rich
Director and Chairman of
the Human Resources and
Compensation Committee
L. Jacques Ménard
Director and Chairman of
the Audit Committee
Jacques Parisien
Lead Director and
Chairman of the Corporate
Governance Committee
Mark Pathy
Director and Member of
the Human Resources and
Compensation Committee
Pascal Tremblay
Director and Member of
the Corporate Governance
Committee and the Audit
Committee
Robert G. Steele
Director and Member of the
Audit Committee
Annual Report 2017 | Stingray Digital Group Inc. | 23
BASIS OF PREPARATION AND FORWARD LOOKING STATEMENTS
The following is the annual financial report and Management’s Discussion and Analysis (“MD&A”) of the results of operations and financial position of
Stingray Digital Group Inc., (“Stingray” or “the Corporation”), and should be read in conjunction with the Corporation’s audited consolidated financial
statements and accompanying notes for the years ended March 31, 2017 and 2016. This MD&A reflects information available to the Corporation as at
June 7, 2017. Additional information relating to the Corporation is also available on SEDAR at www.sedar.com.
This MD&A contains forward-looking information within the meaning of applicable Canadian securities laws. This forward-looking information includes,
but is not limited to, statements with respect to management’s expectations regarding the future growth, results of operations, performance and business
prospects of the Corporation. This forward-looking information relates to, among other things, our objectives and the strategies to achieve these
objectives, as well as information with respect to our beliefs, plans, expectations, anticipations, estimations and intentions, and may also include other
statements that are predictive in nature, or that depend upon or refer to future events or conditions. Statements with the words “could”, “expect”, “may”,
“will”, “anticipate”, “assume”, “intend”, “plan”, “believes”, “estimates”, “guidance”, “foresee”, “continue” and similar expressions are intended to identify
statements containing forward looking information, although not all forward-looking statements included such words. In addition, any statements that
refer to expectations, projections or other characterizations of future events or circumstances contain forward-looking information. Statements
containing forward-looking information are not historical facts but instead represent management’s expectations, estimates and projections regarding
future events.
Although management believes the expectations reflected in such forward-looking statements are reasonable, forward-looking statements are based
on the opinions, assumptions and estimates of management at the date the statements are made, and are subject to a variety of risks and uncertainties
and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors
include, but are not limited to the following risk factors : increases in royalties or restricted access to music rights; our dependence on Pay-TV providers;
the rapidly evolving audio and video entertainment industry; competition from other content providers; the expansion of our operations into international
markets; our rapid growth and our growth strategy; our acquisitions, business combinations and joint ventures; our dependence on key personnel;
exchange rate fluctuations; economic and political instability in emerging countries; royalty calculation methods; rapid technological and industry
changes; unavailability of additional funding; failure to generate cash revenues; reliance on our credit facilities; costly and protracted litigation in defence
of copyrighted content; our inability to protect our proprietary technology; our reliance on third party hardware, software and related services; our inability
to maintain our corporate culture; unfavourable economic conditions; our exposure to foreign privacy and data security laws; unauthorized and pirated
music and video content; natural catastrophic events and interruption by man-made problems; additional income tax liabilities; maintaining our
reputation; litigation and other claims; credit risk; liquidity risk; failure to comply with the Canadian Radio-television and Telecommunications
Commission (CRTC) requirements; failure to maintain or renew our CRTC licences; the increase in broadcasting licence fees payable by us;
unfavourable changes in government regulation affecting our industry.
In addition, if any of the assumptions or estimates made by management prove to be incorrect, actual results and developments are likely to differ, and
may differ materially, from those expressed or implied by the forward-looking statements contained in this MD&A. Such assumptions include, but are
not limited to, the following: our ability to generate sufficient revenue while controlling our costs and expenses; our ability to manage our growth
effectively; the absence of material adverse changes in our industry or the global economy; trends in our industry and markets; the absence of any
changes in law, administrative policy or regulatory requirements applicable to our business, including any change to our licences with the CRTC;
minimal changes to the distribution of the pay audio services by Pay-TV providers in light of recent CRTC policy decisions; our ability to manage risks
related to international expansion; our ability to maintain good business relationships with our clients, agents and partners; our ability to expand our
sales and distribution infrastructure and our marketing; our ability to develop products and technologies that keep pace with the continuing changes in
technology, evolving industry standards, new product introductions by competitors and changing client preferences and requirements; our ability to
protect our technology and intellectual property rights; our ability to manage and integrate acquisitions; our ability to retain key personnel; and our ability
to raise sufficient debt or equity financing to support our business growth. Accordingly, prospective purchasers are cautioned not to place undue reliance
on such statements. All of the forward-looking information in this MD&A is qualified by these cautionary statements. Statements containing forward-
looking information contained herein are made only as of the date of this MD&A. The Corporation expressly disclaims any obligation to update or alter
statements containing any forward-looking information, or the factors or assumption underlying them, whether as a result of new information, future
events or otherwise, except as required by law.
SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES
The Corporation believes that Adjusted EBITDA and Adjusted EBITDA margin are important measures when analyzing its operating profitability without
being influenced by financing decisions, non-cash items and income taxes strategies. Comparison with peers is also easier as companies rarely have
the same capital and financing structure. The Corporation believes that Adjusted net income and Adjusted net income per share are important measures
as it demonstrates its core bottom-line profitability. The Corporation believes that Adjusted free cash flow is an important measure when assessing the
amount of cash generated after accounting for capital expenditures and non-core charges. It demonstrates cash available to make business
acquisitions, pay dividend and reduce debt. The Corporation believes that Net debt including and excluding contingent consideration and balance
payable on business acquisitions and Net debt to Adjusted EBITDA are important measures when analyzing the significance of debt on the Corporation’s
statement of financial position. Each of these non-IFRS financial measures is not an earnings or cash flow measure recognized by IFRS and does not
have a standardized meaning prescribed by IFRS. Our method of calculating such financial measures may differ from the methods used by other
issuers and, accordingly, our definition of these non-IFRS financial measures may not be comparable to similar measures presented by other issuers.
Investors are cautioned that non-IFRS financial measures should not be construed as an alternative to net income determined in accordance with IFRS
as indicators of our performance or to cash flows from operating activities as measures of liquidity and cash flows.
Annual Report 2017 | Stingray Digital Group Inc. | 24
KEY PERFORMANCE INDICATORS(1)
For the year ended March 31, 2017:
$101.5 M
▲ 12.8% from 2016
$87.6 M
▲ 12.9% from 2016
Revenues
Recurring revenue
$33.9 M
▲ 9.2% from 2016
33.4% margin
Adjusted EBITDA(1)
$26.5 M
▲ 8.7% from 2016
Adjusted
free cash flow(1)
45%
Of international
revenues
$0.18
▲ 28.6% from 2016
Annual dividend per
share
$10.7 M
▼ 22.8% from 2016
Or $0.21 per share
Net income
$22.8 M
▲ 20.0% from 2016
Cash flow from
operating activities
Note:
(1) Refer to “Supplemental information on Non-IFRS measures” on page 24 and 29.
For the years ended March 31, 2017 and 2016:
Recurring Revenues(1)(2)(3)
$89.9
$101.5
Net Income and
Adjusted EBITDA(1)(2)
$33.9
$31.0
CF from operating activities
and
Adjusted free cash flow(1)(2)
$26.5
$24.4
$22.8
$19.0
$77.6
$87.6
$13.9
$10.7
2016
2017
Net income
Non-recurring revenues
Recurring revenues
Adjusted
EBITDA
CF from
operating
activities
Adjusted free
cash flow
2016
2017
2016
2017
In millions of Canadian dollars.
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS measures” on page 24 and 29.
(3) Recurring revenues include subscriptions and usage in addition to fixed fees charged to our customers on a monthly, quarterly and annual basis
for continuous music services. Non-recurring revenues mainly include support, installation, equipment and one-time fees.
Annual Report 2017 | Stingray Digital Group Inc. | 25
FINANCIAL AND BUSINESS HIGHLIGHTS
Highlights of the year ended March 31, 2017
Compared to the year ended March 31, 2016 (“Fiscal 2016”):
Revenues increased 12.8% to $101.5 million from $89.9 million for Fiscal 2016;
Recurring revenues of $87.6 million (86.3% of total revenues), an increase of 12.9%;
International revenues increased 24.6% to $45.4 million and the revenue contribution increased to 44.7% from 40.5%;
Adjusted EBITDA(1) increased 9.3% to $33.9 million from $31.0 million for Fiscal 2016;
Adjusted EBITDA margin(1) was 33.4% compared with 34.5% for Fiscal 2016;
Net income was $10.7 million ($0.21 per share diluted) compared to $13.9 million ($0.29 per share diluted) for
Fiscal 2016;
Adjusted Net income(1) increased 12.3% to $27.3 million ($0.53 per share diluted) compared to $24.3 million ($0.50 per
share diluted) for Fiscal 2016;
Cash flow from operating activities increased 20.0% to $22.8 million compared to $19.0 million for Fiscal 2016;
Adjusted free cash flow(1) increased 8.6% to $26.5 million compared to $24.4 million for Fiscal 2016;
Net debt excluding contingent consideration and balance payable on business acquisitions increased to $35.2 million
compared to $31.8 million for Fiscal 2016; and
Annual dividend increased 28.6% to $0.18 per share
Highlights of the fourth quarter ended March 31, 2017
Compared to the fourth quarter ended March 31, 2016 (“Q4 2016”):
Revenues increased 3.3% to $26.5 million from $25.7 million for Q4 2016;
Recurring revenues of $22.7 million (85.6% of total revenues), an increase of 3.8%;
The contribution of International revenues was 47.2% compared to 47.4% for Q4 2016;
Adjusted EBITDA(1) increased 10.1% to $9.0 million from $8.2 million for Q4 2016;
Adjusted EBITDA margin(1) was 34.1% compared with 32.0% for Q4 2016;
Net income increased 41.9% to $4.6 million ($0.09 per share diluted) compared to $3.2 million ($0.06 per share diluted)
for Q4 2016;
Adjusted Net income(1) increased 47.9% to $10.5 million ($0.20 per share diluted) compared to $7.1 million ($0.14 per
share diluted) for Q4 2016;
Cash flow from operating activities increased 40.4% to $10.8 million compared to $7.7 million for Q4 2016; and
Adjusted free cash flow(1) increased 24.7% to $8.0 million compared to $6.4 million for Q4 2016.
Note:
(1) Refer to “Forward looking statements” and “Supplemental information on Non-IFRS measures” on page 24 and for reconciliations to the most directly
comparable IFRS financial measure, refer to “Supplemental information on Non-IFRS measures” on page 29.
Annual Report 2017 | Stingray Digital Group Inc. | 26
Additional business highlights for the fourth quarter and subsequent events:
On May 26, 2017, the Corporation announced that it had acquired the classical and cinematic music video television
channel called C Music Entertainment Ltd
On May 16, 2017, the Corporation confirmed that, amongst all streaming music services, it is the only one dedicated to
promoting Canadian talent. With a reach of 90% of the Canadian market (10 million households), Stingray’s efforts result
in incomparable visibility for Canadian artists. Close to 15,000 Canadian artists and bands are broadcast on Stingray
Music channels on TV, mobile, and the web.
On May 9, 2017, the Corporation announced that it had acquired Israel-based Yokee Music Ltd., provider of three (3)
social music apps regularly ranked in the music category’s top 10 in 100 countries: Yokee Karaoke, Yokee Guitar, and
Yokee Piano. Together, the apps have reached over 80 million downloads in four (4) years and count 4 million monthly
users, with over 50% year-over-year growth.
On April 28, 2017, the Corporation declared a dividend of $0.045 per subordinate voting share, variable subordinate
voting share and multiple voting share, totaling $2.3 million that will be payable on or around June 15, 2017 to holders of
subordinate voting shares, variable subordinate voting shares and multiple voting shares on record as of May 31, 2017.
On April 14, 2017, the Corporation announced it had extended its exclusive distribution agreement with leading Australian
pay TV provider, Foxtel for an additional five (5) years and three (3) months. In addition to the selection of audio music
channels currently available on television, Foxtel residential subscribers will soon have access to the Stingray Music
mobile app and web player.
On March 3, 2017, the Corporation announced the acquisition of Nature Vision TV (“Nature Vision”), a 24/7 channel
available online and on television. Nature Vision TV complements Stingray’s existing Slow TV programming, Stingray
Ambiance 4K, available as a linear television channel and Video On Demand to Pay-TV providers worldwide.
On February 7, 2017, the Corporation confirmed product launches with Vodafone Portugal, Orange Polska, Vodafone
España, UPC Hungary, T-Mobile Netherlands, United Group Balkans, Sat-Trakt Doo, and PT Telecom Hungary. These
strategic deals represent a significant growth in Stingray’s current European distribution; increasing its potential reach by
more than one million subscribers.
Annual Report 2017 | Stingray Digital Group Inc. | 27
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands of Canadian dollars)
Revenues
Recurring Revenues
Revenues
Music programming, cost of services
and content
Selling and marketing
Research and development, support
and information technology
General and administrative
IPO expenses and CRTC tangible
benefits
Depreciation and amortization and
write-off
Net finance expenses (income) (3)
Change on fair value of investments
Income before income taxes
Income taxes
Net income
Quarters ended March 31
2016
2017
Q4 2016
Q4 2017
26,502 100.0 % 25,658 100.0 % 101,501 100.0 %
85.0 % 87,612 86.3 %
22,683 85.6 % 21,860
2017
Fiscal 2017
Years ended March 31
2016
Fiscal 2016
89,944 100.0 % 70,989 100.0 %
77,587 86.3 % 63,535 89.5 %
2015
Fiscal 2015
26,502 100.0 % 25,658 100.0 % 101,501 100.0 %
89,944 100.0 % 70,989 100.0 %
9,125 34.4 %
3,302 12.5 %
9,053
3,387
35.3 % 35,270 34.7 %
13.2 % 12,338 12.2 %
31,407 34.9 % 23,283 32.8 %
8,010 11.3 %
10,435 11.6 %
2,324
8.8 %
6,385 24.1 %
2,254
3,957
8,960
8.8 %
8.8 %
15.4 % 19,016 18.7 %
7,613
5,973 8.4 %
13,247 14.7 % 10,089 14.2 %
8.5 %
–
– %
21
0.1 %
–
– %
5,821
6.5 %
–
– %
4,619 17.4 %
3.8 %
1,006
1.3 %
334
(593) (2.2) %
(5,201) (19.6) %
4,608 17.4 %
3,218
836
1,113
1,819
(1,428)
3,247
12.5 % 17,168 16.9 %
2,036
2.0 %
3.3 %
(408) (0.4) %
4.3 %
7.0 %
7,121
7.1 %
(3,596) (3.5) %
(5.6) %
14.1 % 10,717 10.6 %
15,028 16.7 % 14,979 21.1 %
4,686 6.6 %
(1,801) (2.5) %
5,770 8.1 %
(837) (1.2) %
6,607 9.3 %
(418)
(0.5) %
(7,345)
(8.2) %
14,156 15.7 %
0.3 %
13,881 15.4 %
275
Adjusted EBITDA (1)
9,046 34.1 %
Adjusted Net income (1)
10,534 39.7 %
Adjusted free cash flow (1)
7,991 30.2 %
Cash flow from operating activities 10,826 40.8 %
8,219
7,135
6,415
7,709
32.0 % 33,864 33.4 %
27.8 % 27,310 26.9 %
25.0 % 26,511 26.1 %
30.0 % 22,766 22.4 %
31,004 34.5 % 27,275 38.4 %
24,309 27.0 % 17,834 25.1 %
24,384 27.1 % 17,037 24.0 %
9,908 14.0 %
18,968 21.1 %
Net income per share basic
Net income per share diluted
Adjusted Net income per share basic(1)
Adjusted Net income per share diluted(1)
0.09
0.09
0.21
0.20
0.06
0.06
0.14
0.14
0.21
0.21
0.53
0.53
0.29
0.29
0.51
0.50
0.20
0.19
0.54
0.53
Revenue by category
Music Broadcasting
Commercial Music
Revenues
Revenues by geography
Canada
International (4)
Revenues
Financial position
Total assets
Total non-current financial liabilities
Net debt excluding contingent
consideration and balance
payable on business
acquisitions (Net debt) (1)
Net debt to Adjusted EBITDA(1)(2)
Cash dividends and distributions
declared per share
19,708 74.4 % 19,425
6,233
75.7 % 74,900 73.8 %
24.3 % 26,601 26.2 %
26,502 100.0 % 25,658 100.0 % 101,501 100.0 %
6,794 25.6 %
66,172 73.6 % 53,499 75.4 %
23,772 26.4 % 17,490 24.6 %
89,944 100.0 % 70,989 100.0 %
14,000 52.8 % 13,500
52.6 % 56,129 55.3 %
47.4 % 45,372 44.7 %
12,502 47.2 % 12,158
26,502 100.0 % 25,658 100.0 % 101,501 100.0 %
53,536 59.5 % 47,738 67.2 %
36,408 40.5 % 23,251 32.8 %
89,944 100.0 % 70,989 100.0 %
194,292
54,080
177,075
43,879
125,170
75,549
35,178
1.04x
0.13
31,834
1.03x
0.13
107,423
3.94x
0.59
Notes:
(1) Refer to “Forward looking statements” and “Supplemental information on Non-IFRS measures” on page 24 and for reconciliations to the most directly
comparable IFRS financial measure, refer to “Supplemental information on Non-IFRS measures” on page 29.
(2) Net debt to Adjusted EBITDA consists of Net debt including contingent considerations and balance payable on business acquisitions divided by Adjusted
EBITDA.
Interest paid during the Q4 2017 was $269 (Q4 2016; $244) and $1,107 for the year ended March 31, 2017 (2016 - $1,426)
International means all jurisdictions except Canada.
(3)
(4)
Annual Report 2017 | Stingray Digital Group Inc. | 28
SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES
Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net income, Adjusted Net income per share, Adjusted free cash flow,
Net debt including contingent consideration and balance payable on business acquisitions, Net debt excluding contingent
consideration and balance payable on business acquisitions and Net debt to Adjusted EBITDA are non-IFRS measures that
the Corporation uses to assess its operating performance. See “Supplemental information on Non-IFRS Measures” on page
24.
The following tables show the reconciliation of Net income to Adjusted EBITDA:
(in thousands of Canadian dollars)
Net income
Net finance (income) expenses
Change in fair value of investments
Income taxes
Depreciation of property and equipment and write-off
Amortization of intangibles
Stock-based compensation
Restricted and deferred share unit expenses
IPO expenses and CRTC tangible benefits
Acquisition, legal, restructuring and other various costs
Adjusted EBITDA
Net finance (income) expenses
Income taxes
Depreciation of property and equipment and write-off
Income taxes related to change in fair value of
investment, share-based compensation, restricted
and deferred share unit expenses, amortization of
intangible assets, IPO expenses and CRTC tangible
benefits and acquisition, legal, restructuring and other
various costs
Adjusted Net income
Quarters ended March 31
2017
Q4 2017
2016
Q4 2016
4,608
1,006
334
(5,201)
724
3,895
372
688
–
2,620
9,046
(1,006)
5,201
(724)
3,247
836
1,113
(1,428)
594
2,624
390
319
21
503
8,219
(836)
1,428
(594)
Years ended March 31
2016
2017
Fiscal 2016
Fiscal 2017
13,881
10,717
(418)
2,036
(7,345)
(408)
275
(3,596)
2,146
2,418
12,882
14,750
1,351
1,332
963
2,008
–
5,821
1,448
4,607
31,004
33,864
418
(2,036)
(275)
3,596
(2,146)
(2,418)
(1,983)
10,534
(1,082)
7,135
(5,696)
27,310
(4,692)
24,309
The following table shows the reconciliation of Cash flow from operating activities to Adjusted free cash flow:
(in thousands of Canadian dollars)
Cash flow from operating activities
Add / Less :
Capital expenditures
Net change in non-cash operating working capital items
Acquisition, legal, restructuring and other various costs
IPO expenses and CRTC tangible benefits
Adjusted free cash flow
Quarters ended March 31
2017
Q4 2017
2016
Q4 2016
Years ended March 31
2016
2017
Q4 2016
Q4 2017
10,826
7,709
22,766
18,968
(522)
(4,933)
2,620
–
7,991
(1,100)
(718)
503
21
6,415
(3,233)
2,371
4,607
–
26,511
(3,429)
1,576
1,448
5,821
24,384
The following table shows the calculation of Net debt including and excluding contingent consideration and balance
payable on business acquisitions:
(in thousands of Canadian dollars)
Contingent consideration and balance payable on business acquisitions,
including current portion
Revolving facility
Cash and cash equivalents
Net debt including contingent consideration and balance payable on
business acquisitions
Contingent considerations and balance payable on business acquisitions,
including current portion
Net debt excluding contingent consideration and balance payable on
business acquisitions (“Net Debt”)
March 31,
2017
March 31,
2016
18,801
41,040
(5,862)
53,979
12,496
35,035
(3,201)
44,330
(18,801)
(12,496)
35,178
31,834
Annual Report 2017 | Stingray Digital Group Inc. | 29
RESULTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016
Revenues
Revenues in Fiscal 2017 increased 12.9% to $101.5 million, from $89.9 million for Fiscal 2016. The increase in revenues was
primarily due to acquisitions combined with growth in international markets and commercial music in Canada.
Trends by Revenue Categories were as follow:
Revenues by category(1)
$74.9
$66.2
Music Broadcasting
The most significant contributors to the increase of 13.1% or
$8.7 million from Fiscal 2016 in Music Broadcasting
revenues were as follows (arrows reflect the impact):
▲ Acquisition of DMD and iConcerts in December 2015 and
Classica in January 2017.
▲ Organic growth in international markets, primarily Music
Videos on Demand in United States.
$23.8
$26.6
Commercial Music
The most significant contributors to the increase of 11.8% or
$2.8 million from Fiscal 2016 in Commercial Music revenues
were as follows (arrows reflect the impact):
▲ Acquisition of Nümédia in February 2016.
Music Broadcasting
Commercial Music
2016
2017
and existing customers.
▲ Organic growth from recurring music services related to new
Note:
(1)
In millions of Canadian dollars.
Trends by Revenues by Geographic Region were as follows:
Revenues by geography(1)
$53.5
$56.1
Canada
The most significant contributors to the increase of 4.9%
or $2.6 million from Fiscal 2016 in revenues for Canada
were as follows (arrows reflect the impact):
▲ Contribution of the Nümédia and organic growth in
$45.4
commercial music.
$36.4
International
The most significant contributors to the increase of 24.7%
or $9.0 million from Fiscal 2016 in international revenues
were as follows (arrows reflect the impact):
▲ The contribution of acquisitions
in Broadcast as
mentioned above and organic growth related to Music
Videos on Demand.
Canada
International
2016
2017
Note:
(1)
In millions of Canadian dollars.
Annual Report 2017 | Stingray Digital Group Inc. | 30
Operating Expenses
(in thousands of Canadian
dollars)
Fiscal
2017
% of
revenues
Fiscal
2016
% of
revenues
Variance
Significant contributions to
variance :
Music programming, cost
of services and content
$35,270
34.7%
$31,407
34.9%
$3,863
12.3% ▲
Primarily due to recent acquisitions,
organic growth in commercial music
and content costs to support our
international growth.
Selling and marketing
$12,338
12.2%
$10,435
11.6%
$1,903
18.2% ▲
Primarily due to recent acquisitions
and salary costs to support revenue
growth in international markets.
Information Technology
and Research and
development
$8,960
8.8%
$7,613
8.5%
$1,347
17.7% ▲
Primarily due to additional hiring
related to international expansion
and new product development
initiatives.
General and
administrative
$19,016
18.7%
$13,247
14.7%
$5,769
43.5%
▲
Primarily due to increased legal fees,
restricted and performance share
for employees and
unit plans
deferred share unit plan for directors
and hiring new employees to support
growth.
Depreciation,
amortization and write-off
$17,168
16.9%
$15,028
16.7%
$2,140
14.2% ▲
Mainly related to the amortization of
client lists recognised following the
acquisitions of DMD, iConcerts and
Classica.
Adjusted EBITDA(1)(2)
$31.0
$33.9
2016
2017
increased 9.2%
Adjusted EBITDA
to
in Fiscal 2017
$33.9 million, from $31.0 million in Fiscal 2016. Adjusted
EBITDA margin was 33.4% in Fiscal 2017 compared to 34.5%
in Fiscal 2016. The increase in Adjusted EBITDA was primarily
due to the recent acquisitions of DMD, iConcerts and Classica,
and to organic growth in commercial music in Canada and
international markets. The decrease in EBITDA margin was
mainly related to increased salary costs to support revenue
growth in international markets and required ramp-up period
to realize synergies from acquisitions.
Acquisition, legal, restructuring and other various costs
mainly included costs related to litigation (see page 43) and
integration costs for our recent acquisitions
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS measures”
In millions of Canadian dollars.
on page 24 and 29
Annual Report 2017 | Stingray Digital Group Inc. | 31
Initial public offering expenses and CRTC tangible benefits
Initial public offering (“IPO”) expenses for Fiscal 2016 amounted to $1.6 million and were related to the secondary offering
costs. The secondary offering consisted of the sales by Novacap and Télésystem of 9,112,900 shares in the aggregate to the
public. IPO expenses for the treasury offering by the Corporation were recognized in the statement of financial position under
share capital.
The CRTC approved the change in ownership and effective control of the Corporation in connection with the IPO on April 22,
2015. Pursuant to that decision, the CRTC required the Corporation to pay tangible benefits corresponding to an amount of
$5.5 million over a seven-year period in equal annual payments. Since this expense does not meet capitalization criteria under
IFRS, the Corporation recognized an expense of $4.2 million in Q1 2017, which reflects the fair value of the payment stream
using a discount rate of 7.0%, which is the Corporation’s estimated effective interest rate, plus a risk premium.
Net Finance (Income) Expenses
Finance expenses increased to $2.0 million from an income of $0.4 million for Fiscal 2016. The increase was related to lower
gains on revaluation of contingent consideration and balance payable on business acquisitions partially offset by lower interest
expenses. The Corporation repaid approximately $101 million of its debt in June 2015 with the proceeds of the IPO.
Change in fair value of investments
For Fiscal 2017, a gain of $0.4 million was recorded compared to a gain of $7.3 million for Fiscal 2016. The Corporation
recognised a significant gain in Q2 2016 following an additional investment in AppDirect, a company that offers a cloud services
marketplace and management platform that enables companies to distribute web-based services.
Income Taxes
Recovery of income taxes increased to $3.6 million for Fiscal 2017 from an income tax expense of $0.3 million for Fiscal 2016.
The increase in income tax recovery was mainly related to the recognition of previously unrecognized tax losses of a foreign
subsidiary.
Net income and net income per share
Net income decreased to $10.7 million ($0.21 per share diluted)
in Fiscal 2017 from $13.9 million ($0.29 per share diluted) in
Fiscal 2016. The decrease was mainly attributable to a lower
gain on fair value of investments, higher legal fees, lower gain
on revaluations of contingent consideration and balances
payable on business acquisitions, partially offset by lower IPO
expenses and CRTC tangible benefits, higher income tax
recovery and higher operating results.
Adjusted Net income and Adjusted Net income per share
Adjusted Net Income in Fiscal 2017 increased to $27.3 million
($0.53 per share diluted) from $24.3 million ($0.50 per share
diluted) in Fiscal 2016. The increase was primarily due to higher
income tax recovery and higher Adjusted EBITDA resulting
from recent acquisitions combined with organic growth offset by
a negative change in fair value of contingent consideration and
balance payables on business acquisitions.
Net Income and
Adjusted Net Income(1)(2)
$27.3
$24.3
$13.9
$10.7
Net income
Adjusted Net income
2016
2017
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS
In millions of Canadian dollars.
measures” on page 24 and 29.
Annual Report 2017 | Stingray Digital Group Inc. | 32
Quarterly results
Revenues increased over the last eight quarters from $19.9 million in the first quarter of Fiscal 2016 to $26.5 million in the last
quarter of Fiscal 2017. The increase was mainly attributable to the successful integration of acquisitions and new contracts in
international markets and in Canada. The sequential decrease in Q1 2017 and Q2 2017 of revenues compared to Q4 2016
was mainly related to lower non-recurring revenues in Music Broadcasting and the unfavorable foreign exchange impact
between the Canadian dollar and the U.S. dollar.
Adjusted EBITDA increased from $7.2 million in the first quarter of Fiscal 2016 to $9.0 million in the fourth quarter of
Fiscal 2017. The increase was mainly attributable to the successful integration of acquisitions and new contracts signed. The
decrease in Q1 2017 Adjusted EBITDA compared to Q4 2016 was mainly related to the decrease in non-recurring revenues
in Music Broadcasting and incremental costs related to acquisitions with future synergies to be realized and the unfavorable
foreign exchange impact between the Canadian dollar and the U.S. dollar.
Net income (loss) fluctuated over the last eight quarters from a loss of $1.8 million in the first quarter of Fiscal 2016 to net
income of $4.6 million in the last quarter of Fiscal 2017. In Q1 2016, the net loss was mainly attributable to the one-time IPO
expense and CRTC tangible benefits expenses of $5.5 million offset by a related tax impact of $1.5 million. In Q2 2016, the
most significant component of the increase was the recognition of a gain on fair value of investment of $7.5 million which was
offset by a related tax impact of $1.0 million. Furthermore, a gain on fair value of contingent consideration and balance payable
on business acquisitions of $1.1 million was also recognised. In Q4 2016, the Corporation recorded an income tax recovery
on deferred tax assets related to tax losses of foreign subsidiaries of $3.4 million offset by the loss on fair value of investments
of $1.1 million which was related to unfavorable foreign exchange between the Canadian dollar and the U.S. dollar as the
investment is denominated in U.S. dollars. In Q4 2017, the Corporation recorded an income tax recovery on deferred tax
assets related to tax losses of foreign subsidiaries of $5.1 million.
Summary of Consolidated Quarterly Results
(in thousands of Canadian dollars,
except per share amounts)
Revenue by category
Music Broadcasting
Commercial Music
Total revenues
Revenues by geography
Canada
International
Total revenues
Recurring revenues
Recurring revenues as a
March 31,
2017
Fiscal
2017
Dec. 31,
2016
Fiscal
2017
Sept. 30,
2016
Fiscal
2017
Quarters ended
June 30,
2016
Fiscal
2017
March 31,
2016
Fiscal
2016
Dec. 31,
2015
Fiscal
2016
Sept. 30,
2015
Fiscal
2016
June 30,
2015
Fiscal
2016
19,708
6,794
26,502
19,295
6,630
25,925
18,009
6,518
24,527
17,888
6,659
24,547
19,425
6,233
25,658
17,013
6,076
23,089
15,614
5,688
21,302
14,120
5,775
19,895
14,000
12,502
26,502
14,004
11,921
25,925
14,045
10,482
24,527
14,077
10,470
24,547
13,500
12,158
25,658
13,759
9,330
23,089
13,094
8,208
21,302
13,183
6,712
19,895
22,683
21,944
21,584
21,401
21,860
19,699
18,785
17,243
percentage of total revenues
85.6%
84.6%
88.0%
87.2%
83.7%
85.3%
88.2%
86.7%
Adjusted EBITDA
9,046
8,717
8,220
7,881
8,219
8,009
7,625
7,151
Net income (loss)
4,608
2,660
1,405
2,044
3,247
3,169
9,242
(1,777)
Net income (loss) per share
basic
Net income (loss) per share
diluted
0.09
0.05
0.03
0.04
0.06
0.06
0.18
(0.05)
0.09
0.05
0.03
0.04
0.06
0.06
0.18
(0.05)
Adjusted Net income
10,534
6,164
5,405
5,207
7,135
6,194
6,198
4,783
Adjusted Net income per share
basic
Adjusted Net income per share
diluted
0.21
0.12
0.11
0.10
0.14
0.12
0.12
0.12
0.20
0.12
0.10
0.10
0.14
0.12
0.12
0.12
Annual Report 2017 | Stingray Digital Group Inc. | 33
Reconciliation of Quarterly Non-IFRS Measures
(in thousands of Canadian dollars)
Net income (loss)
Net finance (income) expenses
Change in fair value of investment
Income taxes
Depreciation of property and
equipment and write-off
Amortization of intangibles
Stock-based compensation
Restricted and deferred share unit
March 31,
2017
Fiscal
2017
4,608
1,006
334
(5,201)
Dec. 31,
2016
Fiscal
2017
2,660
9
(583)
706
Sept. 30,
2016
Fiscal
2017
1,405
373
(250)
487
Quarters ended
June 30,
2016
Fiscal
2017
2,044
648
91
412
March 31,
2016
Fiscal
2016
3,247
836
1,113
(1,428)
Dec. 31,
2015
Fiscal
2016
3,169
(810)
(646)
920
Sept. 30,
2015
Fiscal
2016
9,242
(1,310)
(7,549)
2,117
June 30,
2015
Fiscal
2016
(1,777)
866
(263)
(1,334)
724
3,895
372
574
3,686
372
546
3,982
298
574
3,187
290
594
2,624
390
609
3,443
369
488
3,592
371
455
3,223
221
expenses
688
550
444
326
319
227
242
175
IPO expenses and CRTC tangible
benefits
Acquisition, legal, restructuring
and other various costs
Adjusted EBITDA
Net finance (income) expenses
Income taxes
Depreciation of property and
equipment and write-off
Income taxes related to change in
fair value of investment, share-
based compensation, restricted
and deferred share unit
expenses, amortization of
intangible assets, IPO expenses
and CRTC tangible benefits and
acquisition, legal, restructuring
and other various costs
Adjusted Net income
–
–
–
–
21
–
305
5,495
2,620
9,046
(1,006)
5,201
743
8,717
(9)
(706)
935
8,220
(373)
(487)
309
7,881
(648)
(412)
503
8,219
(836)
1,428
728
8,009
810
(920)
127
7,625
1,310
(2,117)
90
7,151
(866)
1,334
(724)
(574)
(546)
(574)
(594)
(609)
(488)
(455)
(1,983)
10,534
(1,264)
6,164
(1,409)
5,405
(1,040)
5,207
(1,082)
7,135
(1,096)
6,194
(132)
6,198
(2,381)
4,783
Annual Report 2017 | Stingray Digital Group Inc. | 34
LIQUIDITY AND CAPITAL RESOURCES
FOR THE YEAR ENDED MARCH 31, 2017
The Corporation’s primary sources of cash consist of operating activities and available borrowings under the Revolving Facility.
The Corporation’s primary uses of cash are to fund operations, working capital requirements, business acquisitions, capital
expenditures and distributions to shareholders of the Corporation. The fluctuation of working capital requirements is primarily
due to the non-recurring services and products, which revenues tend to peak in the third quarter of our financial year. Cash
flows from recurring services and products are stable and predictable over the year and are our main source of cash inflows.
The Corporation has a working capital deficiency as at March 31, 2017 and 2016. The Corporation met its obligations with its
strong cash flow from operations and its ability to access financing from banks or existing shareholders. In Fiscal 2016, the
Corporation reduced significantly certain current and non-current liabilities. The Corporation expects to continue distributing
dividends to the shareholders of the Corporation, and such dividends are expected to be funded by the cash flow generated
from operating activities.
CF from operating activities and
Adjusted free cash flow(1)(2)
$26.5
$24.4
$22.8
$19.0
Cash flow from operating activities
Cash flow generated from operating activities increased
20.0% to $22.8 million in Fiscal 2017 from $19.0 million in
Fiscal 2016. The increase was mainly due to acquisitions,
international growth partially offset by higher net variation in
non-cash working operating items and higher income taxes
paid.
Adjusted free cash flow
Adjusted free cash flow increased 8.7% to $26.5 million in
Fiscal 2017 from $24.4 million in Fiscal 2016. The increase
was mainly related to higher operating results, partially offset
by higher income taxes paid.
CF from operating
activities
Adjusted free cash
flow
2016
2017
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS
In millions of Canadian dollars.
measures” on page 24 and 29.
Financing Activities
Net cash flow used in financing activities amounted to $4.3 million for Fiscal 2017 compared to net cash flow generated from
financing activities of $12.7 million for Fiscal 2016. The net change of $17.0 million was mainly attributable to the acquisition
of Brava, DMD and iConcerts that were financed through the revolving facility in Fiscal 2016, to the net proceeds of the IPO,
offset by higher payment of contingent consideration and balances payable on business acquisitions, the repayment of the
term loan and bridge loan in Q1 2016 and higher dividend payments in Fiscal 2017.
Investing Activities
Net cash flow used in investing activities amounted to $15.8 million for Fiscal 2017 compared to $29.8 million for Fiscal 2016.
The net change of $14.0 million was primarily related to the acquisitions of Nature Vision, Classica, EuroArts, Festival 4K and
Bell’s Music Video Channels (Much Channels) for Fiscal 2017, compared to the acquisitions of Brava, DMD and iConcerts for
Fiscal 2016, which represented higher outlays.
Annual Report 2017 | Stingray Digital Group Inc. | 35
Contractual Obligations
The Corporation is committed under the terms of contractual obligations with various expiration dates, primarily the rental of
office space, financial obligations under our credit agreement, broadcast licence and commitments for copyright royalties. The
following table summarizes the Corporation’s significant contractual obligations as at March 31, 2017, including its estimated
payments and commitments related to leasing contracts:
(in thousands of Canadian dollars)
Commitments
Operating lease agreements
Financial obligations
Revolving facility
Accounts payables and accrued liabilities
Other payables
Total obligations
Broadcast licence
Less than
1 year
1–5 years
More than
5 years
Total
amount
5,152
9,223
896
15,271
–
29,783
9,511
44,446
41,040
–
10,391
60,654
–
–
2,636
3,532
41,040
29,783
22,538
108,632
The CRTC requires Canadian pay audio services to draw certain proportions of their programming from Canadian content
and, in most cases, to spend a portion of their revenues on Canadian content development. The Corporation must ensure that
(i) a maximum of one non-Canadian pay audio channel is packaged or linked with each Canadian-produced pay audio channel
and in no case may subscribers of the pay audio service be offered a package of pay audio channels in which foreign-produced
channels dominate; (ii) 25% of all Canadian channels, other than those consisting entirely of instrumental music or of music
entirely in languages other than English or French, devote a minimum of 65% of vocal music selections in the French language
each broadcast week; and (iii) a minimum of 35% of the musical selections broadcast each broadcast week on our Canadian-
produced pay audio channels, considered together, are Canadian.
Pursuant to the conditions of our National Pay Audio Service Licence, the Corporation is required to contribute each year a
minimum of 4% of our annual Canadian regulated broadcast revenues to encourage Canadian content development in the
following manner: (i) 1% of gross revenues to be devoted to the Foundation Assisting Canadian Talent On Recordings
(FACTOR), a non-profit organization dedicated to providing assistance toward the growth and development of the Canadian
music industry; (ii) 1% of gross revenues to be devoted to Musicaction, a non-profit organization dedicated to the development
of local francophone music by offering financial support to projects by independent record labels and Canadian artists; (iii)
1.8% of gross revenues to be devoted to our Stingray Rising Star Program, a program which was created to discover,
encourage, promote and champion new Canadian artists; and (iv) 0.2% of to be devoted to Community Radio Fund of Canada
(CRFC), a fund that the mission is to build and improve campus and community radio for all Canadians through funding and
collaborations.
The CRTC approved the change in ownership and effective control of the Corporation on April 22, 2015. Pursuant to the
decision, the CRTC requires the Corporation to pay tangible benefits corresponding to an amount of $5.5 million over a seven-
year period in equal annual payments. The Corporation recognized an expense of $4.2 million, which reflects the fair value of
the payment stream using a discount rate of 7.0%, which is the Corporation’s effective interest rate plus a risk premium. On
August 18, 2015, the CRTC issued a decision renewing until August 31, 2020 the broadcasting licence.
During Fiscal 2017, an amount of $0.4 million ($0.4 million – 2016) was recognized as an expense in music programming,
cost of services and content.
Copyright royalties
The Corporation must pay royalties for the use of music for the majority of its music services. Through copyright collective
societies, the Corporation pays royalties to two sets of rights holders: (i) rights holders in music works, which are the music
and the lyrics, and (ii) rights holders in artists’ performances and sounds recordings, which are the actual performances and
recordings of the musical works.
Annual Report 2017 | Stingray Digital Group Inc. | 36
Capital resources
On November 17, 2016, the Corporation renegotiated its credit agreement in order to merge the outstanding balance of the
term loan into the amended revolving credit facility (“revolving facility”), to provide for the repayment of the bridge loan, to
increase its borrowing capacity to $100.0 million and to make modifications in relation to interest, maturity, security and
covenants. The revolving facility matures in June 2020, bears interest at an annual rate equal to the banker’s acceptance rate
plus 1.50% and is secured by guarantees from subsidiaries and a first ranking lien on the universality of all its assets, tangible
and intangible, present and future. In addition, the Corporation incurs standby fees of 0.30% on the unused portion of the
revolving facility. The Corporation is required to comply with financial covenants. As at March 31, 2017, the Corporation was
in compliance with all the requirements of its credit agreement.
The following table summarizes the net change in Net debt including contingent consideration and balance payable on
business acquisitions that occurred in the year ended March 31, 2017 including related ratios:
Movement in Net debt(1)(2)(3)
$8.2
$(20.1)
$15.3
$31.8
$35.2
As at March 31, 2016
Business and assets
acquisitions outlays and
holdbacks payments
Dividend payment
Remaining net change of
revolving facility and cash
As at March 31, 2017
$31.0
1.03
Adjusted EBITDA(1)(2)
Net debt to Adjusted EBITDA(1)(2)
$33.9
1.04
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS measures” on page 24 and 29.
In millions of Canadian dollars.
Off Balance-Sheet Arrangements
The Corporation had no off-balance sheet arrangements, other than operating leases (which have been disclosed under
“Contractual Obligations”), that have, or are reasonably likely to have, a current or future material effect on its consolidated
financial position, financial performance, liquidity, capital expenditures or capital resources.
Annual Report 2017 | Stingray Digital Group Inc. | 37
CONSOLIDATED FINANCIAL POSITION
AS AT MARCH 31, 2017 AND 2016
The following table shows the main variances that have occurred in the consolidated financial position of the Corporation for
the year ended March 31, 2017:
(in thousands of Canadian dollars)
March 31,
2017
March 31,
2016
Variance
Significant contributions
to
significant
Attributable
receivables
recovered offset by
receivables from acquisitions and
additional sales in international and
commercial music in Canada.
Mainly attributable to the recognition
of intangible assets for acquisitions
that occurred in Fiscal 2017, net of
amortization.
Mainly attributable to the recognition
of goodwill
that
occurred in Fiscal 2017.
for acquisitions
on
the
to payables
Mainly attributable
assumed
business
acquisitions that occurred in Fiscal
2017, increase in RSU, PSU and
DSU expenses and increase in
operating expenses.
to
considerations
the payment of
Attributable
contingent
and
balances payable on business
acquisitions of Archibald Media
Group, Brava Group and Telefonica
– On the Spot, offset by recognition
of Festival 4K B.V., Classica GmbH
and Nature Vision
contingent
considerations and balance payable
on business acquisitions.
Attributable to cash considerations
for acquisitions that occurred in
contingent
2017
Fiscal
and
consideration
balances payable on business
acquisitions.
and
payments
Trade and other receivables
$27,020
$28,597
$(1,577) ▼
Intangible assets
$49,519
$47,901
$1,618 ▲
Goodwill
$68,788
$61,805
$6,983 ▲
Accounts payable and accrued
liabilities
$29,783
$26,636
$3,147 ▲
Other payables
$22,538
$16,850
$5,688 ▲
Revolving Facility
$41,040
$35,035
$6,005 ▲
Annual Report 2017 | Stingray Digital Group Inc. | 38
RESULTS OF OPERATIONS
FOR THE QUARTERS ENDED MARCH 31, 2017 AND 2016
Revenues
Revenues for the quarter ended March 31, 2017 (“Q4 2017”) increased 3.3% to $26.5 million, from $25.7 million for the
Q4 2016. The increase in revenues was primarily due to acquisition of Classica and Bell’s Music Video Channels (Much
Channels) combined with international growth related to new products and organic growth for digital signage in Canada.
Trends by Revenue Categories were as follow:
Revenues by category(1)
$19.4
$19.7
Music Broadcasting
The most significant contributors to the increase of 1.5% or
$0.3 million from Q4 2016 in Music Broadcasting revenues
were as follows (arrows reflect the impact):
▲ Acquisitions in Fiscal 2017 of Classica and Bell’s Music Video
Channels.
▲ Organic growth for online and downloads music products.
$6.2
$6.8
Commercial Music
The most significant contributors to the increase of 9.0% or
$0.6 million from Q4 2016 in Commercial Music revenues
were as follows (arrows reflect the impact):
▲ Organic growth for digital signage in Canada.
Music Broadcasting
Commercial Music
Q4 2016
Q4 2017
Note:
(1)
In millions of Canadian dollars.
Trends by Revenues by Geographic Region:
Revenue by geography(1)
$13.5
$14.0
$12.2
$12.5
Canada
International
Q4 2016
Q4 2017
Note:
(1)
In millions of Canadian dollars.
Canada
The most significant contributors to the increase of 3.7% or
$0.5 million from Q4 2016 in revenues for Canada were as
follows (arrows reflect the impact):
▲ Organic growth for digital signage and acquisitions of Bell’s
Music Video Channels.
International
The most significant contributors to the increase of 2.8% or
$0.3 million from Q4 2016 in international revenues were as
follows (arrows reflect the impact):
▲ As described above in Music Broadcasting, acquisitions are
included in full for Q4 2017 and international organic growth.
Annual Report 2017 | Stingray Digital Group Inc. | 39
Operating Expenses
(in thousands of Canadian
dollars)
Q4 2017
% of
revenues
Q4 2016
% of
revenues
Variance
Significant contributions to
variance :
Music programming, cost
of services and content
$9,125
34.4%
$9,053
35.3%
$72
0.8%
▲
due
Decreased on a percentage of
to
primarily
revenues,
synergies
recent
related
acquisitions partially offset by an
increase
to
installation and equipment sales
for digital signage.
in costs
related
to
Selling and marketing
$3,302
12.5%
$3,387
13.2%
$(85)
(2.5)%
▼
Primarily due to lower stock based
compensation, partially offset by
an increase in costs to support
revenue growth in international
markets.
Information Technology
and Research and
development
$2,324
8.8%
$2,254
8.8%
$70
3.1%
▲
due
to additional
related
Increase
hiring
international
to
expansion, partially offset by
recent
related
synergies
acquisitions.
to
General and
administrative
$6,385
24.1%
$3,957
15.4%
$2,428
61.4% ▲
Primarily due to higher legal fees
and acquisitions costs.
Depreciation,
amortization and write-off
$4,619
17,4%
$3,218
12.5%
$1,401
43.5% ▲
Primarily due to the addition of
to
intangible assets
acquisitions.
related
Adjusted EBITDA(1)(2)
$8.2
$9.0
Q4 2016
Q4 2017
Adjusted EBITDA for Q4 2017 increased 10.1% to
$9.0 million, from $8.2 million for Q4 2016. Adjusted EBITDA
margin was 34.1% for Q4 2017 compared to 32.0% for
Q4 2016. The increase in Adjusted EBITDA was primarily
due to the recent acquisitions of Classica, iConcerts and
DMD, from which synergies were realized.
Acquisition, restructuring and other various costs
mainly included costs related to litigation (see page 43).
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS measures” on
In millions of Canadian dollars.
page 24 and 29.
Annual Report 2017 | Stingray Digital Group Inc. | 40
Net Finance (Income) Expenses
Finance expenses increased to $1.0 million from $0.8 million in Q4 2016. The increase was mainly related to the change in
fair value of contingent consideration and balances payable on business acquisitions of $0.9 million, offset by the foreign
exchange net gain of $0.7 million recognised in Q4 2017.
Change in fair value of investment
In Q4 2017, a loss on fair value of $0.3 million was recorded compared to $1.1 million in Q4 2016. The loss is related to the
translation of the investments denominated in U.S. dollars to Canadian dollars.
Income Taxes
Recovery of income taxes increased to $5.2 million for Q4 2017 from $1.4 million for Q4 2016. The increase in income tax
recovery was mainly related to additional recognition of previously unrecognized tax losses of a foreign subsidiary.
Net income and net income per share
Net income increased 41.9% to $4.6 million ($0.09 per share
diluted) for Q4 2017 compared to $3.2 million ($0.06 per share
diluted) for Q4 2016. The increase was primarily due to higher
operating results, higher income taxe recovery related to the
recognition of previously unrecognized tax losses, lower loss
on fair value of investments, partially offset by higher legal fees
and amortization of intangibles.
Adjusted Net income and Adjusted Net income per share
Adjusted net income for Q4 2017 increased 41.8% to
$10.5 million ($0.20 per share diluted) from $7.1 million
($0.14 per share diluted) for Q4 2016. The increase was
primarily due to higher income tax recovery and higher Adjusted
EBITDA related to acquisitions combined with organic growth in
Commercial Music.
Net income and
Adjusted Net Income(1)(2)
$10.5
$7.1
$4.6
$3.2
Net income
Adjusted Net income
Q4 2016
Q4 2017
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS
In millions of Canadian dollars.
measures” on page 24 and 29.
Annual Report 2017 | Stingray Digital Group Inc. | 41
LIQUIDITY
FOR THE QUARTER ENDED MARCH 31, 2017
CF from operating activities and
Adjusted free cash flow(1)(2)
$10.8
$7.7
$8.0
$6.4
CF from operating
activities
Adjusted free cash
flow
Q4 2016
Q4 2017
Cash flow from operating activities
Cash flow generated from operating activities increased
40.4% to $10.8 million for Q4 2017 from $7.7 million for Q4
2016. The increase was mainly due to higher operating
results, and lower net change in non-cash operating items
mainly related to timing for payment of accounts payable,
partially offset by higher interest paid.
Adjusted free cash flow
Adjusted free cash flow for Q4 2017 increased 23.4% to
$8.0 million from $6.4 million for Q4 2016. The increase was
primarily related to higher operating results, lower financing
costs and lower capital expenditures.
Decrease in capital expenditures of $0.6 million compared
to Q4 2016 was mainly due to the upgrade of subscriber
music boxes for commercial customers that occurred in Q4
2016.
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS
In millions of Canadian dollars.
measures” on page 24 and 29.
Financing Activities
Net cash flow used in financing activities amounted to $7.5 million for Q4 2017 compared to $4.6 million for Q4 2016. The
increase of $2.9 million was mainly attributable to the repayment of the credit facility.
Investing Activities
Net cash flow used in investing activities amounted to $0.4 million for Q4 2017 compared to $2.4 million for Q4 2016. The
decrease of $2.0 million was mainly related to lower outlays in Q4 2017 related to acquisitions and capital expenditures.
Annual Report 2017 | Stingray Digital Group Inc. | 42
Music Choice Litigation
Music Choice v. Stingray
Music Choice filed its original Complaint against the Corporation on June 6, 2016, asserting infringement of four U.S. patents,
namely, U.S. Patent Nos. 8,769,602, 9,357,245, 7,320,025 and 9,351,045. On August 12, 2016, Music Choice filed its First
Amended Complaint, which added a fifth U.S. patent, namely, U.S. Patent No. 9,414,121. The Corporation filed its Answer to
the Original Complaint (including counterclaims) on August 30, 2016, asserting, among other things, defenses and
counterclaims of non-infringement and invalidity. On September 2, 2016, Music Choice filed its Second Amended complaint,
adding Stingray Music USA, Inc. (SMU) as a defendant, and the Corporation and SMU filed their answers and counterclaims
on September 23 and October 4, 2016, respectively. Since the commencement of the case, the parties have jointly prepared
and filed with the Court a docket control order, a protective order and an ESI order. Music Choice also served its infringement
contentions on September 12, 2016, the parties exchanged Initial Disclosures, and Stingray served its invalidity contentions
on November 28, 2016. The parties exchanged amended infringement and invalidity contentions on April 28, 2017. In addition,
on November 14, 2016, Stingray filed an amended answer and counterclaims which included inequitable conduct
counterclaims based on David Del Beccaro’s (and the other inventors’) failure to disclose a product offered by Music Choice
Europe in or about 2001 to the patent office and their misrepresentations to the patent office that they are the true inventors
of the patents-in-suit. Music Choice moved to dismiss and strike Stingray’s inequitable conduct counterclaims, which the
Corporation opposed on January 4, 2017. On May 3, 2017, the magistrate judge handling the case issued a Report and
Recommendation that the motion be dismissed. Fact discovery has commenced, and the parties have exchanged written
discovery requests and produced documents. Stingray has deposed many of the patent inventors, and will be taking the
deposition of Music Choice over the next few months. Music Choice has noticed Stingray’s deposition, which will likely take
place in July 2017. The hearing is scheduled for June 12, 2017, and trial is scheduled for February 5, 2018.
Stingray v. Music Choice
SMU filed its Complaint on August 30, 2016, asserting claims of unfair competition under the Federal Lanham Act, defamation,
trade libel, tortious interference, and common law unfair competition, stemming from misrepresentations of fact made by Music
Choice regarding the nature, characteristics and qualities of Stingray Music and its products and services, to SMU’s existing
and potential customers, with the goal of damaging SMU’s relationships with those customers and its business generally. On
October 17, 2016, Music Choice filed a Motion to Dismiss on the grounds that all of SMU’s claims are time-barred. In response,
on November 3, 2016, SMU filed an Amended Complaint, after which (on December 7, 2016), Music Choice moved to dismiss
only the state law claims. Music Choice also filed a motion to transfer the case to the Eastern District of Pennsylvania. On
January 4, 2017, SMU opposed both motions. In addition, SMU filed a motion to consolidate the action with the Music Choice
patent infringement action.
On March 16, 2017, the Court denied Music Choice’s motion to change venue, and granted SMU’s motion to consolidate,
ordering that this action be consolidated for all pretrial issues with the Music Choice v. Stingray action. Music Choice’s motion
to dismiss the state law claims remains pending. On March 30, 2017, Music Choice answered SMU’s complaint (except for
the state law claims that remain subject to its pending motion to dismiss) and asserted a counterclaim against SMU and the
Corporation. Music Choice’s counterclaim alleges that the Stingray entities misused Music Choice confidential data in violation
of various non-disclosure agreements (the “NDAs”). These non-disclosure agreements arose from discussions between the
parties concerning a possible acquisition of Music Choice by the Corporation. The Corporation’s entities answered the
counterclaim on April 28, 2017, denying the allegations and asserting various affirmative defenses, including that Music Choice
acted fraudulently and in bad faith with regard to the NDAs. Fact discovery has commenced and the parties have exchanged
written disclosures and made initial document productions. Trial is currently set for February 5, 2018.
SOCAN and Re:Sound legal proceedings
From May 2, 2017 until May 10, 2017, Stingray, together with its Canadian Broadcast Distribution Undertaking customers
(collectively, the “Objectors”), presented an affirmative case before the Copyright Board of Canada to seek a reduction in the
prescribed rates and terms for the Pay Audio Services Tariff for the 2007-2016 period. SOCAN and Re:Sound (collectively,
the “Collectives”) opposed that case, but in the opinion of the Objectors failed to offer compelling alternatives other than a
request to maintain the status quo. The Copyright Board of Canada will now begin its deliberations, and Stingray expects a
decision in about 18-36 months, based on past experience and the complexity of this proceeding.
Annual Report 2017 | Stingray Digital Group Inc. | 43
Transactions Between Related Parties
The key management personnel of the Corporation are the Chief Executive Officer, Chief Financial Officer and certain other
key employees of the Corporation.
Key management personnel compensation and directors fees include the following:
(in thousands of Canadian dollars)
Short-term employee benefits
Share-based compensation
Restricted and performance share unit
Deferred share unit
Disclosure of Outstanding Share Data
Issued and outstanding shares and outstanding stock options consisted of:
Issued and outstanding shares:
Subordinate voting shares
Variable Subordinate voting shares
Multiple voting shares
Outstanding stock options:
Stock options
2017
2016
$
$
3,361
810
407
896
5,474
$
$
2,927
976
178
371
4,452
June 7, 2017
March 31, 2017
34,747,472
284,609
16,294,285
51,326,366
34,693,678
338,403
16,294,285
51,326,366
1,397,185
1,397,185
On June 3, 2015, the Corporation established a new stock option plan to attract and retain employees, directors, officers and
consultants. The plan provides for the granting of options to purchase subordinate voting shares. Under this plan, 2,500,000
subordinate voting shares have been reserved for issuance. In the year ended March 31, 2017, 218,391 options were
exercised, 42,368 were forfeited and 369,187 options were granted to eligible employee, subject to service vesting periods of
4 years.
Financial risks
Currency risk:
The Corporation is exposed to currency risk on sales and expenses that are denominated in currencies other than the
functional currency of the Corporation’s subsidiaries, primarily the US dollar, the Australian dollar and the euro. Also, additional
earnings variability arises from the translation of monetary assets and liabilities denominated in currencies other than the
functional currency of the Corporation’s subsidiaries at the rate of exchange at each balance sheet date, the impact of which
is reported as a foreign exchange gain or loss in the consolidated statements of comprehensive income.
The Corporation's objective in managing its foreign currency risk is to minimize its net exposure to foreign currency cash flows,
by transacting with third parties in the above currencies to the maximum extent possible and practical, given that this will act
as natural economic hedges for each of these currencies.
Liquidity risk:
Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they become due. The
Corporation also manages liquidity risk by continuously monitoring actual and budgeted cash flows under both normal and
stressed conditions. Also, the Board of Directors reviews and approves the Corporation’s operating and capital budgets, as
well as any material transactions out of the ordinary course of business, including proposals on mergers, acquisitions or other
major investments or divestitures.
Annual Report 2017 | Stingray Digital Group Inc. | 44
Interest rate risk:
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in
market interest rates. The Corporation's interest rate risk is primarily related to the Corporation's operating revolving facility
bearing interest at variable rate.
Credit risk:
Credit risk is the risk of an unexpected financial loss to the Corporation if a customer or counterparty to a financial instrument
fails to meet contractual obligations, and it arises primarily from the Corporation's trade and other receivables. The
Corporation’s credit risk is principally attributable to its trade receivables. The amounts presented in the consolidated
statements of financial position are net of an allowance for doubtful accounts, estimated by the Corporation’s management
and based, in part, on the age of the specific receivable balance and the current and expected collection trends. The
Corporation's exposure to credit risk is mainly influenced by the characteristics of each customer. The demographics of the
Corporation's customer base, including the default risk of the industry and country in which the customer operates, have less
of an influence on the credit risk. Generally, the Corporation does not require collateral or other security from customers for
trade accounts receivable; however, credit is extended following an evaluation of creditworthiness. In addition, the Corporation
performs ongoing credit reviews of its customers and establishes an allowance for doubtful accounts when the likelihood of
collecting the account has significantly diminished. The Corporation believes that the credit risk of trade accounts receivable
is limited.
Critical accounting estimates
The preparation of the Corporation’s consolidated financial statements in conformity with IFRS requires management to make
judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these estimates.
Below an overview of the areas that involved a higher degree of judgement or complexity, and of items which are more likely
to be materially adjusted due to estimates and assumptions turning out to be wrong. Estimates are based on management’s
best knowledge of current events and actions that the Corporation may undertake in the future. Estimates and underlying
assumptions are reviewed on an ongoing basis. Any revision to accounting estimates are recognized in the period in which
the estimates are revised and in any future periods affected by these revisions.
The areas involving significant estimates or judgments are:
Estimation of current tax payable and current tax expense
In the calculation of current tax, the Company is required to make significant estimates due to the fact that it is subject to tax
laws of the many jurisdictions in which it operates. Recorded income taxes and tax credits are subject to review and approval
by tax authorities and therefore, could be different from the amounts recorded.
Recognition of deferred tax asset for carried forward tax losses
In the calculation of deferred tax, estimates must be used to determine the appropriate rates and amounts and to take into
account the probability of their occurrence. Deferred income tax assets also reflect the benefit of unutilized tax losses that can
be carried forward to reduce income taxes in future years. The deferred tax assets include an amount which relates to carried
forward tax losses of some European and Australian subsidiaries. The subsidiaries have incurred the losses over the last
financial years before the acquisition by the Corporation. The subsidiaries now generate taxable income. The Corporation has
concluded that the deferred assets will be recoverable using the estimated future taxable income based on the approved
business plans and budgets for the subsidiaries.
Estimated fair value of certain financial assets (investments)
The fair value of investments that are not traded in an active market is determined using valuation techniques. The Corporation
uses judgement to select a valuation method and make assumptions that are mainly based on market conditions existing at
the end of each reporting period.
Estimation of fair values of contingent consideration and balance payable on business acquisitions in business combinations
The contingent consideration and balance payable on business acquisitions related to business combinations is payable based
on the achievement of targets for growth in revenues for a period from the date of the acquisition and upon renewal of client
contracts. The fair value of the contingent consideration and balance payable on business acquisitions of was estimated by
calculating the present value of the future expected cash flows.
Annual Report 2017 | Stingray Digital Group Inc. | 45
Business Combinations
Under the acquisition method, on the date that control is obtained, the identifiable assets, liabilities and contingent liabilities of
the acquired business are measured at their fair values. Depending on the complexity of determining the valuation for certain
assets, the Company uses appropriate valuation techniques in arriving at the estimated fair value at the acquisition date for
these assets. These valuations are generally based on a forecast of the total expected future net discounted cash flows and
relate closely to the assumptions made by management regarding the future performance of the related assets and the
discount rate applied as it would be assumed by a market participant.
Future Accounting Changes
IFRS 9 - Financial instruments
In July 2014, the IASB released the final version of IFRS 9 - Financial Instruments (IFRS 2014). (“IFRS 9 (2014)”) presents a
few differences with IFRS 9 (2009) and IFRS 9 (2010), early adopted by the Corporation on April 1, 2012, with respect to the
classification and measurement of financial assets and accounting of financial liabilities. IFRS 9 (2014) also includes a new
expected credit loss model for calculating impairment on financial assets and new general hedge accounting requirements.
The standard is effective for annual periods beginning on or after January 1, 2018, with earlier application permitted. The
Corporation does not intend to early adopt IFRS 9 (2014). The Corporation is currently evaluating the impact of the standard
on its consolidated financial statements.
IFRS 15 - Revenue recognition
In May 2014, the IASB issued IFRS 15 - Revenue from Contracts with Customers. IFRS 15 replaces all previous revenue
recognition standards, including IAS 18 - Revenue, and related interpretations such as IFRIC 13 - Customer Loyalty Programs.
The standard sets out the requirements for recognizing revenue. Specifically, the new standard introduces a comprehensive
framework with the general principle being that an entity recognizes revenue to depict the transfer of promised goods and
services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. The standard introduces more prescriptive guidance than was included in previous standards and may result in
changes in classification and disclosure in addition to changes in the timing of recognition for certain types of revenues. The
new standard is effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. The
Corporation is currently evaluating the impact that this standard will have on its consolidated financial statements. The
Corporation does not intend to early adopt the standard.
IAS 16 – Property, Plant and Equipment
On May 12, 2014, the IASB issued amendments to IAS 16 - Property, Plant and Equipment and IAS 38 - Intangible Assets.
The amendments made to IAS 16 explicitly state that revenue-based methods of depreciation cannot be used for property,
plant and equipment. This is because such methods reflect factors other than the consumption of economic benefits embodied
in the asset. The amendments in IAS 38 introduce a rebuttable presumption that the use of revenue-based amortization
methods for intangible assets is inappropriate. This presumption could be overcome only when revenue and consumption of
the economic benefits of the intangible asset are highly correlated or when the intangible asset is expressed as a measure of
revenue. The amendments apply prospectively for annual periods beginning on or after January 1, 2016 with early adoption
permitted. The Corporation intends to adopt the amendments to IAS 16 and IAS 38 in its consolidated financial statements for
the annual period beginning on April 1, 2016. The Corporation does not expect the amendments to have a material impact on
the consolidated financial statements.
IAS 7 – Disclosure Initiative
On January 7, 2016, the IASB issued amendments to IAS 7– Disclosure Initiative. The amendments require disclosures that
enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes
arising from cash flows and non-cash changes. One way to meet this new disclosure requirement is to provide a reconciliation
between the opening and closing balances for liabilities from financing activities. The Corporation intends to adopt the
amendments to IAS 7 in its consolidated financial statements for the annual period beginning on April 1, 2017. The extent of
the impact of adoption of the amendments has not yet been determined.
Annual Report 2017 | Stingray Digital Group Inc. | 46
IFRS 16 – Leases
On January 13, 2016, the IASB issued IFRS 16 - Leases. This new standard is effective for annual periods beginning on or
after January 1, 2019. Earlier application is permitted for entities that apply IFRS 15 - Revenue from Contracts with Customers
at or before the date of initial adoption of IFRS 16. IFRS 16 will replace IAS 17 - Leases. This standard introduces a single
lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12
months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right
to use the underlying asset and a lease liability representing its obligation to make lease payments. This standard substantially
carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors.
Other areas of the lease accounting model have been impacted, including the definition of a lease. Transitional provisions
have been provided. The Corporation intends to adopt IFRS 16 in its consolidated financial statements for the annual period
beginning on April 1, 2019. The extent of the impact of adoption of the standard has not yet been determined.
IFRS 2 – Share-based Payment
On June 20, 2016, the IASB issued amendments to IFRS 2 Share-based Payment, clarifying how to account for certain types
of share-based payment transactions. The amendments apply for annual periods beginning on or after January 1, 2018. As a
practical simplification, the amendments can be applied prospectively. Retrospective, or early, application is permitted if
information is available without the use of hindsight. The Company intends to adopt the amendments to IFRS 2 in its financial
statements for the annual period beginning on January 1, 2018. The extent of the impact of adoption of the amendments has
not yet been determined.
IFRIC 22 – Foreign Currency Transactions
On December 8, 2016, the IASB issued IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration.
The Interpretation clarifies which date should be used for translation when a foreign currency transaction involves an advance
payment or receipt. The Interpretation is applicable for annual periods beginning on or after January 1, 2018. Earlier application
is permitted. The Company intends to adopt the Interpretation in its financial statements for the annual period beginning on
January 1, 2018. The extent of the impact of adoption of the Interpretation has not yet been determined.
Evaluation of disclosure controls and procedures, and internal control over financial reporting
Internal control over financial reporting ("ICFR") is a process designed to provide reasonable, but not absolute, assurance
regarding the reliability of financial reporting and of the preparation of financial statements for external purposes in accordance
with IFRS. The President and Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), together with
Management, are responsible for establishing and maintaining adequate disclosure controls and procedures ("DC&P") and
ICFR, as defined in National Instrument 52-109. The Corporation’s internal control framework is based on the criteria published
in the updated version released in May 2013 of the report Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“2013 COSO Framework”).
At March 31, 2017, it is the first reporting year ending after the completion of the IPO resulting in the Corporation’s Subordinate
Voting Shares and Variable Subordinate Voting Shares being listed on the Toronto Stock Exchange. Consequently, the
Corporation’s management, under the supervision of the CEO and CFO, designed ICFR to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with IFRS and based on 2013 COSO Framework. The DC&P have been designed to provide reasonable assurance that
material information relating to the Corporation is made known to the CEO and CFO by others, and that information required
to be disclosed by the Corporation in its annual filings, interim filings or other reports filed or submitted by the Corporation
under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities
legislation.
As at March 31, 2017, an evaluation was carried out, under the supervision of the CEO and the CFO, of the design and
operating effectiveness of the Company’s DC&P. Based on this evaluation, the CEO and the CFO concluded that the
Company’s DC&P were appropriately designed and were operating effectively as at March 31, 2017.
As at March 31, 2017, an evaluation was carried out, under the supervision of the CEO and the CFO, of the effectiveness of
the ICFR based on the 2013 COSO Framework. Based on this evaluation, they have concluded that the Corporation’s ICFR
were effective as at March 31, 2017.
There have been no changes in the Corporation’s internal control over financial reporting that occurred during the period that
have materially affected, or are likely to materially affect, the Corporation’s ICFR.
Annual Report 2017 | Stingray Digital Group Inc. | 47
Management’s assessment of and conclusion on the design and the effectiveness of the Corporation’s ICFR as at
June 8, 2017, did not include the controls or procedures of the operations of Nature Vision, Classica GmbH and Festival 4K
B.V. which were acquired in Fiscal 2017. The Corporation has accordingly availed itself of provision 3.3(1)(b) of Regulation
52-109 which permits exclusion of these acquisitions in the design and operating effectiveness assessment of its ICFR for a
maximum period of 365 days from the date of acquisition.
The following table summarizes the financial information for Nature Vision, Classica GmbH and Festival 4K B.V.:
(in thousand of Canadian dollars)
Results of operations
Revenues
Net income
Financial Position
Current assets
Non-current assets
Currents liabilities
Non-currents liabilities
Subsequent events
Acquisition
Nature
Vision
Classica
GmbH
Festival
4K B.V.
$
$
$
$
– $
–
785 $
32
170 $
1,213
3
55
$
2,081
12,029
1,818
1,053
600
20
612
2,425
128
130
On May 26, 2017, the Corporation acquire a classical and cinematic music video television channel called C Music
Entertainment Ltd., for a total consideration of GBP3.6 million (CA$6.2 million).
On May 8, 2017, the Corporation signed an agreement to acquire Yokee Music LTD., an Israel-based provider of three social
music apps: Yokee Karaoke, Yokee Guitar, and Yokee Piano, for a total consideration of US$12.5 million (CA$16.8 million).
Dividend
On April 28, 2017, the Corporation declared a dividend of $0.045 per subordinate voting share, variable subordinate voting
share and multiple voting share, totaling CA$2.3 million that will be payable on or about June 15, 2017 to holders of subordinate
voting shares, variable subordinate voting shares and multiple voting shares on record as of May 31, 2017.
Additional information
Additional information about the Corporation is available on our website at www.stingray.com and on the SEDAR website at
www.sedar.com.
Annual Report 2017 | Stingray Digital Group Inc. | 48
KPMG LLP
600 de Maisonneuve Blvd. West
Suite 1500, Tour KPMG
Montréal (Québec) H3A 0A3
Canada
Telephone
Fax
Internet
(514) 840-2100
(514) 840-2187
www.kpmg.ca
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Stingray Digital Group Inc.
We have audited the accompanying consolidated financial statements of Stingray Digital Group Inc., which
comprise the consolidated statements of financial position as at March 31, 2017 and March 31, 2016, the
consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended,
and notes, comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We
conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on our judgment, including the assessment
of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to the entity’s preparation and fair
presentation of the consolidated financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis
for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
financial position of Stingray Digital Group Inc. as at March 31, 2017 and March 31, 2016, and its consolidated
financial performance and its consolidated cash flows for the years then ended in accordance with International
Financial Reporting Standards.
June 7, 2017
Montréal, Canada
*CPA auditor, CA, public accountancy permit No. A115894
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
("KPMG International"), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
Annual Report 2017 | Stingray Digital Group Inc. | 49
Consolidated Statements of Comprehensive Income
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars)
Note
2017
2016
Revenues
$
101,501
$
89,944
Music programming, cost of services and content
Selling and marketing
Research and development, support and information technology,
net of tax credit of $887 (2016 - $850)
General and administrative
Initial public offering expenses and CRTC tangible benefits
Depreciation, amortization and write-off
Net finance (income) expense
Change in fair value of investments
Income before income taxes
Income taxes (recovery)
Net income
Net income per share – Basic
Net income per share – Diluted
Weighted average number of shares – Basic
Weighted average number of shares – Diluted
Comprehensive income
Net income
Other comprehensive income, net of tax
Items that may be reclassified to profit and loss
Exchange differences on translation of foreign operations
Items that will not be reclassified to profit and loss
Remeasurements of post-employment benefit obligations, net of tax
Total other comprehensive income (loss)
5, 18, 19
5
6
15
7
8
8
8
8
35,270
12,338
8,960
19,016
–
17,168
2,036
(408)
7,121
(3,596)
31,407
10,435
7,613
13,247
5,821
15,028
(418)
(7,345)
14,156
275
$
10,717
$
13,881
0.21
0.21
0.29
0.29
51,242,611
51,497,510
47,822,515
48,380,253
$
10,717
$
13,881
(1,129)
44
(1,085)
804
(67)
737
Total comprehensive income
$
9,632
$
14,618
Net income is entirely attributable to Shareholders.
The accompanying notes are an integral part of these consolidated financial statements.
Annual Report 2017 | Stingray Digital Group Inc. | 50
Consolidated Statements of Financial Position
March 31, 2017 and March 31, 2016
(In thousands of Canadian dollars)
Note
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Research and development tax credits
Inventories
Other current assets
Non-current assets
Property and equipment
Intangible assets
Goodwill
Investments
Investment in joint venture
Other non-current assets
Deferred tax assets
Total assets
Liabilities and Equity
Current liabilities
Accounts payable and accrued liabilities
Dividends payable
Deferred revenues
Current portion of other payables
Income taxes payable
Non-current liabilities
Revolving facility
Other payables
Deferred tax liabilities
Total liabilities
Shareholders’ equity
Share capital
Contributed surplus
Deficit
Accumulated other comprehensive income (loss)
Total equity
Commitments (note 22)
Subsequent events (note 2)
Total liabilities and equity
9
10
11
12
13
14
15
7
16
19
18
17
18
7
19
$
March 31,
2017
March 31,
2016
(recasted, see note 3)
$
5,862
27,020
486
1,233
4,780
39,381
5,336
49,519
68,788
17,351
738
954
12,225
3,201
28,597
236
910
3,466
36,410
4,628
47,901
61,805
16,943
815
1,088
7,485
$
194,292
$
177,075
$
$
29,783
–
1,094
9,498
184
40,559
41,040
13,040
4,705
99,344
102,700
2,872
(10,299)
(325)
94,948
26,636
1,789
915
8,006
1,711
39,057
35,035
8,844
3,745
86,681
102,040
2,196
(14,646)
804
90,394
$
194,292
$
177,075
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors,
(Signed) Eric Boyko, Director
(Signed) L. Jacques Ménard, Director
Annual Report 2017 | Stingray Digital Group Inc. | 51
Consolidated Statements of Changes in Equity
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars,
except number of share capital)
Share Capital
Number
Amount
Contributed
surplus
Deficit
Accumulated
other
comprehensive
income (loss)
Total
shareholders’
equity
–
–
–
–
–
–
–
$ (17,842)
384
(6,619)
104,044
(5,542)
1,351
13,881
–
–
–
–
262
(6,414)
1,074
10,717
Balance at March 31, 2015
33,981,088
$
2,240
$
1,759 $
(21,841)
$
Insurance of shares upon
exercise of options (note 19)
479,787
1,298
(914)
–
Dividends (note 19)
–
–
Issuance of subordinate voting shares
and variable subordinate voting
shares (note 19)
Share issuance costs – net of income
taxes of $1,993 (note 19)
Share-based compensation (note 21)
Net income
Other comprehensive income, net of
tax
16,647,100
104,044
–
–
–
–
(5,542)
–
–
–
–
–
–
1,351
–
–
(6,619)
–
–
–
13,881
(67)
804
737
Balance at March 31, 2016
51,107,975 $ 102,040
$
2,196 $
(14,646) $
804
$ 90,394
Issuance of shares upon
exercise of options (note 19)
Dividends (note 19)
Share-based compensation (note 21)
Net income
Other comprehensive loss, net of tax
218,391
660
(398)
–
–
–
–
–
–
–
–
–
–
(6,414)
1,074
–
10,717
–
–
44
(1,129)
(1,085)
Balance at March 31, 2017
51,326,366 $ 102,700
$
2,872 $
(10,299) $
(325)
$ 94,948
The accompanying notes are an integral part of these consolidated financial statements.
Annual Report 2017 | Stingray Digital Group Inc. | 52
Consolidated Statements of Cash Flows
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars)
Note
2017
2016
Operating activities:
Net income
Adjustments for:
Share-based compensation
Restricted and performance share unit expense
Deferred share unit expense
Depreciation and write-off of property and equipment
Amortization of intangible assets
Amortization and write-off of financing fees
Other interest expense
Change in fair value of derivative
Change in fair value of investments
Change in fair value of contingent consideration
Accretion expense of CRTC tangible benefits
Share of results of joint venture
Income taxes expense (recovery)
Interest paid
Income taxes paid
Net change in non-cash operating items
Financing activities:
Increase in the revolving facility
Repayment of term loan and bridge loan
Payment of dividend and stated capital of common shares
Proceeds from the exercise of stock options
Issuance of shares
Share capital issuance costs
Deferred financing costs
Repayment of other payables
Other
Investing activities:
Business acquisitions, net of cash acquired
Intangible assets acquired through asset acquisitions
Acquisition of investments
Acquisition of property and equipment
Acquisition of intangible assets
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
21
21
21
12
13
6
15
20
17
17
19
19
19
19
3
1
15
$
10,717
$
1,332
1,112
896
2,418
14,750
213
1,170
–
(408)
822
287
(77)
(3,596)
(1,107)
(3,392)
25,137
(2,371)
22,766
6,005
–
(8,203)
262
–
–
–
(2,349)
(58)
(4,343)
(7,010)
(5,519)
–
(2,635)
(598)
(15,762)
2,661
3,201
Cash and cash equivalents, end of year
$
5,862
$
The accompanying notes are an integral part of these consolidated financial statements.
13,881
1,351
592
371
2,146
12,882
263
1,627
(110)
(7,345)
(2,064)
248
43
275
(1,426)
(2,190)
20,544
(1,576)
18,968
26,948
(100,960)
(4,830)
384
104,044
(7,535)
(431)
(4,851)
(91)
12,678
(24,665)
–
(1,665)
(2,300)
(1,129)
(29,759)
1,887
1,314
3,201
Annual Report 2017 | Stingray Digital Group Inc. | 53
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
1. Significant changes and highlights:
The consolidated financial position and performance of the Stingray Digital Group Inc. (the "Corporation") was
particularly affected by the following events and transactions during the year ended March 31, 2017:
- On January 5, 2017, the Corporation signed an agreement with Think Inside the Box LLC, to acquire and operate the
HD slow-television specialty channel knows as Nature Vision TV for a total consideration of US$997 (CA$1,345). It
resulted in the recognition of goodwill (notes 3 and 7), intangibles assets (notes 3 and 7), contingent consideration
(notes 3 and 12).
- On January 3, 2017, the Corporation signed an agreement with UNITEL GmbH & Co. KG, a leading producer and
distributor of classical music for audio-visual media, to acquire, operate, and distribute its international, premium pay
TV channel, Classica, for a total consideration of EUR 7,701 (CA$10,839). It resulted in the recognition of goodwill
(notes 3 and 7), intangibles assets (notes 3 and 7), contingent consideration (notes 3 and 12) and additional
operating profit related to the acquisition (note 3).
- On October 14, 2016, the Corporation announced the acquisition of hundreds of exclusive concerts and
documentaries from Berlin-based EuroArts Music International GmbH (EuroArts), a producer and distributor of
classical music film productions, for a total consideration of EUR 1,316 (CA$1,904), of which EUR 1,050 (CA$1,519)
was paid on October 14, 2016. The music catalog is presented in intangible assets in note 13.
- On June 21, 2016, the Corporation announced the acquisition of four of Bell Media’s popular music video channels:
MuchLoud, MuchRetro, MuchVibes and Juicebox for a total consideration of $4,000 fully paid during the year. This
acquisition will enable the Corporation to consolidate its portfolio of television music channels and to provide the most
comprehensive music products and services offering worldwide. The client lists related to the music video channels
are presented in intangible assets in note 13.
- On June 15, 2016, the Corporation purchased all of the outstanding shares of Festival 4K B.V. for a total consideration
of EUR1,838 (CA$2,644). It resulted in the recognition of goodwill (notes 3 and 7), intangibles assets (notes 3 and 7),
contingent consideration (notes 3 and 12) and additional operating profit related to the acquisition (note 3).
2. Subsequent events:
Acquisition
On May 26, 2017, the Corporation signed an agreement to acquire and operate a classical and cinematic music video
television channel called C Music TV, for a total consideration of GBP3,600 (CA$6,196).
On May 8, 2017, the Corporation signed an agreement to acquire Yokee Music LTD., an Israel-based provider of three
social music apps regularly: Yokee, Yokee Guitar, and Yokee Piano for a total consideration of US$12,500 (CA$16,816).
Dividend
On April 28, 2017, the Corporation declared a dividend of $0.045 per subordinate voting share, variable subordinate voting
share and multiple voting share, totaling CA$2,310 that will be payable on or around June 15, 2017 to holders of
subordinate voting share, variable subordinate voting share and multiple voting share on record as of May 31, 2017.
Annual Report 2017 | Stingray Digital Group Inc. | 54
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
3. Business acquisitions:
Year ended March 31, 2017
Nature Vision
On January 5, 2017, the Corporation purchased all of the outstanding units of Think Inside the Box LLC (“Nature Vision”)
for a total consideration of US$997 (CA$1,345). This acquisition will enable the Corporation to extend its specialty channels
portfolio. As a result of the acquisition, goodwill of $853 has been recognized and is related to the operating synergies
expected to be achieved from integrating the acquired business into the Corporation’s existing assets. The goodwill will
not be deductible for tax purposes.
The contingent consideration arrangement requires the Corporation to pay, in cash, to the former owners, a certain multiple
of the revenues for 12 months and other conditions, and would be payable on March 30, 2020. The fair value of the
contingent consideration has been determined using an income approach based on the estimated amount and timing of
projected cash flows.
Assets acquired :
Cash and cash equivalents
Intangible assets
Goodwill
Liabilities assumed :
Accounts payable and accrued liabilities
Deferred tax liabilities
Net assets acquired at fair value
Consideration given :
Cash
Working capital adjustment
Contingent consideration
Preliminary
$
172
380
853
1,405
3
57
60
$
1,345
587
183
575
$
1,345
As of the reporting date, the Corporation has not completed the purchase price allocation over the identifiable net assets
and goodwill as information to confirm the fair value of certain assets and liabilities is still to be obtained.
Annual Report 2017 | Stingray Digital Group Inc. | 55
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
Classica GMBH
On January 3, 2017, the Corporation purchased all of the outstanding shares of Classica GMBH (“Classica”) for a total
consideration of EUR7,701 (CA$10,839). This acquisition will enable the Corporation to become a leading provider of
classical music programming worldwide. As a result of the acquisition, goodwill of $4,106 has been recognized and is
related to the operating synergies expected to be achieved from integrating the acquired business into the Corporation
existing assets. The goodwill will not be deductible for tax purposes.
The fair value of acquired trade receivables was $1,080 which represented the gross contractual amount. The contingent
consideration arrangement requires the Corporation to pay, in cash, to the former owners, a percentage of the revenues
for 12 months. Also, there is a balance of acquisition payments, for the next 11 years ending in July 2027. The fair value
of the contingent consideration has been determined using an income approach based on the estimated amount and
timing of projected cash flows. The fair value of the balance of acquisition payments has been determined using discounted
projected payments over the term of the agreement.
The results of the business acquisition of Classica for the year ended March 31, 2017 have been included in results since
the date of the acquisition. Revenues recorded from the acquisition date to March 31, 2017 were $785 and net income
was $32. Had the acquisition occurred at the beginning of the fiscal year, revenues related to this acquired business would
have been approximately $3,142 and net income would have been $129.
Assets acquired :
Cash and cash equivalents
Trade and other receivables
Other current assets
Property and equipment
Intangible assets
Goodwill
Liabilities assumed :
Accounts payable and accrued liabilities
Deferred tax liabilities
Net assets acquired at fair value
Consideration given :
Cash
Working capital adjustment
Balance payable on business acquisition
Contingent consideration
$
Preliminary
368
1,080
63
11
7,911
4,106
13,539
1,608
1,092
2,700
$
10,839
5,541
(189)
5,395
92
$
10,839
As of the reporting date, the Corporation has not completed the purchase price allocation over the identifiable net assets
and goodwill as information to confirm fair value of certain assets and liabilities is still to be obtained.
Annual Report 2017 | Stingray Digital Group Inc. | 56
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
Festival 4K B.V.
On June 15, 2016, the Corporation purchased all of the outstanding shares of Festival 4K B.V. for a total consideration of
EUR1,838 (CA$2,644). Festival 4K B.V. one of the first channels in the world to broadcast nonstop 4K UHD, programs a
range of live performances including festivals, concerts and theatre productions. As a result of the acquisition, a goodwill
of $1,777 has been recognized and is related to the operating synergies expected to be achieved from integrating the
acquired business into the Corporation’s existing worldwide assets. The goodwill will not be deductible for tax purposes.
The fair value of acquired trade receivables was $61 which represented the gross contractual amount. The contingent
consideration arrangement requires the Corporation to pay, in cash, to the former owners, a certain multiple of the
revenues for 12 months and other conditions, of up to EUR1,000 (CA$1,425) and would be payable in January 2018. The
fair value of the contingent consideration has been determined using an income approach based on the estimated amount
and timing of projected cash flows.
The results of the business acquisition of Festival 4K B.V. for the period ended March 31, 2017 have been included in
results since the date of the acquisition. Revenues recorded from the acquisition date to March 31, 2017 were $600 and
net income was $20. Had the acquisitions occurred at the beginning of the fiscal year, revenues related to this acquired
business would have been approximately $758 and net income would have been $26.
Assets acquired :
Cash and cash equivalents
Trade and other receivables
Other non-current assets
Inventories
Property and equipment
Intangible assets
Goodwill
Liabilities assumed :
Accounts payable and accrued liabilities
Deferred tax liabilities
Net assets acquired at fair value
Consideration given :
Cash
Working capital adjustment
Contingent consideration
$
Preliminary
16
61
317
7
79
906
1,777
3,163
333
186
519
$
2,644
1,438
84
1,122
$
2,644
Annual Report 2017 | Stingray Digital Group Inc. | 57
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
Year ended March 31, 2016
Nümédia
On February 15, 2016, the Corporation purchased all of the outstanding shares of 9076-3392 Québec Inc. (“Nümédia”) for
a total consideration of $2,099. This acquisition will enable the Corporation to strengthen its Canadian operations. As a
result of the acquisition, goodwill of $985 has been recognized and is related to the operating synergies expected to be
achieved from integrating the acquired business into the Corporation’s existing assets. The goodwill will not be deductible
for tax purposes.
The fair value of acquired trade receivables was $254 which represented the gross contractual amount. The contingent
consideration arrangement requires the Corporation to pay, in cash, to the former owners, a certain multiple of the
revenues for 12 months and other conditions, of up to $300. The fair value of the contingent consideration has been
determined using an income approach based on the estimated amount and timing of projected cash flows.
The Corporation has adjusted the assessment of the fair values of the assets acquired and liabilities assumed related to
this acquisition and some adjustments to the preliminary assessment have been recorded in the statement of financial
position as shown below. The comparative figures have been adjusted to reflect these changes. The contingent
consideration was settled in April 2017.
Assets acquired :
Cash and cash equivalents
Accounts receivable
Other current assets
Property and equipment
Intangible assets
Goodwill
Liabilities assumed :
Accounts payable and accrued liabilities
Long-term debt
Deferred tax liabilities
Preliminary as at
March 31, 2016
Adjustments
Final
$
257
260
33
185
841
775
2,351
289
185
26
500
$
$
(6)
210
204
(44)
(44)
257
254
33
185
841
985
2,555
245
185
26
456
Net assets acquired at fair value
$
1,851
$
248
$
2,099
Consideration given :
Cash
Working capital adjustment
Balance payable on business acquisition
1,700
–
151
99
149
1,700
99
300
$
1,851
$
248
$
2,099
Annual Report 2017 | Stingray Digital Group Inc. | 58
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
iConcerts
On December 17, 2015, the Corporation purchased all of the outstanding shares of Transmedia Communications SA
(“iConcerts”) for a total consideration of CHF5,600 (CA$7,810). This acquisition will enable the Corporation to strengthen
its international operations within Europe. As a result of the acquisition, goodwill of $7,133 has been recognized and is
related to the operating synergies expected to be achieved from integrating the acquired business into the Corporation’s
existing worldwide assets. The goodwill will not be deductible for tax purposes.
The fair value of acquired trade receivables was $781. The gross contractual amount for trade receivables due is $1,587,
of which $806 is expected to be uncollectible. The contingent consideration arrangement requires the Corporation to pay,
in cash, to the former owners, a certain multiple of the revenues for 12 months and other conditions, of up to CHF2,100
(CA$2,798) and would be payable on November 30, 2016. Based on management estimates it has been determined that
the fair value of the contingent consideration was nil.
The Corporation finalized the assessment of the fair values of the assets acquired and liabilities assumed related to this
acquisition and some adjustments to the preliminary assessment have been recorded in the statement of financial position
as shown below. The comparative figures have been adjusted to reflect these changes.
Assets acquired :
Cash and cash equivalents
Accounts receivable
Other current assets
Property and equipment
Intangible assets
Goodwill
Liabilities assumed :
Accounts payable and accrued liabilities
Income taxes payable
Deferred tax liabilities
Preliminary as at
March 31, 2016
Adjustments
Final
$
$
(131)
(23)
154
–
$
505
912
451
51
2,450
6,979
11,348
3,433
–
105
3,538
505
781
428
51
2,450
7,133
11,348
3,433
–
105
3,538
Net assets acquired at fair value
$
7,810
$
–
$
7,810
Consideration given :
Cash
7,810
7,810
$
7,810
$
–
$
7,810
Annual Report 2017 | Stingray Digital Group Inc. | 59
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
Digital Media Distribution
On December 14, 2015, the Corporation purchased all of the outstanding shares of Digital Music Distribution Pty Ltd.
(“DMD”) for a total consideration of AUD11,990 (CA$11,853). This acquisition will enable the Corporation to strengthen its
international operations within Asia-Pacific. As a result of the acquisition, goodwill of $6,958 has been recognized and is
related to the operating synergies expected to be achieved from integrating the acquired business into the Corporation’s
existing worldwide assets. The goodwill will not be deductible for tax purposes. The fair value of acquired trade receivables
was $98 which represented the gross contractual amount. The contingent consideration arrangement requires the
Corporation to pay, in cash, to the former owners, AUD4,002 (CA$4,071) upon renewal of clients’ contracts before
December 2017.
The Corporation finalized the assessment of the fair values of the assets acquired and liabilities assumed related to this
acquisition and some adjustments to the preliminary assessment have been recorded in the statement of financial position
as shown below. The comparative figures have been adjusted to reflect these changes.
Assets acquired :
Cash and cash equivalents
Accounts receivable
Other current assets
Intangible assets
Goodwill
Liabilities assumed :
Accounts payable and accrued liabilities
Deferred tax liabilities
Preliminary as at
March 31, 2016
Adjustments
Final
$
205
98
297
5,500
7,326
13,426
287
1,286
1,573
$
$
(368)
(368)
(368)
(368)
205
98
297
5,500
6,958
13,058
287
918
1,205
Net assets acquired at fair value
$
11,853
$
–
$
11,853
Consideration given :
Cash
Working capital adjustment
Contingent consideration
7,679
218
3,956
7,679
218
3,956
$
11,853
$
–
$
11,853
Annual Report 2017 | Stingray Digital Group Inc. | 60
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
Brava Group
In July 2015, the Corporation purchased all of the outstanding shares of Brava HDTV B.V., Brava NL B.V. and DjazzTV
B.V. (“Brava Group”) for a total consideration of EUR8,334 (CA$11,548). This acquisition will enable the Corporation to
strengthen its international operations within Europe. As a result of the acquisition, goodwill of $7,221 has been recognized
and is related to the operating synergies expected to be achieved from integrating the acquired business into the
Corporation’s existing worldwide assets. The goodwill will not be deductible for tax purposes.
The fair value of acquired trade receivables was $1,882, which represented the gross contractual amount. The contingent
consideration arrangement requires the Corporation to pay, in cash, to the former owners, a certain multiple of the
revenues for 36 months, of up to EUR2,971 (CA$4,234) and will be paid out on each anniversary date for the next three
years, ending in June 2018. The fair value of the contingent consideration has been determined using an income approach
based on the estimated amount and timing of projected cash flows and discounted for time value.
The Corporation finalized the assessment of the fair values of the assets acquired and liabilities assumed related to this
acquisition and some adjustments to the preliminary assessment have been recorded in the statement of financial position
as shown below. The comparative figures have been adjusted to reflect these changes.
Assets acquired :
Cash and cash equivalents
Accounts receivable
Prepaid expense and other current assets
Property and equipment
Intangible assets
Goodwill
Liabilities assumed :
Accounts payable and accrued liabilities
Income taxes payable
Deferred tax liabilities
Preliminary as at
March 31, 2016
Adjustments
Final
$
282
1,594
164
61
4,795
7,428
14,324
1,186
391
1,199
2,776
$
$
288
(207)
81
81
81
282
1,882
164
61
4,795
7,221
14,405
1,267
391
1,199
2,857
Net assets acquired at fair value
$
11,548
$
–
$
11,548
Consideration given :
Cash
Working capital adjustment
Contingent consideration
8,502
300
2,746
8,502
300
2,746
$
11,548
$
–
$
11,548
Annual Report 2017 | Stingray Digital Group Inc. | 61
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
Significant estimate:
Under the acquisition method, on the date that control is obtained, the identifiable assets, liabilities and contingent liabilities
of the acquired business are measured at their fair values (level 3 fair value measurements). Depending on the complexity
of determining the valuation for certain assets, the Corporation uses appropriate valuation techniques in arriving at the
estimated fair value at the acquisition date for these assets and liabilities. These valuations are generally based on a
forecast of the total expected future discounted cash flows and relate closely to the assumptions made by management
regarding the future performance of the related assets and the discount rate applied as it would be assumed by a market
participant.
4. Segment information:
Business description
The Corporation is incorporated under the Canada Business Corporations Act. The Corporation is domiciled in Canada
and its registered office is located at 730 Wellington, Montréal, Québec, H3C 1T4. The Corporation is a provider of multi-
platform music services. It broadcasts high quality music and video content on a number of platforms including digital TV,
satellite TV, IPTV, the Internet, mobile devices and game consoles.
Operating segments
Under IFRS 8 “Operating Segments” the Corporation determined that it operated in a single operating segment for the
years ended March 31, 2017 and 2016 since operations, resources and assets are mainly centralized, optimized and
managed in Canada. International operations are leveraged from Canadian expertise.
The following tables provide geographic information on Corporation’s revenues, property and equipment, intangibles
assets and goodwill.
Revenue is derived from the following geographic areas based on selling locations.
Revenues
Canada
Other countries
2017
$
$
56,129
45,372
101,501
Long term assets are derived from the following geographic areas based on subsidiaries locations.
Property and equipment, intangible assets and goodwill
Canada
Netherlands
United Kingdom
Australia
Germany
Other countries
$
2017
52,172
23,057
14,954
11,600
7,679
14,181
$
$
$
2016
53,536
36,408
89,944
2016
53,734
18,604
16,857
12,249
–
12,890
$
123,643
$
114,334
Annual Report 2017 | Stingray Digital Group Inc. | 62
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
5. Other information:
Expenses by nature are as follows:
Salaries and other short-term employee benefits
Research and development
Equipment costs
Share-based compensation
Restricted share units
Deferred share units
$
2017
24,964
6,994
4,493
1,332
1,112
896
$
2016
19,780
5,725
4,505
1,351
592
371
The following table shows the depreciation and amortization and IPO expenses and CRTC tangible benefits allocated by
function:
Depreciation, amortization and write-off :
Music programming, cost of services and content
General and administrative
IPO expenses and CRTC tangible benefits :
Music programming, cost of services and content
General and administrative
2017
15,612
1,556
17,168
–
–
–
$
$
$
$
2016
13,749
1,279
15,028
4,158
1,663
5,821
$
$
$
$
Music programming, cost of services and content and general and administrative expenses would have been, respectively,
$50,882 (2016 – $49,314) and $20,557 (2016 – $16,189), if the presentation by function of depreciation, amortization and
write-off expense and IPO expenses and CRTC tangible benefits had been adopted in the statements of comprehensive
income.
Transaction costs related to business acquisitions amounting to $351 (2016 – $691) have been recognized in general and
administrative in the statements of comprehensive income.
Share of the profit of a joint venture of $66 has been presented in general and administrative in the statements of
comprehensive income (2016 – $105). Dividends received from the joint venture amounted to $143 (2016 - $148).
6. Net finance (income) expense:
Interest expense and standby fees
Change in fair value of contingent consideration
Change in fair value of derivative
Accretion expense on CRTC tangible benefits payable
Amortization and write-off of financing fees
Foreign exchange gain
2017
1,170
822
–
287
213
(456)
2,036
$
$
2016
1,627
(2,064)
(107)
248
263
(385)
(418)
$
$
Annual Report 2017 | Stingray Digital Group Inc. | 63
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
7.
Income taxes:
The income taxes expense (recovery) consists of the following:
Current income tax:
Current year
Adjustment for prior years
Deferred income tax :
Origination and reversal of temporary differences
Adjustment for prior years
Change in recognized tax losses and deductible temporary
differences
$
2017
2,103
18
2,121
137
21
(5,875)
(5,717)
$
2016
4,160
70
4,230
(447)
(67)
(3,441)
(3,955)
Total income tax expense (recovery)
$
(3,596)
$
275
The following table reconciles income taxes computed at the Canadian statutory rate of 26.9% (2016 – 26.9%) and the
total income tax expense for the years ended March 31:
2017
2016
Income before income taxes
$
7,121
$
14,156
Income tax at the combined Canadian statutory rate
(Decrease) increase resulting from:
Impact of foreign tax rate differences
Permanent differences
Non taxable portion of capital gain
Change in recognized tax losses and deductible temporary
differences
Withholdings taxes
Change in future tax rate applicable to investments
Other
Total income tax expense (recovery)
$
Significant estimate
1,916
(541)
31
(51)
(5,875)
973
–
(49)
(3,596)
3,808
(599)
1,009
(993)
(3,441)
1,170
(687)
8
275
$
Recorded income taxes and tax credits are subject to review and approval by tax authorities and therefore, could be
different from the amounts recorded.
Annual Report 2017 | Stingray Digital Group Inc. | 64
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
Recognized deferred tax assets and liabilities:
The tax effects of significant components of temporary differences that give rise to deferred tax assets and liabilities are
as follows:
2017
2016
Assets
Liabilities
Assets
Liabilities
$
Property and equipment
Intangible assets and goodwill
Financing fees
Tax losses carried forward
Investments
CRTC tangible benefits
Restricted and performance share unit
Balance payable on business
acquisitions
Others
Tax assets and liabilities
Offsetting of assets and liabilities
409 $
112
1,554
10,644
–
1,002
835
924
112
15,592
(3,367)
$
17
5,944
–
–
1,981
–
–
–
130
8,072
(3,367)
339 $
114
2,016
7,034
–
1,138
273
–
–
10,914
(3,429)
Net deferred tax assets and liabilities
$
12,225 $
4,705
$
7,485 $
22
5,177
–
–
1,930
–
–
–
45
7,174
(3,429)
3,745
Changes in deferred tax assets and liabilities for the year ended March 31, 2017 are as follow:
$
Property and equipment
Intangible assets and goodwill
Financing fees
Tax losses carried forward
Investments
CRTC tangible benefits
Restricted and performance share unit
Balance payable on business
Balance
as at
March 31,
2016
317
(5,063)
2,016
7,034
(1,930)
1,138
273
Recognized
in net
income
75
1,521
(462)
4,181
(51)
(136)
562
Recognized
in equity
–
–
–
–
–
–
–
–
Exchange
rate change
–
(41)
–
(571)
–
–
–
Business
acquisitions
–
(2,249)
–
–
–
–
–
Balance
as at
March 31,
2017
392
(5,832)
1,554
10,644
(1,981)
1,002
835
acquisitions
Others
–
(45)
–
27
$
3,740
5,717
–
–
10
–
914
–
924
(18)
(602)
(1,335)
7,520
Changes in deferred tax assets and liabilities for the year ended March 31, 2016 are as follow:
$
Property and equipment
Intangible assets and goodwill
Financing fees
Tax losses carried forward
Investments
CRTC tangible benefits
Restricted and performance share unit
Others
Balance
as at
March 31,
2015
224
(3,103)
157
4,446
(1,624)
–
55
302
Recognized
in net
income
93
1,728
(134)
1,565
(306)
1,138
218
(347)
Recognized
in equity
–
–
1,993
–
–
–
–
–
Exchange
rate change
–
(164)
–
(253)
–
–
–
–
Business
acquisitions
–
(3,524)
–
1,276
–
–
–
–
Balance
as at
March 31,
2016
317
(5,063)
2,016
7,034
(1,930)
1,138
273
(45)
$
457
3,955
1,993
(417)
(2,248)
3,740
Annual Report 2017 | Stingray Digital Group Inc. | 65
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
Unrecognized deferred tax assets:
The Corporation has operating tax losses carried forward of $102,133 that are available to reduce future taxable income.
A tax benefit was not recognized for $42,694 of these tax losses carried forward. Deferred tax assets have not been
recognized in respect of these items because it is not probable that future taxable profit will be available against which the
Corporation can utilized the benefits therefrom. As at March 31, 2017 and 2016, the amounts and expiry dates of the tax
losses carried forward and other unrecognized deductible temporary differences without time limitation were as follows:
2017
2016
Switzerland
United
Canada
Australia
Switzerland
United
Kingdom
$
Kingdom
5,157 $
4,540
5,036
4,769
3,420
2,030
336
–
–
–
–
–
–
– $
–
–
–
–
–
–
–
–
–
–
–
76,845
Tax losses carried
forward:
2017
2018
2019
2020
2021
2022
2023
2026
2027
2028
2029
2030
Indefinite
Other deductible
temporary
difference without
time limitation
– $
–
–
–
–
–
–
23
373
84
49
7
–
– $
–
–
–
–
–
–
–
–
–
–
–
684
8,040 $
4,613
5,116
4,844
3,474
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
88,072
–
–
–
–
–
5,217
$
25,288
76,845
536 $
684
26,087 $
93,289
Annual Report 2017 | Stingray Digital Group Inc. | 66
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
Unrecognized deferred tax liabilities:
The Corporation has not recognized a deferred tax liability for the undistributed earnings of its subsidiaries in the current
and prior years because the Corporation does not currently expect those undistributed earnings to reverse and become
taxable in the foreseeable future. A deferred income tax liability will be recognized when the Corporation expects that it
will recover those undistributed earnings in a taxable manner, such as the sale of the investment or through the receipt of
dividends.
8. Earnings per share:
2017
2016
Net income
$
10,717
$
13,881
Basic weighted average number of common share and subordinate
voting shares, variable subordinate voting shares and multiple
voting shares
Dilutive effect of stock options
Diluted weighted average number of common share and
subordinated voting shares, variable subordinated voting shares
and multiple voting shares
51,242,611
254,899
47,822,515
557,738
51,497,510
48,380,253
Earnings per share – Basic
Earnings per share – Diluted
9. Trade and other receivables:
Trade
Other receivables
Sales taxes receivable
$
$
$
$
0.21
0.21
2017
24,201
1,797
1,022
27,020
$
$
$
$
0.29
0.29
2016
25,602
2,314
681
28,597
10. Research and development tax credits:
As at March 31, 2017, tax credits receivable of $486 (2016 - $236) comprise research and development tax credits
receivable from the provincial and federal governments which relate to qualified research and development expenditures
under the applicable tax laws. The amounts recorded as receivables are subject to a government tax audit and the final
amounts received may differ from those recorded.
11. Inventories:
Music transmission equipment hardware
Television equipment, speakers and other
2017
550
683
1,233
$
$
2016
586
324
910
$
$
Annual Report 2017 | Stingray Digital Group Inc. | 67
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
12. Property and equipment:
Cost:
Balance at March 31, 2015
Additions
Additions through business acquisitions
Disposals and write-off
Foreign exchange differences
Balance at March 31, 2016
Additions
Additions through business acquisitions
Disposals and write-off
Foreign exchange differences
Balance at March 31, 2017
Accumulated depreciation:
Balance at March 31, 2015
Depreciation for the year
Disposal and write-off
Foreign exchange differences
Balance at March 31, 2016
Depreciation for the year
Disposals and write-off
Foreign exchange differences
Balance at March 31, 2017
Net carrying amounts:
March 31, 2016
March 31, 2017
Furniture,
fixtures and
equipment
Computer
hardware
Other
Total
$
$
$
$
5,962 $
807
44
(224)
(2)
6,587
1,868
–
(408)
43
8,090
3,097
869
(58)
–
3,908 $
992
(311)
41
4,630 $
3,664 $
1,019
246
(3)
6
4,932
973
90
–
(5)
5,990
2,508
854
(3)
4
3,363 $
1,077
–
(4)
4,436 $
857 $
320
7
–
1
1,185
194
–
–
3
1,382
548
257
–
–
805 $
252
–
3
1,060 $
10,483
2,146
297
(227)
5
12,704
3,035
90
(408)
41
15,462
6,153
1,980
(61)
4
8,076
2,321
(311)
40
10,126
2,679 $
3,460 $
1,569 $
1,554 $
380 $
322 $
4,628
5,336
Annual Report 2017 | Stingray Digital Group Inc. | 68
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
13. Intangible assets:
Music
catalog
Client list
and
relationships
Trademark
Licenses,
website
application
and
computer
software
Non-
compete
agreement
Total
$
7,735
352
$ 74,600
–
$
156
(1)
8,242
11,818
296
86,714
300
234
–
2,081
1,904
(281)
(6)
10,393
4,000
–
(15)
92,780
3,236
530
1
3,767
38,568
10,634
3
49,205
665
(281)
(1)
4,150
11,941
–
(29)
$ 61,117
4,475
6,243
$ 37,509
$ 31,663
$
$
$
$
$
$
2,882
–
1,492
3
4,377
$
4,977
883
$
3,524 $ 93,718
1,235
–
264
(1)
6,123
79
2
3,605
13,809
299
109,061
5
837
–
1,142
2,790
–
–
56
7,228
589
336
–
925
606
–
(2)
1,529
3,452
5,699
$
$
$
2,489
1,603
9,197
–
(19)
89
9,519
3,981
872
(1)
4,852
998
(19)
49
5,880
1,271
3,639
$
$
$
–
–
13
5,221
5,904
(300)
137
125,141
1,903
510
(2)
2,411
48,277
12,882
1
61,160
540
–
(5)
14,750
(300)
12
2,946 $ 75,622
1,194 $ 47,901
2,275 $ 49,519
Cost:
Balance at March 31, 2015
Additions
Additions through
business acquisitions
Foreign exchange differences
Balance at March 31, 2016
Additions
Additions through
business acquisition
Additions through
asset acquisition
Disposals and write-off
Foreign exchange differences
Balance at March 31, 2017
Accumulated depreciation:
Balance at March 31, 2015
Amortization for the year
Foreign exchange differences
Balance at March 31, 2016
Amortization for the year
Disposals and write-off
Foreign exchange differences
Balance at March 31, 2017
Net carrying amounts:
March 31, 2016
March 31, 2017
14. Goodwill:
Balance, beginning of year
Business acquisitions (note 3)
Foreign exchange differences
Balance, end of year
2017
61,805
6,736
247
68,788
$
$
2016
(recasted- see note 3)
$
$
39,129
22,297
379
61,805
For the purpose of impairment testing, goodwill of $68,788 was allocated to the single cash generating unit (CGU)
representing all music services. The Corporation performed its annual impairment test for goodwill during the last quarter
of 2017. The recoverable value of the CGU exceeded its carrying value. There is no reasonable possible change in
assumptions that would cause the carrying amount to exceed the estimated recoverable amount. As a result, no goodwill
impairment was recorded.
Annual Report 2017 | Stingray Digital Group Inc. | 69
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
Valuation technique and significant estimate
The recoverable value of the CGU was based on fair value less costs to sell. The following methodology and assumptions
were applied to determine the fair value less costs to sell.
The fair value less costs to sell was calculated using unobservable (Level 3) inputs such as the budgeted and projected
2018-2022 revenues and EBITDA margin. The EBITDA is defined as net income before net finance costs, change in fair
value of investment, income taxes, depreciation and amortization. The Corporation considered past experience, economic
trends as well as industry and market trends in assessing if the level of EBITDA can be maintained in the future. For the
purpose of this test, management uses a five-year period to project future cash flows. Beyond this period, the Corporation
uses a growth rate of 2% with an EBITDA margin of 35%. The Corporation also used a discount rate of 10%, which
represents the weighted average cost of capital (“WACC”). The WACC is an estimate of the overall rate of return required
by debt and equity holders on their investment. Determining the WACC requires analyzing the cost of equity and debt
separately, and takes into account a risk premium that is based on the CGU.
For the purpose of impairment testing of tangible and intangible assets and goodwill, management must use its judgment
to identify the smallest group of assets that generates cash inflows that are largely independent of those from other assets
(CGU).
The amounts used for impairment calculations are based on estimates of future cash flows of the Corporation, including
estimates of future revenues, EBITDA, discount rates (WACC) and market prices.
By their nature, these estimates and assumptions are subject to measurement uncertainty and, consequently, actual
results could differ from estimates used.
15. Investments:
Balance, beginning of year
Additions during the year
Change in fair value during the year,
including foreign exchange gain
Balance, end of year
$
2017
16,943
–
408
$
17,351
2016
7,933
1,665
7,345
16,943
$
$
Investments consists of an investment in convertible preferred shares of a private entity, AppDirect and an investment in
a convertible note of a private entity, Multi-Channels Asia PTE Ltd. (“MCA”).
AppDirect
The investment made by the Corporation into convertible preferred shares of AppDirect is classified as measured at fair
value through profit and loss. On September 21, 2015, the Corporation invested US$300 (CA$330) in convertible preferred
shares. The fair value of this investment is US$12,046 (CA$16,021) as at March 31, 2017 and was US$12,046
(CA$15,644) as at March 31, 2016.
MCA
The investment made by the Corporation into convertible note of MCA is classified as at fair value through profit and loss.
On November 11, 2015, the Corporation invested US$1,000 (CA$1,335) in convertible note. The convertible note matures
in five years, bears interest at 7% per annum and the principal amount is convertible, at the option of the Corporation, into
common shares of MCA, at any time, until maturity. The fair value of this investment is US$1,000 (CA$1,330) as at
March 31, 2017 and was US$1,000 (CA$1,299) as at March 31, 2016.
Annual Report 2017 | Stingray Digital Group Inc. | 70
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
Significant estimate
The fair value of investments that are not traded in an active market is determined using valuation techniques. The
Corporation uses judgment to select a variety of methods and make assumptions that are mainly based on market
conditions existing at the end of each reporting year. For details on the key assumptions used and the impact of changes
to these assumptions see note 24.
16. Accounts payable and accrued liabilities:
Trade
Accrued liabilities
Sales taxes payable
17. Loans and borrowings:
Movements in loans and borrowings are as follows:
Year ended March 31, 2016
Opening net book amount as at March 31, 2015
Increase in revolving facility (net)
Repayments of borrowings
Amortization and write-off of financing fees
Closing net book amount as at March 31, 2016
Current portion
Non-current portion
Year ended March 31, 2017
Opening net book amount as at March 31, 2016
Increase in revolving facility (net)
Closing net book amount as at March 31, 2017
Current portion
Non-current portion
Revolving credit facility
2017
8,125
20,834
824
29,783
$
$
2016
8,624
16,474
1,538
26,636
$
$
Revolving facility
Bridge loan
Term loan
$
$
$
7,902
27,133
–
–
35,035
–
35,035
$
$
$
20,000
–
(20,000)
–
–
–
–
$
$
$
80,835
–
(80,960)
125
–
–
–
Revolving facility
Bridge loan
Term loan
$
$
$
35,035
6,005
41,040
–
41,040
$
$
$
$
$
$
–
–
–
–
–
–
–
–
–
–
On November 17, 2016, the Corporation renegotiated its credit agreement in order to merge the outstanding balance of
the term loan into the amended revolving credit facility (“revolving facility”), to provide for the repayment of the bridge loan,
to increase its borrowing capacity to $100,000 and to make modifications in relation to interest, maturity, security and
covenants. The revolving facility matures in June 2020, bears interest at an annual rate equal to the banker’s acceptance
rate plus 1.50% and is secured by guarantees from subsidiaries and first ranking lien on universality of all its assets,
tangible and intangible, present and future. In addition, the Corporation incurs standby fees of 0.30% on the unused portion
of the revolving facility. The Corporation is required to comply with financial covenants.
As at March 31, 2017, the Corporation was in compliance with all the requirements of its credit agreement.
Annual Report 2017 | Stingray Digital Group Inc. | 71
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
Term loan
The term loan was repaid on June 11, 2015, was bearing interest at prime rate plus the applicable margin (between 1.00%
and 3.00%), representing an interest rate of 4.85% at March 31, 2015, and was maturing on December 18, 2016.
Bridge loan
The Corporation repaid in full the outstanding amount on June 11, 2015. The bridge loan was bearing interest at an annual
rate equal to either the prime loans or acceptances rates plus 3.00% and 4.00% up to December 13, 2015 respectively,
and 3.50% and 4.50%, respectively, thereafter, representing an interest rate of 6.85% at March 31, 2015, was maturing in
March 2016 and was secured by guarantees from subsidiaries and first ranking lien on universality of tangible and
intangible assets. Under the credit agreement, the Corporation was to comply with quarterly financial covenants.
18. Other payables:
Other payables consist of the following:
Contingent consideration
Balance payable on business acquisitions
CRTC tangible benefits
Post employment benefit obligations
Current portion
2017
12,956
5,845
3,724
13
22,538
(9,498)
13,040
$
$
2016
12,196
300
4,230
124
16,850
(8,006)
8,844
$
$
Canadian Radio-television and Telecommunications Commission (CRTC) tangible benefits
The CRTC approved the change in ownership and effective control of the Corporation on April 22, 2015. Pursuant to the
decision, the CRTC requires the Corporation to pay tangible benefits corresponding to an amount of $5,508 over a seven-
year period in equal annual payments. The Corporation recognized an expense of $4,382 in 2016, which reflects the fair
value of the payment stream using a discount rate of 7.0%, which is the Corporation effective interest rate plus a risk
premium. On August 18, 2015, the Canadian Radio-television and Telecommunications Commission (CRTC) issued a
decision renewing until August 31, 2020 the Corporation’s broadcast license.
Significant estimate – contingent consideration
In the event that certain predetermined sales volumes, specific contract renewals and other conditions are achieved by
the acquired companies, additional consideration may be payable in the future.
The fair value of the contingent consideration of $12,956 was estimated by calculating the present value of the future
expected outflows. For details of the key assumptions used and the impact of changes to these assumptions, see note 24.
The estimates are based on a discount rate ranging from 5% to 15%. During the year ended March 31, 2017, the contingent
consideration of Brava Group, Archibald Media Group, Les Réseaux Urbains Viva Inc., and iConcerts have been reviewed,
as the actual sales revenue expected to be achieved by the acquired companies are either above or below the maximum
threshold. An aggregate gain of $223 (net of accretion expense of $1,045) was included in net finance expense. During
the year ended March 31, 2017, the contingent consideration of Archibald Media Group was paid and payments were also
made for the contingent consideration of Telefonica – On the Spot and Brava Group (see note 24).
Annual Report 2017 | Stingray Digital Group Inc. | 72
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
19. Share capital:
Authorized:
Prior to the closing of the initial public offering (the “Offering”), the Corporation’s authorized share capital was comprised
of an unlimited number of Class A, B, and C common shares, voting and participating, without par value and an unlimited
number of Class A, B and C preferred shares, voting and non-participating, without par value.
The Corporation’s authorized share capital was amended immediately prior to the closing of the Offering and all the classes
of shares included in the authorized share capital of the Corporation prior to the amendment were repealed and replaced
by:
Unlimited number of subordinate voting shares, participating, without par value
Unlimited number of variable subordinate voting shares, participating, without par value
Unlimited number of multiple voting shares (10 votes per share), participating, without par value
Unlimited number of special shares, participating, without par value
Unlimited number of preferred shares issuable in one or more series, non-participating, without par value
Issued and outstanding:
The movements in share capital were as follows:
Year ended March 31, 2016
As at March 31, 2015
Class A common shares
Class B common shares
Class C common shares
Issued upon exercise of stock options
Class A common shares
Converted
Class A common shares
Class B common shares
Class C common shares
Subordinate voting shares and variable subordinate voting shares
Multiple voting shares
Issued upon initial public offering and exercise of over-allotment option
Subordinate voting shares and variable subordinate voting shares
Share issuance costs, net of income taxes of $1,993
Issued upon exercise of stock options
Subordinate voting shares
As at March 31, 2016
Subordinate voting shares and variable subordinate voting shares
Multiple voting shares
Number of
shares
Carrying amount
17,751,369
6,229,719
10,000,000
33,981,088
80,000
(17,831,369)
(6,229,719)
(10,000,000)
17,766,803
16,294,285
–
16,647,100
–
$
2,228
12
–
2,240
192
(2,420)
(12)
–
1,316
1,116
–
104,044
(5,542)
399,787
1,106
34,813,690
16,294,285
51,107,975
100,924
1,116
102,040
$
Annual Report 2017 | Stingray Digital Group Inc. | 73
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
Year ended March 31, 2017
As at March 31, 2016
Subordinate voting shares and variable subordinate voting shares
Multiple voting shares
Issued upon exercise of stock options
Subordinate voting shares
As at March 31, 2017
Subordinate voting shares and variable subordinate voting shares
Multiple voting shares
Number of shares
Carrying amount
34,813,690
16,294,285
51,107,975
218,391
35,032,081
16,294,285
51,326,366
$
$
100,924
1,116
102,040
660
101,584
1,116
102,700
To comply with the Broadcasting Act and the regulations and directions promulgated thereunder from time to time, which
permit non-Canadians (as defined in the Direction to the CRTC (Ineligibility of Non-Canadians) (SOR/97-192)) to own and
control, directly or indirectly, up to 20% of the voting shares and 20% of the votes of an operating licensee that is a
corporation, such as the Corporation, the Corporation has imposed restrictions respecting the issuance, transfer and, if
applicable, voting of the Corporation’s shares. Restrictions include limitations over foreign ownership of the issued and
outstanding voting shares.
Transactions for the year ended March 31, 2017
During the year, 218,391 stock options were exercised and consequently, the Corporation issued 218,391 subordinate
voting shares. The proceeds amounted to $262. An amount of $398 of contributed surplus related to those stock options
was transferred to the subordinate voting shares’ account balance.
On February 2, 2017, the Corporation declared a dividend of $0.045 per subordinate voting share, variable subordinate
voting share and multiple voting share. The dividend of $2,309 was paid on March 15, 2017.
On November 10, 2016, the Corporation declared a dividend of $0.040 per subordinate voting share, variable subordinate
voting share and multiple voting share. The dividend of $2,053 was paid on December 15, 2016.
On August 3, 2016, the Corporation declared a dividend of $0.040 per subordinate voting share, variable subordinate
voting share and multiple voting share. The dividend of $2,052 was paid on September 15, 2016.
Transactions for the year ended March 31, 2016
During the year, 479,787 stock options were exercised and consequently, the Corporation issued 80,000 class A common
shares and 399,787 subordinate voting shares. The proceeds amounted to $384. An amount of $914 of contributed surplus
related to those stock options was transferred to the Class A common shares or subordinate voting shares’ account
balance.
On March 23, 2016, the Corporation declared a dividend of $0.035 per subordinate voting share, variable subordinate
voting share and multiple voting share. The dividend of $1,789 was paid on June 15, 2016.
On February 3, 2016, the Corporation declared a dividend of $0.035 per subordinate voting share, variable subordinate
voting share and multiple voting share. The dividend of $1,781 was paid on March 15, 2016.
On November 11, 2015, the Corporation declared a dividend of $0.03 per subordinate voting share, variable subordinate
voting share and multiple voting share. The dividend of $1,526 was paid on December 15, 2015.
On August 11, 2015, the Corporation declared a dividend of $0.03 per subordinate voting share, variable subordinate
voting share and multiple voting share. The dividend of $1,523 was paid on September 15, 2015.
Annual Report 2017 | Stingray Digital Group Inc. | 74
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
On June 3, 2015, the Corporation completed the Offering of its subordinate voting shares and variable subordinate voting
shares with the securities regulatory authorities in each of the provinces and territories of Canada. The Corporation issued
13,287,100 subordinate voting shares and variable subordinate voting shares and received gross proceeds of $83,044
from the issuance. On June 9, 2015, the Corporation issued 3,360,000 subordinate voting shares and variable subordinate
voting shares following the exercise of the over-allotment option granted to the underwriters in connection with the Offering.
The Corporation received gross proceeds of $21,000 from the issuance.
Transaction costs for transactions above amounted to $9,198, of which $1,663 has been recognized as an expense in the
consolidated statements of comprehensive income and $7,535 less tax benefits of $1,993, amounting to $5,542, as a
reduction of share capital.
20. Supplemental cash flow information:
Trade and other receivables
Research and development tax credit
Inventories
Other current assets
Other non-current assets
Accounts payable and accrued liabilities
Deferred revenues
Income taxes payable
Other payables (CRTC tangible benefits)
Other
2017
1,401
(250)
(315)
(874)
(79)
(1,092)
166
(482)
(793)
(53)
(2,371)
$
$
2016
(7,684)
(214)
(34)
169
124
1,493
203
695
3,672
–
(1,576)
$
$
Additions to property and equipment and intangible assets and not affecting cash and cash equivalents amounted to $513
(2016 – $341) and $9 (2016 – $249), respectively, during the year ended March 31, 2017.
21. Share-based compensation:
Stock options plan
As part of the Offering, the Corporation has established a new stock option plan to attract and retain employees, directors,
officers and consultants. The plan provides for the granting of options to purchase subordinate voting shares. Under this
plan, 2,500,000 subordinate voting shares have been reserved for issuance. The terms and conditions for acquiring and
exercising options are set by the Board of Directors, as well as the term of the options; however, it cannot be more than
ten years or any other shorter period as specified by the Board of Directors, according to the regulations of the plan. The
total number of shares issued to a single person cannot exceed 5% of the Corporation’s total issued and outstanding
common shares on a fully diluted basis.
Under the former and new stock option plan, 1,397,185 stock options were outstanding as at March 31, 2017. Outstanding
options are subject to employee service vesting criteria which range from nil to four years of service.
Annual Report 2017 | Stingray Digital Group Inc. | 75
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
The following summarizes the changes in the plan’s position for the years ended March 31, 2017 and 2016:
2017
Number of
options
Weighted
average
exercise price
2016
Number of
options
Weighted
average
exercise price
Options outstanding, beginning of year
Granted
Exercised (note 19)
Forfeited
Options outstanding, end of year
1,288,757 $
369,187
(218,391)
(42,368)
1,397,185
3.50
7.37
1.21
2.26
3.97
1,269,699 $
512,880
(479,787)
(14,035)
1,288,757
Exercisable options, end of year
573,022 $
4.97
482,427 $
1.29
6.43
0.80
2.26
3.50
1.21
The following is a summary of the information on the outstanding stock options as at March 31, 2017 and 2016:
Exercise price(i)
March 31, 2017
$ 0.46
1.46
2.26
6.25
7.00
7.27
8.20
9.00
$ 4.93
March 31, 2016
$ 0.46
1.46
2.26
6.25
7.00
$ 3.50
Outstanding
options
Weighted average
outstanding
contractual life
outstanding (years)
Number of options
outstanding
155,000
25,000
335,118
387,880
125,000
344,215
8,416
16,556
1,397,185
260,000
75,000
440,877
387,880
125,000
1,288,757
5.18
6.63
7.41
8.12
2.69
9.21
9.61
9.90
7.41
6.11
7.63
8.91
9.12
9.36
8.38
Exercisable
options
Number
155,000
25,000
254,385
107,387
31,250
–
–
–
573,022
260,000
50,000
172,427
–
–
482,427
The weighted average fair value of the stock options granted during the year ended March 31, 2017 was $2.42 per stock
option (2016 – $3.43). This fair value was estimated at the date on which the options were granted by using the Black-
Scholes option pricing model with the following assumptions:
Weighted average volatility
Weighted average risk-free interest rate
Weighted average expected life of options
Weighted average value of the subordinate voting share at grant date
Weighted average expected dividend rate
2017
2016
35%
1.12% – 1.76%
5 years
$7.27 – $9.00
1.78% – 1.95%
65.0% – 70.0%
0.73% – 1.01%
5 – 6.25 years
$6.43
nil - 2.0%
The weighted average volatility used is calculated based on comparable publicly-traded companies.
Annual Report 2017 | Stingray Digital Group Inc. | 76
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
Total share based compensation costs recognized under this stock option plan amount to $1,332 for the year ended
March 31, 2017 (2016 – $1,351).
The weighted average share price at the date of exercise for share options exercised during the year ended
March 31, 2017 was $7.30 (2016 – $6.93).
Restricted share unit plan
The Corporation established on April 1, 2014 a restricted share unit plan (“RSU”) that can be granted to directors, officers,
executives and employees as part of their long-term compensation package, which is expected to be settled in cash. The
value of the payout is determined by multiplying the number of RSU vested at the payout date by the fair value of the
Corporation’s shares on the day prior to the payout date. The fair value of the payout is determined at each reporting date
based on the fair value of the Company’s shares at the reporting date. The fair value is amortized over the vesting period,
being three years.
During the year ended March 31, 2017, 3,115 RSU (2016 – 71,531 RSU) were granted at a range of $7.27 to $8.59
(2016 – $6.25) per unit to executives and employees and no RSU were vested. The total share-based compensation
expense related to RSU plans amounted to $751 in 2017 (2016 – $592). As at March 31, 2017, the fair value per unit was
$8.43 (2016 – $7.05) for a total amount of $1,468 (2016 – $771) and was presented in accrued liabilities on the
consolidated statements of financial position.
The following summarizes the changes in the plan’s position for the years ended March 31, 2017 and 2016:
Balance, beginning of year
Granted
Revision of estimates
Liabilities settled
Forfeited
Balance, end of year
Balance, vested
Performance share unit plan
2017
Number of
units
Amount
2016
Number of
units
Amount
219,772 $
3,115
–
(11,624)
(13,816)
197,448 $
–
771
–
859
(54)
(108)
1,468
–
167,387 $
71,531
–
(7,974)
(11,172)
219,772 $
–
205
–
597
(26)
(5)
771
–
The Corporation established on August 3, 2016, a performance unit plan (PSU) that can be granted to directors, officers,
executives and employees as part of their long-term compensation package, which is expected to be settled in cash. The
value of the payout is determined by multiplying the number of PSU vested at the payout date by the fair value of the
Corporation’s shares on the day prior to the payout date. The fair value of the payout is determined at each reporting date
based on the fair value of the Company’s shares at the reporting date. The fair value is amortized over the vesting period,
being three years.
During the year ended March 31, 2017, 135,787 PSU (2016 – nil) were granted at $6.98 (2016 – nil) per unit to executives
and employees and no PSU were vested. The total share-based compensation expense related to PSU plans amounted
to $361 in 2017 (2016 – nil). As at March 31 2017, the fair value per unit was $8.43 (2016 – nil) for a total amount of $361
(2016 – nil) and was presented in accrued liabilities on the consolidated statements of financial position.
Annual Report 2017 | Stingray Digital Group Inc. | 77
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
The following summarizes the changes in the plan’s position for the years ended March 31, 2017 and 2016:
Balance, beginning of year
Granted
Revision of estimates
Forfeited
Balance, end of year
Balance, vested
Deferred share unit plan
2017
Number of
units
Amount
2016
Number of
units
Amount
– $
135,787
–
(4,006)
131,781 $
–
–
–
368
(7)
361
–
– $
–
–
–
– $
–
–
–
–
–
–
–
The Corporation established on June 3, 2015 a deferred share unit plan (“DSU”) that can be granted to directors, officers
and employees as part of their compensation package, which is expected to be settled in cash. The value of the payout is
determined by multiplying the number of DSU vested at the payout date by the fair value of the Corporation’s shares on
the day prior to the payout date. The fair value of the payout is determined at each reporting date based on the fair value
of the Corporation’s shares at the reporting date.
During the year ended March 31, 2017, 85,350 DSU (2016 – 52,722) were granted at a range of $8.39 to $8.95 to directors
(2016 – $6.90 to $7.04). The total expense related to DSU plans amounted to $896 in 2017 (2016 – $371). As at
March 31, 2017, the fair value per unit was $8.43 (2016 – $7.05) for a total amount of $1,267 (2016 – $371) presented in
accrued liabilities on the statements of financial position.
The following summarizes the changes in the plan’s position for the years ended March 31, 2017 and 2016:
Balance, beginning of year
Granted
Revision of estimates
Balance, end of year
Balance, vested
2017
Number of
units
Amount
2016
Number of
units
Amount
52,722 $
85,350
–
138,072 $
–
371
–
896
1,267
–
– $
52,722
–
52,722 $
–
–
–
371
371
–
Annual Report 2017 | Stingray Digital Group Inc. | 78
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
22. Commitments:
Operating leases
As at March 31, 2017, the balance of the commitments under the terms of the operating leases for premises amounts to
$15,271. Minimum lease payments over the next five years and thereafter are as follows:
2018
2019
2020
2021
2022 and thereafter
$
5,152
3,207
2,026
2,022
2,864
During the year ended March 31, 2017, an amount of $4,734 (2016 – $5,141) was recognized as an expense in respect
of operating leases which is included in music programming, cost of services and content and general and administrative
expenses.
Broadcast license
A condition of the broadcast license from the CRTC requires Canadian pay audio services to draw certain proportions of
their programming from Canadian content and, in most cases, to spend a portion of their revenues on Canadian content
development. The Corporation must ensure that (i) a maximum of one non-Canadian pay audio channel is packaged or
linked with each Canadian produced pay audio channel and in no case subscribers of the pay audio service may be offered
a package of pay audio channels in which foreign-produced channels dominate; (ii) 25% of all Canadian channels, other
than those consisting entirely of instrumental music or of music entirely in languages other than English or French, devote
a minimum of 65% of vocal music selections in the French language each broadcast week; and (iii) a minimum of 35% of
the musical selections broadcast each broadcast week on our Canadian-produced pay audio channels, considered
together, are Canadian.
Pursuant to the conditions of our National Pay Audio Service Licence, the Corporation is required to contribute each year
a minimum of 4% of our annual Canadian regulated broadcast revenues to encourage Canadian content development in
the following manner: (i) 1% of gross revenues to be devoted to the Foundation Assisting Canadian Talent On Recordings
(FACTOR), a non-profit organization dedicated to providing assistance toward the growth and development of the
Canadian music industry; (ii) 1% of gross revenues to be devoted to Musicaction, a non-profit organization dedicated to
the development of local francophone music by offering financial support to projects by independent record labels and
Canadian artists; (iii) 1.8% of gross revenues to be devoted to our Stingray Rising Star Program, a program which was
created to discover, encourage, promote and champion new Canadian artists; and (iv) 0.2% of to be devoted to Community
Radio Fund of Canada (CRFC), a fund that the mission is to build and improve campus and community radio for all
Canadians through funding and collaborations.
During the year ended March 31, 2017, an amount of $388 (2016 – $382) was recognized as an expense in the music
programming, cost of services and content.
Copyright royalties
The Corporation must pay royalties for the use of music for the majority of its music services. Through copyright collective
societies, the Corporation pays royalties to two sets of rights holders: rights holders in music works, which are the music
and the lyrics; and, rights holders in artists’ performances and sounds recordings, which are the actual performances and
recordings of the musical works.
Annual Report 2017 | Stingray Digital Group Inc. | 79
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
23. Use of estimates and judgments:
The preparation of these consolidated financial statements in conformity with International Financial Reporting Standards
(“IFRS”) requires management to make judgments, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these
estimates.
This note provides an overview of the areas that involved a higher degree of judgment or complexity, and of items which
are more likely to be materially adjusted due to estimates and assumptions turning out to be wrong. Detailed information
about each of these estimates and judgments is included in notes 4 to 18 together with information about the basis of
calculation for each affected line item in the consolidated financial statements.
Significant estimates
The areas involving significant estimates are:
Estimation of current income tax payable and current income tax expense – note 7
Recognition of deferred tax assets and liabilities for carried forward tax losses – note 7
Estimated fair value of certain investments – note 15
Estimated goodwill impairment – note 14
Estimation of fair values of identified assets, liabilities and contingent consideration in business acquisitions –
note 3 and 18
Estimates are based on management’s best knowledge of current events and actions that the Corporation may undertake
in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Any revision to accounting
estimates are recognized in the year in which the estimates are revised and in any future years affected by these revisions.
Critical judgments
Critical judgements in applying accounting policies that have the most significant effect on the amounts recognized in the
consolidated financial statements include the following:
Impairment of non-current assets
For the purpose of impairment testing of tangible and intangible assets and goodwill, management must use its
judgment to identify the smallest group of assets that generates cash inflows that are largely independent of those
from other assets (“cash generating unit” or ”CGU”).
The amounts used for impairment calculations are based on estimates of future cash flows of the Corporation,
including estimates of future revenues, operating costs, discount rates and market prices. By their nature, these
estimates and assumptions are subject to measurement uncertainty and, consequently, actual results could differ
from estimates used.
Identifying a business acquisition
Management must use its judgment in determining whether a transaction is a business combination or a purchase
of assets in accordance with the criteria established in IFRS 3 Business combinations. The acquisition of an asset
or a group of assets that constitute a business is accounted for as a business combination and may give rise to
goodwill, whereas an asset purchase does not, thereby impacting subsequent amortization expense and/or
impairment testing results.
Annual Report 2017 | Stingray Digital Group Inc. | 80
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
24. Financial instruments:
Fair values:
The Corporation has determined that the carrying amount of cash and cash equivalents, trade and other receivables,
accounts payable and accrued liabilities and current other payables excluding the contingent consideration is a reasonable
approximation of their fair value due to the short-term maturity of those instruments. As such information on their fair values
is not presented below. The fair value of the revolving facility bearing interest at variable rates approximate its carrying
value, as it bear interest at prime or banker’s acceptance rate plus a credit spread which approximate current rates that
could be obtained for debts with similar terms and credit risk.
The carrying and fair value of financial assets and liabilities, including their level in the fair value hierarchy, consist of the
following:
As at March 31, 2017
Carrying value
Fair value
Level 1
Level 2
Level 3
Financial assets measured at amortized cost
Cash and cash equivalents
Trade and other receivables
$
5,862
25,998
Financial assets measured at fair value
Investments
$
17,351
$
17,351 $
– $
– $ 17,351
Financial liabilities measured at amortized
cost
Revolving facility
Accounts payable and accrued liabilities
CRTC tangible benefits and post-employment
$
benefit obligations
Balance payable on business acquisitions
41,040
28,959
3,737
5,845
3,737
5,845
–
–
–
–
3,737
5,845
Financial liabilities measured at fair value
Contingent consideration
$
12,956
$
12,956 $
– $
– $ 12,956
As at March 31, 2016
Carrying value
Fair value
Level 1
Level 2
Level 3
Financial assets measured at amortized cost
Cash and cash equivalents
Trade and other receivables
$
3,201
27,916
Financial assets measured at fair value
Investments
$
16,943
$
16,943 $
– $
– $ 16,943
Financial liabilities measured at amortized
cost
Revolving facility
Account payable and accrued liabilities
CRTC tangible benefits and post-employment
$
benefit obligations
Balance payable on business acquisitions
35,035
25,098
4,354
300
4,354
300
–
–
–
–
4,354
300
Financial liabilities measured at fair value
Contingent consideration
$
12,196
$
12,196 $
– $
– $ 12,196
Annual Report 2017 | Stingray Digital Group Inc. | 81
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
Fair value measurement (Level 3):
Investments
Derivative
instrument
Contingent
consideration
7,933 $
–
1,665
7,345
–
16,943 $
110 $
–
–
(107)
(3)
– $
12,409
6,552
–
(1,914)
(4,851)
12,196
Investments
Derivative
instrument
Contingent
consideration
16,943 $
–
–
408
–
17,351 $
– $
–
–
–
–
– $
12,196
1,789
651
669
(2,349)
12,956
$
$
$
$
Year ended March 31, 2016
Opening amount as at March 31, 2015
Additions through business acquisitions
Additions during the year
Change in fair value
Payments
Closing amount as at March 31, 2016
Year ended March 31, 2017
Opening amount as at March 31, 2016
Additions through business acquisitions
Additions during the year
Change in fair value
Payments
Closing amount as at March 31, 2017
Investments
Equity instrument in a private entity
The fair value of the equity instrument in a private entity, AppDirect, was estimated using the market approach.
For the years ended March 31, 2017 and 2016, the fair value has been measured by using the valuation from the most
recent financing round, minus a liquidity discount of 25%. The liquidity discount was used to reflect the marketability of the
asset. In measuring fair value, management used the best information available in the circumstances and also an approach
that it believes market participants would use.
For the years ended March 31, 2017 and 2016, the equity instrument in a private entity is classified as a financial asset at
fair value through profit and loss. A change of 5.0% in the liquidity discount would have increased / decreased the fair
value of the investment by approximately $1,068 and $1,043 during the years ended March 31, 2017 and 2016,
respectively.
Convertible note
The convertible note has two components of value – a conventional note and an option on the equity of Multi Channels
Asia PTE Ltd. (“MCA”) through conversion. Based on its terms, the conversion option and the convertible note, together
the hybrid contract, have been assessed as a whole for classification. The hybrid contract has been recognized at fair
value on initial recognition and was classified as at fair value through profit or loss. For the year ended March 31, 2017,
the convertible note was evaluated at its recoverable amount as the Corporation requested the repayment of the debenture
in its entirely and is expecting a repayment of the total amount of US$1,000. For the year ended March 31, 2016, the fair
value of the option component has been measured using the Black-Scholes model based on the price share resulting from
the most recent financing round.
Annual Report 2017 | Stingray Digital Group Inc. | 82
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
The fair value of the option component was estimated by using the Black-Scholes model with the following assumptions:
Volatility
Risk-free interest rate
Period
Dividend yield
2016
40.0%
1.69%
5 years
–
The note fair value was calculated as the present value of the future cash flows based on risk-adjusted discount rate.
A change of 5.0% in the common share price would have increased / decreased the fair value of the investment by
approximately $10 during the year ended March 31, 2016.
Contingent consideration
The contingent consideration related to business combinations is payable based on the achievement of targets for growth
in revenues for a period from the date of the acquisition and upon renewal of client contracts. The fair value measurement
of the contingent consideration is determined using unobservable (Level 3) inputs. These inputs include (i) the estimated
amount and timing of projected cash flows; and (ii) the risk-adjusted discount rate used to present value the cash flows
which is based on the risk associated with the revenue targets being met. If projected cash flows were 10 % higher, the
fair value would have increase by $1,950 and if projected cash flows were 10 % lower, the fair value would have decrease
by $2,028. Discount rates ranging from 5% to 15% have been applied and consider the time value of money. A change in
the discount rate by 100 basis points would have increased / decreased the fair value by $21. The contingent consideration
is classified as a financial liability and is included in other payables (note 18). The change in fair value is recognized in net
finance expenses (note 6).
Credit risk:
Credit risk is the risk of an unexpected financial loss to the Corporation if a customer or counterparty to a financial
instrument fails to meet contractual obligations, and it arises primarily from the Corporation's trade and other receivables.
The Corporation’s credit risk is principally attributable to its trade receivables. The amounts presented in the consolidated
statements of financial position are net of an allowance for doubtful accounts, estimated by the Corporation’s management
and based, in part, on the age of the specific receivable balance and the current and expected collection trends. The
Corporation's exposure to credit risk is mainly influenced by the characteristics of each customer. The demographics of
the Corporation's customer base, including the default risk of the industry and country in which the customer operates,
have less of an influence on the credit risk. Generally, the Corporation does not require collateral or other security from
customers for trade accounts receivable; however, credit is extended following an evaluation of creditworthiness. In
addition, the Corporation performs ongoing credit reviews of its customers and establishes an allowance for doubtful
accounts when the likelihood of collecting the account has significantly diminished. The Corporation believes that the credit
risk of trade accounts receivable is limited.
Annual Report 2017 | Stingray Digital Group Inc. | 83
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
The aging of trade receivable balances and the allowance for doubtful accounts as at March 31, 2017 and March 31, 2016
were as follows:
Current
Past due 0-30 days
Past due 31-60 days
Past due 61-90 days
Past due more than 90 days
Total trade receivables
Less : allowance for doubtful account
2017
8,929
5,825
2,374
2,207
5,340
24,675
474
24,201
$
$
The movement in allowance for doubtful accounts in respect of trade receivables was as follows:
Balance, beginning of year
Bad debt expense
Write-off against reserve
Balance, end of year
2017
349
267
(142)
474
$
$
2016
11,089
5,537
1,253
1,261
6,811
25,951
349
25,602
2016
452
228
(331)
349
$
$
$
$
The Corporation also has credit risk relating to cash and cash equivalents, other receivables, investment in a convertible
note and derivative financial instruments. The Corporation manages its risk by transacting only with sound financial
institutions.
The carrying amounts of financial assets in the consolidated statements of financial position represent the Corporation's
maximum credit exposure.
Liquidity risk:
Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they become due. The
Corporation also manages liquidity risk by continuously monitoring actual and budgeted cash flows under both normal and
stressed conditions. Also, the Board of Directors reviews and approves the Corporation’s operating and capital budgets,
as well as any material transactions out of the ordinary course of business, including proposals on mergers, acquisitions
or other major investments or divestitures.
Annual Report 2017 | Stingray Digital Group Inc. | 84
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
The following are the contractual maturities of financial liabilities including estimated interest payments as at
March 31, 2017:
Revolving facility
Accounts payables and
accrued liabilities
Other payables
Market risk:
Total carrying
amount
Contractual
cash flows
Less than 1
year
1 to 5 years
More than 5
years
$
41,040
$
41,040
$
–
$
41,040
$
–
$
29,783
22,538
29,783
28,611
$
29,783
9,765
$
–
14,140
–
4,706
Market risk is the risk that the changes in market prices, such as foreign exchange rates, interest rates and equity prices,
will affect the Corporation's earnings or the value of its holdings of financial instruments. The objective of market risk
management is to manage and control market risk exposure within acceptable parameters, while optimizing the return on
risk.
Currency risk:
The Corporation is exposed to currency risk on sales and expenses that are denominated in currencies other than the
functional currency of the Corporation’s subsidiaries, primarily the US dollar (“USD”), the Australian dollar (“AUD”) and the
euro (“EURO”). Also, additional earnings variability arises from the translation of monetary assets and liabilities
denominated in currencies other than the functional currency of the Corporation’s subsidiaries at the rate of exchange at
each balance sheet date, the impact of which is reported as a foreign exchange gain or loss in the consolidated statements
of comprehensive income.
The Corporation's objective in managing its foreign currency risk is to minimize its net exposure to foreign currency cash
flows, by transacting with third parties in the above currencies to the maximum extent possible and practical, given that
this will act as natural economic hedges for each of these currencies.
The Corporation's exposure to currency risk on its consolidated financial statements was as follows:
USD
March 31, 2017
AUD
EURO
USD
March 31, 2016
AUD
EURO
Cash and cash equivalents
Accounts receivable
Income tax receivable (payable)
Investments
Investments in joint venture
Credit facility
Accounts payable and accrued liabilities
Contingent consideration
Net balance exposure
Equivalent in Canadian dollars
922
6,016
(66)
13,046
–
–
(3,870)
(657)
15,391
20,740
444
570
(96)
–
–
–
(372)
(4,002)
(3,456)
(3,515)
502
3,990
(64)
–
–
(1,700)
(777)
(2,843)
(782)
(1,114)
313
8,368
201
13,046
–
(4,450)
(3,929)
(438)
13,111
17,027
–
–
–
–
–
–
(34)
(4,002)
(4,036)
(4,019)
1,006
1,960
(50)
–
85
–
(1,349)
(2,765)
(1,113)
(1,644)
Annual Report 2017 | Stingray Digital Group Inc. | 85
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
The following exchange rates are those applicable to the following periods and dates:
USD per CAD
AUD per CAD
EURO per CAD
2017
2016
Average
Reporting
Average
Reporting
1.3371
1.0197
1.4286
1.3300
1.0170
1.4251
1.3210
0.9922
1.4721
1.2987
0.9957
1.4775
Based on the Corporation’s foreign currency exposures noted above, varying the above foreign exchange rates to reflect
a 5% strengthening of the US dollar, AUD dollar and EURO would have increased the net income and reduced the deficit
as follows, assuming that all other variables remained constant:
USD
March 31, 2017
AUD
EURO
USD
AUD
EURO
March 31, 2016
Increase in net income
754
(128)
(40)
622
(147)
(60)
An assumed 5% weakening of the foreign currency would have had an equal but opposite effect on the basis that all other
variables remained constant.
Interest rate risk:
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in
market interest rates. The Corporation's interest rate risk is primarily related to the Corporation's operating revolving facility
bearing interest at variable rate.
The Corporation holds the majority of its cash and cash equivalents balance in accounts bearing interest at rates less than
1.25%. The Corporation is, therefore, not materially exposed to future cash flow fluctuations coming from changes in
market interest rates for its cash and cash equivalents. Cash equivalents consist of term deposits with original maturities
of less than three months and are, therefore, also exposed to interest rate risk on fair value. However, fair value risk is not
significant, considering the relatively short term to maturity of these instruments.
The revolving facility is a variable interest rate instrument that is due in more than one year. This instrument is exposed to
changes in future interest rates that could result in future cash flow fluctuations.
As at the reporting date, the interest rate profile of the Corporation's interest-bearing financial liabilities consists of the
revolving facility, which had a carrying amount of $41,040 and bears interest at a variable rate.
A change of 100 basis points in the interest rate on variable rate instruments would have increased / decreased the deficit
and decreased the net income by approximately $117 (2016 – $149) during the year. This analysis assumes that all other
variables, in particular foreign currency rates, remained constant.
Annual Report 2017 | Stingray Digital Group Inc. | 86
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
25. Capital management:
The Corporation’s objectives when managing capital are as follows:
Pursue its growth strategy through acquisitions and organic growth by maintaining financial flexibility; and
Provide the Corporation’s shareholders with an appropriate return on their investment.
For capital management, the Corporation has defined its capital as the combination of net debt and total equity.
Total managed capital is as follows:
Contingent consideration, including current portion
Balance on business acquisition payable
Revolving facility
Cash and cash equivalents
Net debt including contingent consideration
Total equity
2017
12,956
5,845
41,040
(5,862)
53,979
94,948
2016
12,196
300
35,035
(3,201)
44,330
90,394
$
148,927
$
134,724
The Corporation’s financing strategy is to maintain a flexible structure, to respond adequately to the changes in economic
conditions and to allow growth through business acquisitions. The Corporation monitors its capital structure using the net
debt to adjusted EBITDA ratio.
In order to maintain or adjust the capital structure, the Corporation may adjust the amount of dividends paid to shareholders
of the Corporation, issue or repay debt, issue shares or undertake any other activities as deemed appropriate under the
specific circumstances, on a quarterly basis.
26. Related parties:
The key management personnel of the Corporation are the Chief Executive Officer, Chief Financial Officer and other key
employees of the Corporation.
Key management personnel compensation and director’s fees are as follows:
Short-term employee benefits
Share-based compensation
Restricted and performance share unit
Deferred share unit
2017
3,361
810
407
896
5,474
$
$
2016
2,927
976
178
371
4,452
$
$
Annual Report 2017 | Stingray Digital Group Inc. | 87
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
27. Basis of preparation:
a) Statement of compliance:
The consolidated financial statements of the Corporation have been prepared in accordance with IFRS as issued by
the International Accounting Standards Board (''IASB'').
The consolidated financial statements were authorized for issue by the Board of Directors on June 7, 2017.
b) Basis of measurement:
The consolidated financial statements have been prepared on the historical cost basis, except for the following:
Contingent consideration payable which are measured at fair value at each reporting period in accordance with
IFRS 3;
Investments measured at fair value at year-end in accordance with IFRS 9;
Derivatives measured at fair value at year-end in accordance with IFRS 9;
Liabilities related to deferred share unit plan and restricted share unit measured at fair value at year-end in
accordance with IFRS 2; and
Equity stock options which are measured at fair value at date of grant pursuant to IFRS 2.
c) Foreign currency translation
(i) Functional and presentation currency:
Items included in the financial statements of each of the subsidiaries are measured using the currency of the
primary economic environment in which the subsidiary operates (‘the functional currency’). The consolidated
financial statements are presented in Canadian dollars, which is the Corporation’s functional and presentation
currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand.
(ii) Transactions and balances:
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of
the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from
the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are
recognized in profit or loss. Translation differences on assets and liabilities carried at fair value are reported as
part of the fair value gain or loss. Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rate at the date of the transaction. Foreign currency gains and losses
are reported on a net basis.
Annual Report 2017 | Stingray Digital Group Inc. | 88
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
(iii) Subsidiaries:
The results and financial position of foreign operations (none of which has the currency of a hyperinflationary
economy) that have a functional currency different from the presentation currency are translated into the
presentation currency as follows:
assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that
balance sheet;
income and expenses for each statement of profit or loss and statement of comprehensive income are
translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect
of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates
of the transactions); and
all resulting exchange differences are recognized in other comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and
liabilities of the foreign operation and are translated at the closing rate.
28. Significant accounting policies:
The accounting policies set out below have been applied consistently to all years presented in these consolidated financial
statements and have been applied consistently by the Corporation’s subsidiaries.
(a) Basis of consolidation:
Business combinations:
The Corporation measures goodwill as the excess of the fair value of the consideration transferred which includes the
fair value of contingent consideration, over the net recognized amount (generally fair value) of the identifiable assets
acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain
purchase gain is recognized immediately in profit or loss.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Corporation incurs
in connection with a business combination are expensed as incurred.
Subsidiaries:
Subsidiaries are entities controlled by the Corporation. The Corporation controls an entity when it is exposed to, or
has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its
power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements
from the date that control commences until the date that control ceases.
These consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiaries,
Stingray Music USA Inc., Stingray Music Rights Management LLC, 2144286 Ontario Inc., Pay Audio Services Limited
Partnership, Stingray Business Inc., Music Choice Europe Limited, Stingray Digital International Ltd., Music Choice
India Private Ltd., Music Choice Europe Deutschland GmbH, Xtra Music Ltd., Stingray Europe B.V., Alexander Medien
Gruppe B.V., Les Réseaux Urbains Viva Inc, Brava HDTV B.V., Brava NL B.V., DJazz B.V., Transmedia
Communications SA and its wholly-owned subsidiaries, Digital Music Distribution Pty Ltd., 9076-3392 Québec Inc.
(doing business as Nümédia), Festival 4K B.V., Classica GMBH and its wholly-owned subsidiary Classica Asia GMBH
and Think inside the box LLC (Nature Vision TV).
Annual Report 2017 | Stingray Digital Group Inc. | 89
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
Interest in joint venture:
A joint venture is an arrangement whereby the Corporation and other parties that have joint control of the arrangement
have rights to the net assets of the arrangement.
Transactions eliminated on consolidation:
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions,
are eliminated in preparing the consolidated financial statements.
(b) Financial instruments:
(i) Financial assets and financial liabilities:
The Corporation initially recognizes financial assets on the trade date at which the Corporation becomes a party
to the contractual provisions of the instrument.
On initial recognition, the Corporation classifies its financial assets as subsequently measured at either amortized
cost or fair value, depending on its business model for managing the financial assets and the contractual cash
flow characteristics of the financial assets. If the financial asset is not subsequently accounted for at fair value
through profit or loss, then the initial measurement includes transaction costs that are directly attributable to the
asset’s acquisition or origination.
Financial assets measured at amortized cost
A financial asset is measured at amortized cost if both of the following conditions are met and is not designated
as at fair value through profit and loss:
The asset is held within a business model whose objective is to hold the asset in order to collect contractual
cash flows.
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding.
The Corporation currently classifies its cash and cash equivalents and trade and other receivables as financial
assets measured at amortized cost.
Financial assets measured at fair value
All equity investments and other financial assets that do not meet the conditions to be classified as financial
assets measured at amortized cost are measured at fair value through profit and loss.
Changes therein, including any interest or dividend income, are recognized in profit or loss.
The Corporation’s investments are classified as financial assets measured at fair value through profit and loss.
The Corporation derecognizes a financial asset when the contractual rights to the cash flows from the asset
expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of
the risks and rewards of ownership of the financial asset are transferred, or it neither transfers not retains
substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any
interest in such derecognized financial assets that is created or retained by the Corporation is recognized as a
separate asset or liability.
Annual Report 2017 | Stingray Digital Group Inc. | 90
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
Financial liabilities
The Corporation initially recognizes debt securities issued and subordinated liabilities on the date that they are
originated. All other financial liabilities are recognized initially on the trade date at which the Corporation becomes
a party to the contractual provisions of the instruments.
Financial liabilities are initially measured at fair value. If the financial liabilities are not subsequently accounted
for at fair value through profit or loss, then the initial measurement includes directly attributable transaction costs.
The Corporation classifies all financial liabilities at amortized cost using the effective interest method, except for
contingent consideration recorded at fair value through profit and loss and financial liabilities designated at fair
value through profit or loss when doing so results in more relevant information. Such liabilities, including
derivatives that are liabilities, shall be subsequently measured at fair value.
The Corporation derecognizes a financial liability when its contractual obligations are discharged or cancelled or
expire.
Financial assets and liabilities are offset and the net amount presented in the consolidated statements of financial
position when, and only when, the Corporation has a legal right to offset the amounts and intends either to settle
on a net basis or to realize the asset and settle the liability simultaneously.
(ii)
Impairment of financial assets:
At the end of each reporting year, the Corporation assesses whether there is any objective evidence that a
financial asset or group of financial assets is impaired. Objective evidence that financial assets are impaired can
include default or delinquency by a debtor, restructuring of an amount due to the Corporation on terms that the
Corporation would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, or the
disappearance of an active market for a security.
With respect to certain categories of financial assets, such as trade and other receivables, assets that are not
individually determined to be impaired are measured for impairment on an aggregate basis. Objective evidence
of impairment in the trade and other receivables portfolio may include the Corporation's past experience with debt
recovery, an increased number of days exceeding payment terms in the portfolio, as well as a change -
internationally or nationally - in economic conditions correlating with default payments in trade and other
receivables.
If there is objective evidence that an impairment loss on financial assets measured at amortized cost has been
incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the
present value of estimated future cash flows (excluding future credit losses that have not been incurred)
discounted at the financial asset's original effective interest rate (i.e. the effective interest rate computed at initial
recognition). The amount of the loss is recognized in profit or loss.
If, in a subsequent year, the amount of the impairment loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognized (such as an improvement in the debtor's credit rating),
the previously recognized impairment loss is reversed. The reversal is recognized to the extent of the
improvement without exceeding what the amortized cost would have been had the impairment not been
recognized at the date the impairment is reversed. The amount of the reversal is recognized in profit or loss.
Annual Report 2017 | Stingray Digital Group Inc. | 91
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
(iii) Share capital:
Common shares, subordinate voting shares, variable voting shares and multiple voting shares are classified as
equity. Incremental costs that are directly attributable to their issuance are recognized in reduction of equity, net
of tax effects.
(iv) Other equity instruments:
Warrants issued outside of share-based payment transactions that do not meet the definition of a derivative
financial instrument are recognized initially at fair value in equity. Upon simultaneous issuance of multiple equity
instruments, consideration received, net of issue costs, is allocated based on their relative fair values. Equity
instruments are not subsequently remeasured.
(v) Derivatives and other non-trading derivatives:
From time to time, the Corporation holds derivative financial instruments to reduce its interest rate risks. The
Corporation does not hold or use derivative financial instruments for speculation purposes. Derivatives are
recognized initially at fair value and any transaction costs are recognized in profit or loss as incurred. Subsequent
to initial recognition, derivatives are measured at fair value, and all changes in their fair value are recognized
immediately in profit or loss.
(c) Revenue recognition:
The Corporation derives revenue primarily from rendering of services, sales of on-demand products, media solutions
projects and other revenues. Revenue is measured at the fair value of the consideration received or receivable. The
Corporation recognizes revenues when the services are rendered and collectability is reasonably assured, persuasive
evidence of an arrangement exists and the sales price is fixed or determinable.
Rendering of services
Rendering of services primarily relates to continuous music and video distribution in a form of subscription fees on a
monthly, quarterly or annual basis. The Corporation recognizes revenues from rendering of services when the services
are rendered. The Corporation records deferred revenues when customers pay their subscription fees in advance.
On-demand products
On-demand products relate primarily to music and concert services online or through TV subscriptions. Revenues are
recognized in the year in which the services are rendered.
Media solutions projects
Revenue for media solutions projects relates to long term media projects. Revenues are recognized using the
percentage of completion method, which is calculated on the ratio of contract costs incurred to anticipated costs. The
effect of revisions of estimated revenues and costs is recorded when the amounts are known and can be reasonably
estimated. Where contract costs exceed total contract revenues, the expected loss is recognized as an expense
immediately via a provision for losses to completion, irrespective of the stage of completion.
Other revenues
Other revenues relate primarily to sales of equipment, support and installation services. Revenues are recognized in
the period in which the sales of goods occur and services are rendered.
Annual Report 2017 | Stingray Digital Group Inc. | 92
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
(d) Research and development:
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and
understanding, is recognized in profit or loss as incurred. Development costs are charged to profit or loss, unless they
meet specific criteria related to technical, market and financial feasibility in order to be capitalized. Deferred
development costs, net of government assistance, are amortized starting from the date the products and services are
commercialized.
(e) Government grants:
Investment tax credits are accounted for as a reduction of the research and development costs during the year in
which the costs are incurred, provided that there is reasonable assurance that the Corporation has met the
requirements of the approved grant program and there is reasonable assurance that the grant will be received.
The investment tax credits must be reviewed and approved by the tax authorities and it is possible that the amounts
granted will differ from the amounts recorded.
(f) Lease assets and payments:
Operating leases are not recognized in the Corporation’s consolidated statements of financial position. Payments
made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. Lease
incentives received are recognized as an integral part of the total lease expense, over the term of the lease. Contingent
lease payments are accounted for in the year in which they are incurred.
(g) Finance income and finance costs:
Finance income comprises interest income on funds invested, change in fair value of derivatives and contingent
consideration. Interest income is recognized as it accrues in profit or loss, using the effective interest method.
Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, change in fair value
of derivatives and contingent consideration, amortization of deferred financing costs, foreign exchange (gain) loss and
impairment losses recognized on financial assets.
The Corporation recognizes finance income and finance costs as a component of operating activities in the
consolidated statements of cash flows.
(h) Income taxes:
Income tax expense comprises current and deferred taxes. Current and deferred taxes are recognized in profit or loss
except to the extent that they relate to a business combination, or items recognized directly in equity or in other
comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates
enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes.
Annual Report 2017 | Stingray Digital Group Inc. | 93
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
Deferred tax is not recognized for the following temporary differences:
temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable profit or loss;
temporary differences relating to investments in subsidiaries, associates and joint arrangements to the extent that
the Corporation is able to control the timing of the reversal of the temporary difference and it is probable that they
will not reverse in the foreseeable future; and
taxable temporary differences arising on the initial recognition of goodwill.
A deferred tax asset is recognized for unused tax losses, unused tax credits and deductible temporary differences to
the extent that it is probable that future taxable profit will be available against which they can be used. Deferred tax
assets are measured at the end of each reporting year and their carrying amount is reduced to the extent that it is no
longer probable that a taxable profit will be realized.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse,
based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and
assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different
tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities
will be realized simultaneously.
(i) Earnings per share:
Basic earnings per share are computed by dividing net earnings by the weighted average number of common shares,
subordinate voting shares, variable subordinated voting shares and multiple voting shares outstanding during the
year. Diluted earnings per share are computed using the weighted average number of common shares, subordinate
voting shares, variable subordinated voting shares and multiple voting shares outstanding during the year adjusted to
include the dilutive impact of stock options, restricted share units and deferred share units. The number of additional
shares is calculated by assuming that all instruments with a dilutive effect are exercised and that the proceeds from
such exercises, as well as the amount of unrecognized share-based compensation which is considered to be assumed
proceeds, are used to repurchase subordinate voting shares, variable subordinated voting shares and multiple voting
shares at the average share price for the year. For restricted share units, only the unrecognized share-based
compensation is considered assumed proceeds since there is no exercise price paid by the holder.
(j) Cash and cash equivalents:
Cash and cash equivalents consist of cash on hand and balances with banks.
(k) Inventories:
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the first-
in, first-out cost method.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated selling
expenses.
Annual Report 2017 | Stingray Digital Group Inc. | 94
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
(l) Property and equipment:
Recognition and measurement
Items of property and equipment are recognized at cost less accumulated depreciation and accumulated impairment
losses. Cost includes expenditure that is directly attributable to the acquisition of the asset and the costs of dismantling
and removing the item and restoring the site on which it is located, if any.
When parts of an item of property and equipment have different useful lives, they are accounted for as separate items
(major components).
Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from
disposal with the carrying amount, and are recognized in net profit (loss).
Subsequent costs
The cost of replacing a part of an item of property and equipment is recognized in the carrying amount of the item if it
is probable that the future economic benefits embodied within the part will flow to the Corporation, and its cost can be
measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing
of property and equipment are recognized in profit (loss) as incurred.
Depreciation
Depreciation is calculated over the cost of the asset less its residual value and is recognized in profit or loss on a
straight-line basis over the estimated useful lives of each part of an item of property and equipment, since this most
closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased
assets are depreciated over the shorter of the lease term and their useful lives, unless it is reasonably certain that the
Corporation will obtain ownership by the end of the lease term.
The estimated useful lives for the current and comparative years are as follows:
Property and equipment
Furniture, fixtures and equipment
Computer hardware
Leasehold improvements
Period
3 to 5 years
3 years
Lease term or 3 years
Estimates for depreciation methods, useful lives and residual values are reviewed at each reporting year-end and
adjusted if appropriate.
(m) Intangible assets:
Intangible assets that are acquired by the Corporation and have finite useful lives are measured at cost less
accumulated amortization and any accumulated impairment losses.
The fair value of non-compete agreements acquired in a business combination are based on the discounted estimated
revenues losses that have been avoided as a result of the non-compete being signed. The fair value of client list and
relationships acquired in a business combination is determined using the multi-period excess earnings method,
whereby the subject asset is valued after deducting a fair return on all other assets that are part of creating the related
cash flows. The fair value of music catalogs acquired in a business combination is determined using the estimated
costs for creating such music catalogs. The fair value of trademarks acquired in a business combination is based on
the discounted estimated future royalty payments that have been avoided.
Annual Report 2017 | Stingray Digital Group Inc. | 95
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
Amortization
Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of the definite life
intangible assets.
The estimated useful lives for the current and comparative years are as follows:
Intangible
Music catalog
Client list and relationships
Trademarks
Licenses, website applications and computer software
Non-compete agreements
Period
5 to15 years
3 to 15 years
2 to 20 years
1 to 11 years
2 to 11 years
Estimates for depreciation methods, useful lives and residual values are reviewed at each reporting year-end and
adjusted if appropriate.
(n) Goodwill:
Goodwill arising on the acquisition of businesses is measured at cost less accumulated impairment losses.
Goodwill is not amortized but is subject to an impairment evaluation.
(o) Impairment of non-financial assets:
The Corporation reviews the carrying amount of its non-financial assets, which include intangible assets with a finite
useful life and property and equipment on each reporting date in order to determine if specific events or changes in
circumstances indicate that their carrying amounts may not be recoverable. The recoverable amount of goodwill is
tested for impairment each year at the same date, or more frequently if indications of impairment exist.
For impairment testing purposes, assets that cannot be tested individually are grouped in CGUs. Goodwill is allocated
to the CGU or CGU group that is expected to benefit from the synergies resulting from the business combination.
Each unit or group of units to which goodwill is allocated shall not be larger than an operating segment and represents
the lowest level at which goodwill is monitored for internal management purposes.
An impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its recoverable amount. The
recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. Impairment losses are
recognized in profit or loss. Impairment losses are first allocated to reduce the carrying amount of goodwill allocated
to the CGU, and then to reduce the carrying amount of the other assets of the CGU on a pro rata basis.
Annual Report 2017 | Stingray Digital Group Inc. | 96
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
(p) Provisions:
A provision is recognized if, as a result of a past event, the Corporation has a present legal or constructive obligation
that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money and the risks specific to the liability. The unwinding of the
discount is recognized as finance cost.
Contingent liability
A contingent liability is a possible obligation that arises from past events and of which the existence will be confirmed
only by the occurrence or non-occurrence of one or more uncertain future events not within the control of the
Corporation; or a present obligation that arises from past events (and therefore exists), but is not recognized because
it is not probable that a transfer or use of assets, provision of services or any other transfer of economic benefits will
be required to settle the obligation, or the amount of the obligation cannot be estimated reliably.
(q) Employee benefits:
(i) Short-term employee benefits:
Short-term employee benefits are expensed as the related service is provided.
A liability is recognized for the amount expected to be paid if the Corporation has a present legal or constructive
obligation to pay this amount as a result of past service provided by the employee, and the obligation can be
estimated reliably.
(ii) Defined contribution plan:
The Corporation pays contributions under a defined contribution plan for employees of one of its subsidiaries.
Obligations for contributions to defined contribution plans are expensed as the related service is provided.
The obligation under this plan is expensed when the services are rendered by the employees.
(iii) Defined benefit plans:
The Corporation’s net obligation in respect of defined benefit plans is calculated by estimating the amount of
future benefit that employees have earned in the current and prior years, discounting that amount and deducting
the fair value of any plan assets.
The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit
credit method. When the calculation results in a potential asset for the Corporation, the recognized asset is limited
to the present value of economic benefits available in the form of any future refunds from the plan or reductions
in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to
any applicable minimum funding requirements.
Remeasurement of the net defined benefit liability, which comprises actuarial gains and losses, the return on plan
assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized
immediately in other comprehensive income. The Corporation determines the net interest expense (income) on
the net defined benefit obligation at the beginning of the year to the net defined benefit liability (asset), taking into
account any changes in the net defined benefit liability (asset) during the year as a result of contributions and
benefits payments. Net interest expense and other expenses related to defined benefit plans are recognized in
profit or loss.
Annual Report 2017 | Stingray Digital Group Inc. | 97
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates
to past services or the gain or loss on curtailment is recognized immediately in profit or loss. The Corporation
recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.
(iv) Stock option plan:
The fair value at the grant-date of equity settled share-based payment awards granted to management and key
employees of the Corporation is recognized as an employee benefit expense, with a corresponding increase in
equity, over the vesting period of the awards. The amount expensed is adjusted to reflect the number of awards
for which it is expected that the service conditions will be met, so that the amount ultimately expensed will depend
on the number of awards that meet the service conditions at the vesting date.
(v) Restricted and performance share units and deferred share units plans:
Restricted share units (“RSU”), performance unit plan (“PSU”) and deferred share units (“DSU”) expected to be
settled in cash are accounted for as cash settled awards, with the recognized compensation cost included in
accounts payable and accrued liabilities. Compensation cost is initially measured at fair value at the grant date
and is recognized in net income over the vesting year. The liability is remeasured based on the fair value price of
the Corporation’s common shares, at each reporting date. Remeasurements during the vesting year are
recognized immediately to net income to the extent that they relate to past services and amortized over the
remaining vesting year to the extent that they relate to future services. The cumulative compensation cost that
will ultimately be recognized is the fair value of the Corporation’s shares at the settlement date.
29. New and amended standards not yet adopted by the Corporation:
IFRS 9 - Financial instruments
In July 2014, the IASB released the final version of IFRS 9 - Financial Instruments (IFRS 2014). (“IFRS 9 (2014)”) presents
a few differences with IFRS 9 (2009) and IFRS 9 (2010), early adopted by the Corporation on April 1, 2012, with respect
to the classification and measurement of financial assets and accounting of financial liabilities. IFRS 9 (2014) also includes
a new expected credit loss model for calculating impairment on financial assets and new general hedge accounting
requirements. The standard is effective for annual periods beginning on or after January 1, 2018, with earlier application
permitted. The Corporation does not intend to early adopt IFRS 9 (2014). The Corporation is currently evaluating the
impact of the standard on its consolidated financial statements.
IFRS 15 - Revenue recognition
In May 2014, the IASB issued IFRS 15 - Revenue from Contracts with Customers. IFRS 15 replaces all previous revenue
recognition standards, including IAS 18 - Revenue, and related interpretations such as IFRIC 13 - Customer Loyalty
Programs. The standard sets out the requirements for recognizing revenue. Specifically, the new standard introduces a
comprehensive framework with the general principle being that an entity recognizes revenue to depict the transfer of
promised goods and services in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. The standard introduces more prescriptive guidance than was included in previous
standards and may result in changes in classification and disclosure in addition to changes in the timing of recognition for
certain types of revenues. The new standard is effective for annual periods beginning on or after January 1, 2018 with
early adoption permitted. The Corporation is currently evaluating the impact that this standard will have on its consolidated
financial statements. The Corporation does not intend to early adopt the standard.
Annual Report 2017 | Stingray Digital Group Inc. | 98
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
IAS 16 – Property, Plant and Equipment
On May 12, 2014, the IASB issued amendments to IAS 16 - Property, Plant and Equipment and IAS 38 - Intangible Assets.
The amendments made to IAS 16 explicitly state that revenue-based methods of depreciation cannot be used for property,
plant and equipment. This is because such methods reflect factors other than the consumption of economic benefits
embodied in the asset. The amendments in IAS 38 introduce a rebuttable presumption that the use of revenue-based
amortization methods for intangible assets is inappropriate. This presumption could be overcome only when revenue and
consumption of the economic benefits of the intangible asset are highly correlated or when the intangible asset is
expressed as a measure of revenue. The amendments apply prospectively for annual periods beginning on or after
January 1, 2016 with early adoption permitted. The Corporation intends to adopt the amendments to IAS 16 and IAS 38
in its consolidated financial statements for the annual period beginning on April 1, 2016. The Corporation does not expect
the amendments to have a material impact on the consolidated financial statements.
IAS 7 – Disclosure Initiative
On January 7, 2016, the IASB issued amendments to IAS 7– Disclosure Initiative. The amendments require disclosures
that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both
changes arising from cash flows and non-cash changes. One way to meet this new disclosure requirement is to provide a
reconciliation between the opening and closing balances for liabilities from financing activities. The Corporation intends to
adopt the amendments to IAS 7 in its consolidated financial statements for the annual period beginning on April 1, 2017.
The extent of the impact of adoption of the amendments has not yet been determined.
IFRS 16 – Leases
On January 13, 2016, the IASB issued IFRS 16 - Leases. This new standard is effective for annual periods beginning on
or after January 1, 2019. Earlier application is permitted for entities that apply IFRS 15 - Revenue from Contracts with
Customers at or before the date of initial adoption of IFRS 16. IFRS 16 will replace IAS 17 - Leases. This standard
introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a
term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use
asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease
payments. This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring
enhanced disclosures to be provided by lessors. Other areas of the lease accounting model have been impacted, including
the definition of a lease. Transitional provisions have been provided. The Corporation intends to adopt IFRS 16 in its
consolidated financial statements for the annual period beginning on April 1, 2019. The extent of the impact of adoption of
the standard has not yet been determined.
Annual Report 2017 | Stingray Digital Group Inc. | 99
Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016
(In thousands of Canadian dollars, unless otherwise stated)
IFRS 2 – Share-based Payment
On June 20, 2016, the IASB issued amendments to IFRS 2 Share-based Payment, clarifying how to account for
certain types of share-based payment transactions. The amendments apply for annual periods beginning on or
after January 1, 2018. As a practical simplification, the amendments can be applied prospectively. Retrospective,
or early, application is permitted if information is available without the use of hindsight. The Company intends to
adopt the amendments to IFRS 2 in its financial statements for the annual period beginning on January 1, 2018.
The extent of the impact of adoption of the amendments has not yet been determined.
IFRIC 22 – Foreign Currency Transactions
On December 8, 2016, the IASB issued IFRIC Interpretation 22 Foreign Currency Transactions and Advance
Consideration. The Interpretation clarifies which date should be used for translation when a foreign currency
transaction involves an advance payment or receipt. The Interpretation is applicable for annual periods beginning
on or after January 1, 2018. Earlier application is permitted. The Company intends to adopt the Interpretation in its
financial statements for the annual period beginning on January 1, 2018. The extent of the impact of adoption of
the Interpretation has not yet been determined.
Annual Report 2017 | Stingray Digital Group Inc. | 100
Annual General Meeting
of Shareholders
Provisional calendar
of results
The annual general meeting will be held
on August 2, 2017 at:
First quarter of 2018
August 2, 2017
Stingray Headquarters
730 Wellington Street
Montreal, Quebec
H3C 1T4
Canada
Second quarter of 2018
November 9, 2017
Third quarter of 2018
February 8, 2018
Fourth quarter of 2018
June 7, 2018
Stock exchange
Transfer agent
TSX: RAY.A and RAY.B
CST Trust Company
2001 Boulevard Robert-Bourassa
Suite 1600
Montreal, Quebec
H3A 2A6
Canada
1-416-682-3860 or 1-800-387-0825
inquiries@canstocka.com
www.canstocka.com
stingray.com