A N N U A L R E P O R T 2 0 1 8
Year Ended March 31, 2018 | Stingray Digital Group Inc.
WORD FROM
THE CEO
Dear investors, partners, clients, and colleagues,
Writing this letter every year offers me a precious moment to
pause and reflect on all we have achieved in the past 12 months;
every accomplishment, every challenge. Beyond growth,
expansion, and financial success, it is our common mission of
offering the very best music and video services to audiences
worldwide that brings us together.
It would not be an overstatement to describe Fiscal 2018 as
record-breaking. Indeed, our Stingray Music service rang in 2018
by reaching a record number of Canadian listeners and a 4.8
rating in the Apple app store; Stingray Business, our commercial
services division, signed its largest in-store media contract to
date with Farmacias del Ahorro in Mexico; and our subscription
video on demand (SVOD) services now exceed 348,000 paying
subscribers across North America and Europe.
To win in an evolving entertainment landscape, we cannot wait
for opportunities; we must create them. Over the years, every
lesson learned has helped us build a solid foundation that
delivers a profound competitive advantage.
As put forth in last year’s report, we have continued to pursue an
aggressive and proactive acquisition strategy and seized every
opportunity to grow our market share to benefit our shareholders.
And that is not all. Far from it.
Revenues have continued to show strong growth. Revenues
increased by 25.1%, reaching $127.0 million (compared to $101.5
million in Fiscal 2017.) Of the total growth in revenues, 9.0% was
organic growth. At the same time, Adjusted EBITDA(1) increased
by 22.6% to $41.5 million and net income was $2.3 million ($0.04
per share). Cash flow from operating activities was $19.4 million
and adjusted free cash flow(1) increased 25.2% to $33.2 million.
We continued to raise our dividends and returned over $10.8
million to you, our shareholders.
I am proud of our team, and I am confident that together there is
nothing we cannot accomplish, no boundary we cannot push. I
want to take this opportunity to thank every Stingray employee,
executive, and board member for all the goals they have enabled
us to reach and surpass.
Eric Boyko
President, Co-founder and CEO
table of content
02 Word from the CEO 04 Word from the CEO 06 Management’s Discussion and Analysis 08 Company Profile 11 SVOD
14 Company Goals 17 Acquisition Strategy 20 Competitive Strenghts 22 Key Business Risks
24 Executive Team and Board of Directors 52 Consolidated Financial Statements 107 Glossary of Terms
THE YEAR OF SVOD
After over a decade, Stingray remains unique in its capacity to
SEEING THE WORLD IN 4K
Television technology never stops evolving, and neither does
expand its global reach within the digital music industry. Where
Stingray. We made a splash at MIPCOM with the launch of
others struggle, we continually reach new milestones while
Stingray Now 4K, the latest in the line of 4K UHD television channels
improving profitability.
available for worldwide distribution. We can now boast of being
the leading provider of 4K UHD music television channels in the
Our most significant accomplishment in Fiscal 2018 was, without
world.
a doubt, the phenomenal growth in our SVOD subscriber base,
which increased 230% in only twelve months. Our investment
Stingray Now 4K, an all-4K music video TV channel joins Stingray
in content and focus on multi-territory distribution agreements
Festival 4K, the first 4K TV channel dedicated to music content in
with key industry players such as Amazon Channels (US, UK,
all its forms, and Stingray Ambiance 4K, a channel that showcases
and Germany), Telefonica, and Comcast has borne fruit.
the healing beauty of nature in stunning 4K UHD resolution. All
Today, Stingray’s SVOD services (Stingray Classica, Stingray
three (3) channels are already widely distributed in Latin America,
DJAZZ, Stingray Karaoke, and Stingray iConcert) allow over
Europe, and North America with providers such as (Swisscom,
348,000 users to enjoy unlimited, curated music programming
Orange, Free, Cogeco, Rogers, and Videotron.
for a monthly fee. The growing popularity of SVOD bodes well
for the future. The Digital TV Research forecasts that the number
of homes worldwide with subscriptions to SVOD services will
reach 428 million by 2020 and revenues are expected to exceed
$32 billion.
ACQUISITION STRATEGY
It
is common knowledge that Stingray acts as
industry
consolidator by implementing a strategic acquisition strategy.
In May 2017, we 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, 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. In addition to growing our
portfolio of consumer-facing products, this acquisition expands
our in-house mobile app development and optimization expertise.
The same month, we closed the acquisition of C Music
Entertainment Ltd., a London-based, multi-award-winning
satellite and cable television channel dedicated to classical,
crossover, and cinematic music videos. C Music TV is distributed
through pay TV, satellite, IPTV and mobile providers in 105
countries. In January 2018, we acquired the assets of New-York
based Qello Concerts, the world’s leading over-the-top (OTT)
streaming service for full-length, on-demand performances,
concert films, and music documentaries — reaching users in
more than 160 countries. This agreement adds 2,000 concerts
and music documentaries to our library, grows our SVOD
subscriber base by more than 70,000, and makes Stingray
the leading distributor of SVOD concerts in the world. Last, but
certainly not least, on May 2nd, we announced that we had
signed a definitive agreement to acquire all of the issued and
outstanding shares of Newfoundland Capital Corporation
Limited, one of Canada’s leading radio broadcasters with 101
licenses (82 FM and 19 AM) across Canada. This transaction,
which garnered major interest for the media and the industry, is
expected to significantly strengthen our position as the leading
independent music business in the Canadian media landscape
while continuing to build our global reach, and supporting our
growth strategy through a complementary vertical and new
revenue sources.
A YEAR OF PRODUCT PORTFOLIO GROWTH
In addition to launching Stingray Now 4K, our team’s tireless efforts
allowed us to quickly bring to market new or redesigned services.
This year alone we completed the rebrand of Stingray Classica;
launched five (5) music video channels (Stingray Retro, Stingray
Vibe, Stingray Loud, Stingray Juicebox, and Stingray Hits) in North
America, the Middle East, and Europe; and introduced a kids’
karaoke app (for Android tablets) and a new Singing Machine
Mobile Karaoke app.
STRENGTHENED PRESENCE IN ASIA
Over the past two (2) years we have taken important steps to solidify
our presence in the Asia-Pacific region, a market that presents an
immense growth opportunity for our services.
In June 2017, we introduced Stingray Music in Singapore with Singtel,
Asia’s leading communication group. A month later, we acquired
two (2) leading Australian providers of in-store media solutions: SBA
Music PTY Ltd. (SBA) and Satellite Music Australia PTY Ltd. (SMA),
a subsidiary of Macquarie Media Operations PTY Limited. These
agreements follow the December 2015 acquisition of Australia’s
Digital Music Distribution PTY Ltd. (DMD), and the extension of the
distribution agreement with local pay TV provider Foxtel.
PREPARING FOR THE FUTURE
Stingray’s remarkable achievements are due, above all, to the
dedication and passion of our close to 400 employees. If we can
continually improve, innovate, and challenge the status quo, it
is thanks to them. Each Stingray team member is integral to our
success past, present, and future. In June 2017, I was proud to
publicly announce in the presence of the Montreal Mayor Denis
Coderre and the Honourable Mélanie Joly, Minister of Canadian
Heritage, our intention to hire an additional 400 employees over
the next five (5) years.
(1) Refer to “Forward-looking statements” and “Supplemental information on Non-IFRS measures” on page 26 and for reconciliations to the most directly comparable IFRS financial measure, refer to “Supplemental
information on Non-IFRS measures” on page 32.
Annual report 2018 | Stingray Digital Group Inc. | 3
WORD FROM
THE CHAIRMAN
Music can take us to amazing places. It, at once, tells us stories
and tells our stories. The universality of music combined with a
keen instinct for business opportunities are the core of Stingray’s
spectacular, and continued, success in over 156 countries.
In my first year as chairman of the board, I have been amazed by
the company’s remarkable ability to harness its passion, drive,
and vision to thrive in a sector where others struggle.
Fiscal 2018 was a great year for Stingray. We reached the targets
we set for ourselves and reported new highs for profitability.
Now, more than ever, we are committed to driving financial
performance.
This year, Stingray’s management was particularly attuned to
market demands and fluctuations, first by focusing its efforts
on the growing On-Demand economy, second by broadening its
scope to include new direct to consumer products, and third by
consolidating and expanding distribution agreements with key
providers worldwide.
The strategic acquisitions of Newfoundland Capital Corporation,
Yokee and Qello Concerts, as well as the record-breaking
numbers reached by the Stingray Music service, certainly stand
out as highlights.
The strong positive reputation built over the last decade has
ensured the loyalty of clients amongst the leading entertainment
content worldwide, and that is something to be proud of.
Stingray has demonstrated its ability to evolve its business model
to meet client needs and adapt to market changes is a guarantee
of the company’s longevity. I feel privileged to work alongside
such exceptional leadership and I look forward to rising to the
challenges of the years to come.
On behalf of the board and the management team, I would like
to thank our shareholders for their continued trust and support.
Mark Pathy
Chairman of the Board
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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, 2018
and 2017. This MD&A reflects information available to the
Corporation as at June 6, 2018. Additional information
relating to the Corporation is also available on SEDAR at
www.sedar.com.
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COMPANY
PROFILE
Stingray is the world-leading provider of multiplatform
music and video services as well as digital experiences
for pay TV operators, commercial establishments, OTT
providers, mobile operators, consumers, and more.
Its services include audio television channels, premium
television channels, 4K UHD television channels, karaoke
products, digital signage, in-store music, and music
apps, Stingray reaches 400 million subscribers (or
users) in 156 countries and its mobile apps have been
downloaded over 100 million times.
Stingray is headquartered in Montreal and currently has
close to 400 employees worldwide.
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THE RISE OF SVOD:
STINGRAY’S YEAR
IN NUMBERS
Subscription video-on-demand (SVOD) services have
become the preferred destination for
consumers to access video content - including motion
pictures and made-for-television content-over a
range of Internet-capable devices including smart
TVs, smartphones, tablets, video game consoles,
and multimedia devices such as Apple TV, Google
Chromecast, and Roku. Stingray’s growing SVOD
offering is now available through major entertainment
services providers such as Amazon, Comcast, and
Telefonica.
SVOD AND THE CONSUMER EXPERIENCE
The following Stingray services are available
as SVOD:
Stingray Karaoke
songs in all the most popular genres including pop,
rock, country, R&B/hip-hop, Disney, and much more.
Stingray Classica
a catalog of classical music, opera, and
ballet performances filmed in the world’s most
renowned venues.
Stingray DJAZZ
live performances by the jazz icons of yesterday
and today.
Stingray Qello
the world’s leading streaming service for full-length
concerts and music documentaries.
348,000
Subscribers as at March 31, 2018.
+230%
since April 1, 2017
Annual report 2018 | Stingray Digital Group Inc. | 11
Congratulations for this new platform. Very “User friendly“. I like it very
much. Thank you! -Jean-Denis Garceau Montreal, Quebec Canada
I truly enjoy
Stingray Music.
The variety of
music that not
only is diverse
it is plentiful.
The app
is just as good.
The clarity in
the app means
I’ll be taking
and enjoying
Stingray
whenever I
leave home.
Finally
downloaded
@Stingraymusic
and authorised my
account with my
cable provider and it’s
THE best thing ever!
What is spotify?
« Wow depuis
que j’ai
découvert
l’application, je
l’utilise chaque
jours. Plusieurs
styles
musiques, listes
personnalisées
et l’équipe
écoute nos
commentaires.
Un gros bravo!
Mon application
favorite! »
J’adore. En plus,
la musique me suis
partout où je vais.
Annual report 2018 | Stingray Digital Group Inc. | 12
Très bonne application et toujours de l’excellente musique. En plus, l’équipe
de Stingray prend toujours le temps de nous répondre quand on leur
demande des renseignements par courriel et c’est grandement apprécié.
Hi! Just like
to say again
how awesome
your classic
rock station
on foxtel here
in Australia
is. Such a
great range
of music and
bands. It’s
the best mix
of classic
rock I’ve ever
heard. We
listen all day!
Thanks!
- Mark
J’adore
l’application!
Beaucoup plus de
variété qu’à la télé!
Je trouve toujours
l’ambiance que
je cherche! Menu
facile à utiliser!
Il y en a pour tous les goûts et pour tous les
besoins du moments. Merci beaucoup!
Très vastes
choix musicaux.
Excellente application.
Annual report 2018 | Stingray Digital Group Inc. | 13
I travel quite
a lot for
work across
Canada and
the US and I
rarely know
the local
radio stations
so I listen to
my favorite
channels
wherever I am
via this app.
Love it!
CURRENT
COMPANY
GOALS
1
Pursue a strategic and disciplined approach to our
M&A strategy by focusing on four (4) vectors: SVOD
/ B2C, TV channels, commercial music, and radio
consolidation
2
Continue to grow in the SVOD space (B2B2C) by
buying or licensing content; increasing our reach
across platforms and markets; exploring new
verticals (e.g. country music, hip-hop, faith-based
video); and investing in marketing and discovery.
3
Develop our B2C market share by investing in digital
marketing platforms and continuing to develop best
in class video apps, web-based solutions, and mobile
app such as the recently announced The Voice
singing app for which Stingray has signed a 5-year
deal. Grow Stingray Music’s reach and maintain its
top-rated position. Relaunch the Stingray Karaoke
apps and online services all the while pursuing the
expansion of the Yokee family of apps.
4
Expand the reach of our commercial music and
digital signage services through an international
expansion strategy that includes acquisitions and
the growth of our affiliate network.
5
Continue to foster a winning company culture
through accountability, responsiveness, training,
empowerment, and growth opportunities.
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Aggressively pursue our M&A strategy, 5-25 plan.
Maintain 5% organic growth across broadcasting and commercial.
Maintaining 32% to 34% margins with acquisitions and increase of B2C business.
Increase roll-out of SVOD services and mobile reach.
Generate new sale as the one-stop-shop for our clients’ Music Strategy.
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PROVEN
ACQUISITION
STRATEGY
2007
Slep-Tone Entert. Corp/
SoundChoice
(Karaoke Channel)
2009
Canadian Broadcast Corp. (Galaxie)
MaxTrax Music Ltd.
Chum Satellites Services (CTV)
2010
Marketing Senscity Inc.
Concert TV Inc.
2011
Music Choice International Ltd.
2012
Musicoola Ltd.
Zoe Interactive Ltd.
2013
Executive Communication
2014
DMX LATAM (Mood Media)
Emedia Networks Inc.
Archibald Media Group
Stage One Innovations Ltd.
DMX Canada (Mood Media)
Intertain Media Inc
Telefonica – On the Spot
2015
Les réseaux Urbains Viva Inc.
Brava Group (HDTV, NL and DjazzTV)
Digital Music Distribution
iConcerts Group
2016
Nümedia
Festival 4K B.V.
Bell Media’s specialty
music video channels
EuroArts Classical catalogue
2017
Classica
Nature Vision TV
Yokee Music Ltd.
C Music Entertainment Ltd.
SBA Music PTY Ltd.
Satellite Music Australia PTY Ltd.
2018
Qello Concerts LLC
NCC (pending CRTC approval)
Annual report 2018 | Stingray Digital Group Inc. | 17
t
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i
l
l
i
m
n
o
i
t
p
e
c
n
i
e
c
n
s
i
6
5
7
Annual report 2018 | Stingray Digital Group Inc. | 18
CANADA.AUSTRALIA. UK. 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. 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. Annual report 2018 | Stingray Digital Group Inc. | 19
CANADA.AUSTRALIA. UK. 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. 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. 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
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, game consoles, and
connected cars.
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.
Strong and predictable cash
flow from long-term contracts
and client relationships
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 $108.8 million at
the end of Fiscal 2018 (85.7%
of our total revenue).
Annual report 2018 | Stingray Digital Group Inc. | 20
Track record of successful
acquisitions and integrations
Since Stingray’s inception in
2007, we have completed 35
acquisitions representing outlays
of approximately $756 million,
which brought new clients, new
products and new geographical
markets to our business. Fiscal
2018, we have completed five
(5) acquisitions for an aggregate
purchase value of $44.9 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.
High employee retention
rate and low turn-over
As an entrepreneurial
and growing Canadian
company, we attract and
retain talented professionals.
Our team of almost 400
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.
Leading content
curation expertise
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.
With the acquisition of Qello
Concerts (now rebranded as
Stingray Qello) in March, Stingray
has become the largest provider of
concerts, concert films, and music
documentaries available
On-Demand. Stingray was
confirmed as an official promotional
partner of Dick Clark Productions
for the 2018 Academy of Country
Music Awards, Billboard Music
Awards, and American Music
Awards. Stingray will produce
and distribute specially curated
programming across its music
services and platforms for each of
the awards shows, which are some
of television’s biggest and most
popular music events.
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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, 2018 on page 21
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.
Long-term plan to expand
into international markets
A key element of our growth
strategy is to continue to
expand our operations into
international markets. For
Fiscal 2018, approximately
53% 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.
Integrating
business acquisitions
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.
Annual report 2018 | Stingray Digital Group Inc. | 22
Dependence on
Pay-TV 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 2018 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).
Competition from
other content providers
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.
Rapid growth in
an evolving market
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.
Annual report 2018 | Stingray Digital Group Inc. | 23
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
Valery Zamuner
Senior Vice-President, Mergers,
Acquisitions & Strategic
Initiatives
Annual report 2018 | Stingray Digital Group Inc. | 24
NON-EXECUTIVE
DIRECTORS
Claudine Blondin
Director and Member
of the Corporate Governance,
Human Resources and
Compensation Committees
David Purdy
Director and Member of the
Audit Committee
Gary S. Rich
Director and Chairman of
the Human Resources and
Compensation Committee
François-Charles Sirois
Director and Member
of the Human Resources and
Compensation Committee
Jacques Parisien
Director and Chairman
of the Corporate Governance
Committee
Mark Pathy
Chairman of the Board of
Directors and Member of
the Human Resources and
Compensation Committee
Pascal Tremblay
Director and Member of
the Corporate Governance
Committee and Chairman of the
Audit Committee
Robert G. Steele
Director and Member of the
Audit Committee
Annual report 2018 | Stingray Digital Group Inc. | 25
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, 2018 and 2017. This MD&A reflects information available to the Corporation as at
June 6, 2018. 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 include 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 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 International Financial Reporting Standards (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 2018 | Stingray Digital Group Inc. | 26
KEY PERFORMANCE INDICATORS(1)
For the three-month period ended March 31, 2018:
$33.0 M
$29.7 M
▲ 24.7% from Q4 2017
▲ 30.8% from Q4 2017
Revenues
Recurring revenues(1)
$11.8 M
▲ 29.9% from Q4 2017
35.6% margin(2)
Adjusted EBITDA(2)
$11.1 M
▲ 38.5% from Q4 2017
Adjusted
free cash flow(2)
58.7%
% of international
revenues(3)
$0.055
▲ 22.2% from Q4 2017
Quarterly dividend
per share
$4.7 M
▲ 1.4% from Q4 2017
Or $0.08 per share
Net income
$10.7 M
▼ 1.4% from Q4 2017
Cash flow from
operating activities
Notes:
(1) 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.
(2) Refer to “Supplemental information on Non-IFRS measures” on page 26 and 32.
(3)
International means all jurisdictions except Canada.
For the three-month period ended March 31, 2018 and 2017:
Recurring revenues(1)(2)(3)
$33.0
Net Income and
Adjusted EBITDA(1)(2)
$26.5
$22.7
$29.7
$4.6
$4.7
$11.8
$9.0
CF from operating activities
and
Adjusted free cash flow(1)(2)
$11.1
$10.8
$10.7
$8.0
Q4 2017
Q4 2018
Non-recurring revenues
Recurring revenues
Net income
Adjusted EBITDA
Q4 2017 Q4 2018
CF from operating
activities
Q4 2017
Adjusted free cash
flow
Q4 2018
In millions of Canadian dollars.
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS measures” on page 26 and 32.
(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 2018 | Stingray Digital Group Inc. | 27
For the year ended March 31, 2018:
$127.0 M
▲ 25.1% from 2017
$108.8 M
▲ 24.2% from 2017
Revenues
Recurring revenues(1)
$41.5 M
▲ 22.6% from 2017
32.7% margin(2)
Adjusted EBITDA(2)
$33.2 M
▲ 25.2% from 2017
Adjusted
free cash flow(2)
53.4%
% of international
revenues(3)
$0.22
▲ 22.2% from 2017
Annualized
dividend(4) per share
$2.3 M
▼ 78.6% from 2017
Or $0.04 per share
Net income
$19.4 M
▼ 14.9% from 2017
Cash flow from
operating activities
Notes:
(1) 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.
(2) Refer to “Supplemental information on Non-IFRS measures” on page 26 and 32.
(3)
(4) Annualized divided represents the amount of the last declared dividend times four quarters.
International means all jurisdictions except Canada.
For the years ended March 31, 2018 and 2017:
Recurring revenues(1)(2)(3)
$127.0
Net Income and
Adjusted EBITDA(1)(2)
$101.5
$87.6
$108.8
$41.5
$33.9
$10.7
$2.3
2017
2018
Net income
Adjusted EBITDA
CF from operating activities
and
Adjusted free cash flow(1)(2)
$33.2
$26.5
$22.8
$19.4
CF from operating
activities
Adjusted free cash
flow
Non-recurring revenues
Recurring revenues
2017
2018
2017
2018
In millions of Canadian dollars.
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS measures” on page 26 and 32.
(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 2018 | Stingray Digital Group Inc. | 28
FINANCIAL AND BUSINESS HIGHLIGHTS
Highlights of the fourth quarter ended March 31, 2018 (“Q4 2018”)
Compared to the fourth quarter ended March 31, 2017 (“Q4 2017”):
•
•
•
•
•
•
•
•
•
Revenues increased 24.7% to $33.0 million from $26.5 million;
Recurring revenues(1) of $29.7 million (89.8% of total revenues), an increase of 30.8%;
International revenues(2) increased to 58.7% from 47.2%;
Adjusted EBITDA(3) increased 29.9% to $11.8 million from $9.0 million;
Adjusted EBITDA margin(3) was 35.6% compared with 34.1%;
Net income was $4.7 million ($0.08 per share) compared with $4.6 million ($0.09 per share);
Adjusted Net income(3) of $9.7 million ($0.17 per share) compared with $10.5 million ($0.20 per share);
Cash flow from operating activities of $10.7 million compared to $10.8 million; and
Adjusted free cash flow(3) increased 38.5% to $11.1 million compared to $8.0 million.
Highlights of the year ended March 31, 2018 (“Fiscal 2018”)
Compared to the year ended March 31, 2017 (“Fiscal 2017”):
•
•
•
•
•
•
•
•
•
•
•
•
Revenues increased 25.1% to $127.0 million from $101.5 million;
Recurring revenues(1) of $108.8 million (85.7% of total revenues), an increase of 24.2%;
International revenues(2) increased to 53.4% from 44.7%;
Adjusted EBITDA(3) increased 22.6% to $41.5 million from $33.9 million;
Adjusted EBITDA(3) margin was 32.7% compared with 33.4%;
Net income was $2.3 million ($0.04 per share) compared with $10.7 million ($0.21 per share);
Adjusted Net income(3) of $26.9 million ($0.50 per share) compared with $27.3 million ($0.53 per share);
Cash flow from operating activities of $19.4 million compared with $22.8 million;
Adjusted free cash flow(3) increased 25.2% to $33.2 million compared to $26.5 million;
Net debt(3) remained stable at $35.3 million compared to $35.2 million;
Net debt to Adjusted EBITDA ratio(3)(4) was 0.85 times, compared with 1.04 times; and
Annualized dividend(5) increased 22.2% to $0.22 per share.
Note:
(1) 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.
International means all jurisdictions except Canada.
(2)
(3) Refer to “Forward-looking statements” and “Supplemental information on Non-IFRS measures” on page 26 and for reconciliations to the most directly
comparable IFRS financial measure, refer to “Supplemental information on Non-IFRS measures” on page 32.
(4) Net debt to Adjusted EBITDA consists of Net debt including contingent considerations and balance payable on business acquisitions divided by Adjusted
EBITDA.
(5) Annualized divided represents the amount of the last declared dividend times four quarters.
Annual Report 2018 | Stingray Digital Group Inc. | 29
Additional business highlights for the fourth quarter and subsequent events:
•
•
•
•
•
•
•
•
•
•
On May 29, 2018, the Corporation announced that it had reached a long-term agreement with Bell that renews and
expands their longstanding relationship. Bell thus becomes the first Canadian operator that can offer its subscribers
Stingray’s entire music and video services portfolio.
On May 14, 2018, the Corporation announced that it had been selected by Talpa Media, creator of The Voice, to develop,
publish, and market worldwide the juggernaut of singing competitions’ new companion singing app. The Voice singing
app will be launched worldwide in December 2018.
On May 2, 2018, the Corporation announced that it had entered into a definitive agreement with Newfoundland Capital
Corporation Limited (NCC) pursuant to which the Corporation will acquire all of NCC’s issued and outstanding shares
(NCC Shares) for $14.75 per NCC share, representing a total consideration of approximately $506.0 million. Completion
of the acquisition, expected to occur by the end of 2018 but no later than May 2, 2019, is subject to, and conditional upon,
the receipt of all necessary approvals, including approval of CRTC and securing necessary funding. Refer to page 51 for
more detail on the transaction.
Following the agreement to purchase NCC, the Corporation completed a subscription receipt offering and issued from
treasury 7,981,000 subscription receipts of the Corporation (the “Public Subscription Receipts”), on a bought deal basis,
at a price of $10.40 per Public Subscription Receipts for gross proceeds of $83.0 million and net proceeds of $79.7
million. Concurrently with the closing of the public offering, the Corporation has issued from treasury 3,846,100
subscription receipts (the “Private Placement Subscription Receipts”) at a price of $10.40 per Private Placement
Subscription Receipts for gross proceeds of $40.0 million. As a result of the public offering and concurrent private
placement, a holder of multiple voting shares of the Corporation, has exercised subscription rights attached to the multiple
voting shares of the Corporation and consequently the Corporation issued from treasury 1,452,850 subscription receipts
at a price of $10.40 for gross proceeds of $15.0 million. Refer to page 51 for more detail.
As at March 31, 2018, Subscription Video On Demand (SVOD) services exceeded 348,000 paying subscribers. The
Corporation’s SVOD offerings are available as a business to customer (B2C) service and through major entertainment
service providers which include Amazon, Comcast, AT&T, Telefonica and Free. These services allow users to enjoy
unlimited, curated music programming for a monthly fee.
On March 29, 2018, the Corporation declared a dividend of $0.055 per subordinate voting share, variable subordinate
voting share and multiple voting share. The dividend will be payable on or around June 15, 2018 to shareholders on
record as of May 31, 2018.
On March 5, 2018, the Corporation announced that its commercial services division Stingray Business took home the
grand prize in the Retail category at the 2018 Digital Signage Awards in Amsterdam for the digitization of the Sports
Experts customer experience. Stingray Business was also one of only four finalists in the Overall Achievement category.
On February 7, 2018, the Corporation declared a dividend of $0.055 per subordinate voting share, variable subordinate
voting share and multiple voting share. The dividend was paid on March 15, 2018 to shareholders on record as of
February 28, 2018.
On January 24, 2018, the CRTC approved the applications by the Corporation for broadcasting licences to operate the
national English-language discretionary music video services Stingray Juicebox, Stingray Loud, Stingray Retro and
Stingray Vibe.
On January 3, 2018, the Corporation announced that it had acquired certain assets of New-York based
Qello Concerts LLC (Qello Concerts), the world's leading over-the-top (OTT) streaming service for full-length, on-demand
concerts and music documentaries for a total consideration of US$11.6 million ($14.5 million).
Annual Report 2018 | Stingray Digital Group Inc. | 30
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands of Canadian dollars, except
per share amounts)
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, amortization and write-
off
Net finance expense (income)(1)
Change in fair value of investments
Income (loss) before income taxes
Income tax expense (recovery)
Net income
Quarters ended March 31
2018
Q4 2018
2018
Fiscal 2018
33,038 100.0 % 26,502 100.0 % 126,953 100.0 % 101,501 100.0 % 89,944 100.0 %
87,612 86.3 % 77,587 86.3 %
29,674 89.8 % 22,683
2016
Fiscal 2016
85.6 % 108,830 85.7 %
2017
Q4 2017
Years ended March 31
2017
Fiscal 2017
33,038 100.0 % 26,502 100.0 % 126,953 100.0 % 101,501 100.0 % 89,944 100.0 %
10,553 31.9 %
3,830 11.6 %
9,125
3,302
34.4 %
12.5 %
44,227 34.8 %
14,705 11.6 %
35,270 34.7 % 31,407 34.9 %
12,338 12.2 % 10,435 11.6 %
2,139
6.5 %
7,413 22.4 %
2,324
6,385
8.8 %
24.1 %
10,647
8.4 %
30,030 23.7 %
8,960
7,613 8.5 %
19,016 18.7 % 13,247 14.7 %
8.8 %
–
– %
–
– %
–
– %
–
– %
5,821 6.5 %
5,613 17.0 %
(378) (1.1) %
(421) (1.3) %
4,289 13.0 %
(385) (1.2) %
4,674 14.1 %
4,619
1,006
334
(593)
(5,201)
4,608
17.4 %
3.8 %
1.3 %
(2.2) %
(19.6) %
17.4 %
21,287 16.8 %
2.5 %
0.5 %
1.8 %
(0.0) %
1.8 %
3,174
600
2,283
(13)
2,296
17,168 16.9 % 15,028 16.7 %
(418) (0.5) %
2,036
2.0 %
(7,345) (8.2) %
(408)
(0.4) %
7.0 % 14,156 15.7 %
7,121
(3.5) %
(3,596)
275 0.3 %
10,717 10.6 % 13,881 15.4 %
Adjusted EBITDA(2)
9,046
Adjusted Net income(2)
9,732 29.5 % 10,534
Adjusted free cash flow(2)
7,991
Cash flow from operating activities 10,675 32.3 % 10,826
11,752 35.6 %
11,066 33.5 %
34.1 %
39.7 %
30.2 %
40.8 %
41,524
26,858
33,181
19,385
32.7 %
21.2 %
26.1 %
15.3 %
33,864 33.4 % 31,004 34.5 %
27,310 26.9 % 24,309 27.0 %
26,511 26.1 % 24,384 27.1 %
22,766 22.4 % 18,968 21.1 %
Net income per share basic
Net income per share diluted
Adjusted Net income per share basic(2)
Adjusted Net income per share diluted(2)
0.08
0.08
0.17
0.17
0.09
0.09
0.21
0.20
0.04
0.04
0.50
0.50
0.21
0.21
0.53
0.53
0.29
0.29
0.51
0.50
Revenue by category
Music Broadcasting
Commercial Music
Revenues
Revenues by geography
Canada
United States
Other Countries
Revenues
24,826 75.1 % 19,708
6,794
74,900 73.8 % 66,172 73.6 %
26,601 26.2 % 23,772 26.4 %
33,038 100.0 % 26,502 100.0 % 126,953 100.0 % 101,501 100.0 % 89,944 100.0 %
92,182
34,771
8,212 24.9 %
74.4 %
25.6 %
72.6 %
27.4 %
13,637 41.3 % 14,000
3,838
8,664
56,129 55.3 % 53,536 59.5 %
13,609 13.4 % 12,045 13.4 %
7,760 23.5 %
31,763 31.3 % 24,363 27.1 %
11,641 35.2 %
33,038 100.0 % 26,502 100.0 % 126,953 100.0 % 101,501 100.0 % 89,944 100.0 %
59,184
23,870
43,899
52.8 %
14.5 %
32.7 %
46.6 %
18.8 %
34.6 %
Financial position
Total assets
Total non-current financial liabilities
Net debt(2)
Net debt to Adjusted EBITDA(2)(3)
Cash dividends and distributions declared per share
243,706
53,502
35,265
0.85x
0.21
195,494
54,080
35,178
1.04x
0.13
177,075
43,879
31,834
1.03x
0.13
Notes:
(1)
(2) Refer to “Forward-looking statements” and “Supplemental information on Non-IFRS measures” on page 26 and for reconciliations to the most directly
Interest paid during the Q4 2018 was $379 (Q4 2017; $269) and $1,374 for the year ended March 31, 2018 (2017 - $1,107).
comparable IFRS financial measure, refer to “Supplemental information on Non-IFRS measures” on page 32.
(3) Net debt to Adjusted EBITDA consists of Net debt including contingent considerations and balance payable on business acquisitions divided by Adjusted
EBITDA.
Annual Report 2018 | Stingray Digital Group Inc. | 31
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 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 26.
The following tables show the reconciliation of Net income to Adjusted EBITDA and Adjusted Net income:
(in thousands of Canadian dollars)
Net income
Net finance expense (income)
Change in fair value of investments
Income tax recovery
Depreciation and write-off of property and equipment
Amortization of intangible assets
Share-based compensation
Restricted, performance and deferred share unit
expense
Acquisition, legal fees, restructuring and other various
costs
Adjusted EBITDA
Net finance expense (income)
Income tax recovery
Depreciation of property and equipment and write-off
Income taxes related to change in fair value of
investments, share-based compensation, restricted,
performance and deferred share unit expense,
amortization of intangible assets and acquisition,
legal fees, restructuring and other various costs
Adjusted Net income
Quarters ended March 31
2018
Q4 2018
2017
Q4 2017
4,674
(378)
(421)
(385)
1,019
4,594
473
4,608
1,006
334
(5,201)
724
3,895
372
Years ended March 31
2017
2018
Fiscal 2017
Fiscal 2018
10,717
2,296
2,036
3,174
(408)
600
(3,596)
(13)
2,418
3,062
14,750
18,225
1,332
1,325
780
688
2,224
2,008
1,396
11,752
378
385
(1,019)
2,620
9,046
(1,006)
5,201
(724)
10,631
41,524
(3,174)
13
(3,062)
4,607
33,864
(2,036)
3,596
(2,418)
(1,764)
9,732
(1,983)
10,534
(8,443)
26,858
(5,696)
27,310
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 :
Acquisition of property and equipment
Acquisition of intangible assets other than internally
developed intangible assets
Addition to internally developed intangible assets
Net change in non-cash operating capital items
Acquisition, legal fees, restructuring and other various
costs
Adjusted free cash flow
Quarters ended March 31
2018
Q4 2018
2017
Q4 2017
10,675
10,826
Years ended March 31
2017
2018
Fiscal 2017
Fiscal 2018
22,766
19,385
(846)
(513)
(4,546)
(2,635)
(406)
(1,166)
1,413
1,396
11,066
(9)
–
(4,933)
2,620
7,991
(2,403)
(2,013)
12,127
10,631
33,181
(598)
–
2,371
4,607
26,511
The following table shows the calculation of Net debt:
(in thousands of Canadian dollars)
Revolving facility
(Cash and cash equivalents)
Net debt
March 31,
2018
March 31,
2017
38,627
(3,362)
35,265
41,040
(5,862)
35,178
Annual Report 2018 | Stingray Digital Group Inc. | 32
FINANCIAL RESULTS
FOR THE YEARS ENDED MARCH 31, 2018 AND 2017
Revenues
Revenues in Fiscal 2018 increased to $127.0 million or 25.1%, from $101.5 million for Fiscal 2017. The increase in revenues
was primarily due to the acquisitions of Yokee Music Limited (Yokee Music), Classica GMBH (Classica) and Qello Concerts,
combined with organic growth of subscription video on demand (SVOD) in the U.S. as well as additional music and equipment
sales related to digital signage.
Trends by Revenues Categories were as follow:
Revenues by category(1)
$92.2
$74.9
$34.8
$26.6
Music Broadcasting Commercial Music
2017
2018
Note:
(1)
In millions of Canadian dollars.
Trends by Revenues by Geographic Region:
Music Broadcasting
The most significant contributors to the increase of 23.1%
or $17.3 million from Fiscal 2017 in Music Broadcasting
revenues were as follows (arrows reflect the impact):
▲ Acquisition of Yokee Music in May 2017, Classica in Fiscal
2017 and Qello Concerts in January 2018.
▲ Organic growth in the U.S. market, primarily related to
SVOD.
Commercial Music
The most significant contributors to the increase of 30.7%
or $8.2 million from Fiscal 2017 in Commercial Music
revenues were as follows (arrows reflect the impact):
▲ Organic growth in sales related to digital signage and new
Commercial Music contracts in Canada.
▲ Acquisition of Satellite Music Australia PTY Ltd (SMA) and
SBA Music PTY Ltd (SBA) in July 2017.
Revenues by geography(1)
$59.2
$56.1
$43.9
Canada
The most significant contributors to the increase of 5.4% or
$3.1 million from Fiscal 2017 in revenues for Canada were
as follows (arrows reflect the impact):
▲
Organic growth in sales related to digital signage and new
Commercial Music contracts in Canada.
$31.8
United States
$23.9
$13.6
Canada
United States
Other
Countries
2017
2018
Note:
(1)
In millions of Canadian dollars.
The most significant contributors to the increase of 75.4% or
$10.3 million from Fiscal 2017 in revenues for U.S. were as
follows (arrows reflect the impact):
▲ Acquisition of Yokee Music and Qello Concerts, as well as
organic growth related to SVOD.
Other Countries
The most significant contributors to the increase of 38.2%
or $12.1 million from Fiscal 2017 in revenues for Other
Countries were as follows (arrows reflect the impact):
▲ Acquisitions of Classica, Yokee Music, C-Music, SMA and
SBA.
Annual Report 2018 | Stingray Digital Group Inc. | 33
Operating Expenses
(in thousands of Canadian
dollars)
Fiscal
2018
% of
revenues
Fiscal
2017
% of
revenues
6
Variance
Significant contributions to
variance :
Music programming, cost
of services and content
$44,227
34.8%
$35,270
34.7%
$8,957
25.4% ▲
to
Primarily due
equipment and installation sales and to
acquisitions.
to costs related
Selling and marketing
$14,705
11.6%
$12,338
12.2%
$2,367
19.2% ▲
Primarily due to additional employees
to support growth and incremental
selling costs from recent acquisitions.
Research and
development, support
and information
technology
$10,647
8.4%
$8,960
8.8%
$1,687
18.8%
▲
General and
administrative
$30,030
23.7%
$19,016
18.7%
$11,014
57.9% ▲
Primarily due to IT costs related Yokee
Music and additional staff to support
new technologies and growth, partially
offset by capitalised costs related to
internally developed intangible assets
(refer to page 35).
Primarily due to higher legal fees,
additional staff to support international
expansion and administrative costs
related to recent acquisitions.
Depreciation,
amortization and write-off
$21,287
16.8%
$17,168
16.9%
$4,119
24.0% ▲
Primarily due
intangible
acquisitions.
to
assets
the addition of
to
related
Adjusted EBITDA(1)(2)
$41.5
$33.9
2017
2018
Adjusted EBITDA in Fiscal 2018 increased 22.6% to $41.5
million from $33.9 million in Fiscal 2017. Adjusted EBITDA
margin was 32.7% in Fiscal 2018 compared to 33.4% in Fiscal
2017. The increase in Adjusted EBITDA was primarily due to
the acquisitions realized in Fiscal 2018 and to the organic
growth, partially offset by higher operating expenses related to
international expansion. The decrease in Adjusted EBITDA
margin was mainly related to equipment and installation sales
and the overall change in the product mix, which presents
lower margins.
Acquisition, legal, restructuring and other various costs
mainly included costs related to litigation (see page 46) 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 26 and 32.
Annual Report 2018 | Stingray Digital Group Inc. | 34
Research and Development, Support and Information Technology
Since the beginning of Fiscal 2018, demand for the Corporation’s SVOD and B2C services increased significantly. In order to
keep pace with increased customer and consumer demand, the Corporation grew its SVOD and B2C development team and
concentrated research and development efforts on important SVOD and B2C capital projects. As a result of these new projects
and their anticipated future benefits, the Corporation began to capitalize the qualified development costs and amortize them
over their estimated useful life, in accordance with IFRS guidelines. Accordingly, for Fiscal 2018 starting in the third quarter,
the Corporation capitalized a total of $2.0 million of its development costs, net of $0.1 million of related R&D tax credits,
compared to nil for Fiscal 2017.
Net Finance Expense (Income)
Net finance expense increased to $3.2 million from $2.0 million for Fiscal 2017. The increase was mainly related to negative
change in fair value of contingent consideration, partially offset by higher foreign exchange gain.
Change in fair value of investments
In Fiscal 2018, a loss on change in fair value of $0.6 million was recorded compared to a gain of $0.4 million for Fiscal 2017.
The loss is related to the translation of investments denominated in U.S. dollars to Canadian dollars.
Income Taxes
The income taxes recovery decreased to nil for Fiscal 2018 from $3.6 million in Fiscal 2017. The decrease is mainly related
to the increase in deferred tax assets on tax losses not previously recognized in the U.K that was recorded in Fiscal 2017. In
Fiscal 2018, additional deferred tax assets related to unrecognized tax losses in Switzerland were also recorded, contributing
to reduce the tax expense of the Company.
Net income and net income per share
Net income decreased to $2.3 million ($0.04 per share diluted)
in Fiscal 2018 from $10.7 million ($0.21 per share diluted) in
Fiscal 2017. The decrease was mainly attributable to higher
legal fees and amortization expense, lower income tax
recovery, as well as the negative change in fair value of
contingent consideration, partially offset by higher operating
results. The larger number of shares outstanding following the
equity issue in October 2017 impacted the earnings per share
calculation.
Adjusted Net income and Adjusted Net income per share
Adjusted Net Income in Fiscal 2018 decreased to $26.9 million
($0.50 per share) from $27.3 million ($0.53 per share) in
Fiscal 2017, as lower income net tax recovery and higher
finance expense were offset by higher Adjusted EBITDA. As
indicated above, the equity issue in October 2017 impacted
earnings per share.
Net income and
Adjusted Net income(1)(2)
$27.3
$26.9
$10.7
$2.3
Net income
Adjusted Net income
2017
2018
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS
In millions of Canadian dollars.
measures” on page 26 and 32.
Annual Report 2018 | Stingray Digital Group Inc. | 35
Quarterly results
Revenues increased over the last eight quarters from $24.5 million in the first quarter of Fiscal 2017 to $33.0 million in the
fourth quarter of Fiscal 2018. The increase was mainly attributable to the successful integration of acquisitions and organic
growth including new contracts in all geographic locations. The decrease in Q2 2017 revenues compared to Q1 2017 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. The decrease in Q4 2018 revenues compared to Q3 2018 was mainly explained by
lower non-recurring revenues related to digital signage in Commercial Music.
Adjusted EBITDA increased over the last eight quarters from $7.9 million in the first quarter of Fiscal 2017 to $11.8 million in
the fourth quarter of Fiscal 2018. The increase was mainly attributable to the successful integration of acquisitions and organic
growth including new contracts.
Net income (loss) fluctuated over the last eight quarters from a net income of $2.0 million in the first quarter of Fiscal 2017 to
$4.7 million in the fourth quarter of Fiscal 2018. In Q4 2017, the Corporation recorded an income tax recovery on the
recognition of deferred tax assets related to tax losses of foreign subsidiaries of $5.1 million. In Q1 2018, the decrease in net
income was mainly related to higher legal expenses and higher amortization expense on intangible assets related to
acquisitions. In Q2 2018, the net loss was mainly related to higher legal fees and finance expenses, offset partially by an
income tax recovery. In Q3 2018, the net income was mainly attributable to higher operating results and lower legal fees,
partially offset by the negative change in fair value of contingent consideration and higher amortization expense of intangible
assets compared to Q2 2018. In Q4 2018, the increase in net income was mainly attributable to higher net finance income
and income tax recovery.
Summary of Consolidated Quarterly Results
(in thousands of Canadian dollars,
except per share amounts)
Revenues by category
Music Broadcasting
Commercial Music
Total revenues
Revenues by geography
Canada
International(1)
Total revenues
Recurring revenues
Recurring revenues as a
March 31,
2018
Fiscal
2018
Dec. 31,
2017
Fiscal
2018
Sept. 30,
2017
Fiscal
2018
Quarters ended
June 30,
2017
Fiscal
2018
March 31,
2017
Fiscal
2017
Dec. 31,
2016
Fiscal
2017
Sept. 30,
2016
Fiscal
2017
June 30,
2016
Fiscal
2017
24,826
8,212
33,038
23,781
10,377
34,158
21,751
8,828
30,579
21,824
7,354
29,178
19,708
6,794
26,502
19,295
6,630
25,925
18,009
6,518
24,527
17,888
6,659
24,547
13,637
19,401
33,038
16,201
17,957
34,158
14,819
15,760
30,579
14,527
14,651
29,178
14,000
12,502
26,502
14,004
11,921
25,925
14,045
10,482
24,527
14,077
10,470
24,547
29,674
27,971
26,175
25,010
22,683
21,944
21,584
21,401
percentage of total revenues
89.8%
81.9%
85.6%
85.7%
85.6%
84.6%
88.0%
87.2%
Adjusted EBITDA(2)
11,752
11,151
9,452
9,169
9,046
8,717
8,220
7,881
Net income (loss)
4,674
737
(3,395)
280
4,608
2,660
1,405
2,044
Net income (loss) per share
basic
Net income (loss) per share
diluted
0.08
0.01
(0.07)
0.01
0.09
0.05
0.03
0.04
0.08
0.01
(0.07)
0.01
0.09
0.05
0.03
0.04
Adjusted Net income(2)
9,732
6,016
5,407
5,703
10,534
6,164
5,405
5,207
Adjusted Net income(2) per
share basic
Adjusted Net income(2) per
share diluted
0.17
0.11
0.10
0.11
0.21
0.12
0.11
0.10
0.17
0.11
0.10
0.11
0.20
0.12
0.10
0.10
Note:
(1)
(2) Refer to “Forward-looking statements” and “Supplemental information on Non-IFRS measures” on page 26 and for reconciliations to the most directly
International means all jurisdictions except Canada.
comparable IFRS financial measure, refer to “Reconciliation of Quarterly Non-IFRS Measures” on page 37.
Annual Report 2018 | Stingray Digital Group Inc. | 36
Reconciliation of Quarterly Non-IFRS Measures
(in thousands of Canadian dollars)
Net income (loss)
Net finance expense (income)
Change in fair value of
investments
Income tax expense (recovery)
Depreciation and write-off of
property and equipment
Amortization of intangible
assets
Share-based compensation
Restricted, performance and
March 31,
2018
Fiscal
2018
4,674
(378)
Dec. 31,
2017
Fiscal
2018
737
1,746
Sept. 30,
2017
Fiscal
2018
(3,395)
1,269
Quarters ended
June 30,
2017
Fiscal
2018
280
537
March 31,
2017
Fiscal
2017
4,608
1,006
Dec. 31,
2016
Fiscal
2017
2,660
9
Sept. 30,
2016
Fiscal
2017
1,405
373
June 30,
2016
Fiscal
2017
2,044
648
(421)
(385)
(110)
849
697
(941)
1,019
704
718
434
464
621
334
(5,201)
(583)
706
(250)
487
724
574
546
91
412
574
4,594
473
4,582
346
4,508
312
4,541
194
3,895
372
3,686
372
3,982
298
3,187
290
deferred share unit expense
780
422
709
313
688
550
444
326
Acquisition, legal fees,
restructuring and other
various costs
Adjusted EBITDA
Net finance expense (income)
Income tax expense (recovery)
Depreciation and write-off of
property and equipment
Income taxes related to change
in fair value of investments,
share-based compensation,
restricted, performance and
deferred share unit expense,
amortization of intangible
assets and acquisition, legal
fees, restructuring and other
various costs
Adjusted Net income
1,396
11,752
378
385
1,875
11,151
(1,746)
(849)
5,575
9,452
(1,269)
941
1,785
9,169
(537)
(464)
2,620
9,046
(1,006)
5,201
743
8,717
(9)
(706)
935
8,220
(373)
(487)
309
7,881
(648)
(412)
(1,019)
(704)
(718)
(621)
(724)
(574)
(546)
(574)
(1,764)
9,732
(1,836)
6,016
(2,999)
5,407
(1,844)
5,703
(1,983)
10,534
(1,264)
6,164
(1,409)
5,405
(1,040)
5,207
Annual Report 2018 | Stingray Digital Group Inc. | 37
LIQUIDITY AND CAPITAL RESOURCES
FOR THE YEAR ENDED MARCH 31, 2018
The Corporation’s primary sources of cash consist of operating activities and available borrowings under the revolving facility,
as well as occasional equity financing. 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, 2018 and 2017. The
Corporation met its obligations with its strong cash flow from operations and its ability to access financing from banks or
shareholders. 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)
$33.2
$26.5
$22.8
$19.4
CF from operating
activities
Adjusted free cash
flow
2017
2018
Cash flow from operating activities
Cash flow generated from operating activities decreased to
$19.4 million in Fiscal 2018 from $22.8 million in Fiscal 2017,
due to the net change in non-cash operating items, partially
offset by higher operating results and lower income taxes
paid.
Adjusted free cash flow
Adjusted free cash flow increased 25.2% to $33.2 million in
Fiscal 2018 from $26.5 million in Fiscal 2017. The increase
was mainly related to higher Adjusted EBITDA and foreign
exchange gain, as well as lower income taxes paid, partially
offset by higher capital expenditures.
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS
In millions of Canadian dollars.
measures” on page 26 and 32.
Financing Activities
Net cash flow generated by financing activities amounted to $19.7 million for Fiscal 2018 compared to net cash flow used in
financing activities of $4.3 million for Fiscal 2017. The net change of $24.0 million in cash flow was mainly attributable to the
net proceeds from the equity financing, partially offset by the decrease of the revolving facility, higher repayments of other
payables related to business acquisitions and higher dividend payments.
Investing Activities
Net cash flow used in investing activities amounted to $41.6 million for Fiscal 2018 compared to $15.8 million for Fiscal 2017.
The net change of $25.8 million was primarily related to business acquisitions and capital expenditures.
Annual Report 2018 | Stingray Digital Group Inc. | 38
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, 2018, 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
4,931
9,094
390
14,415
–
35,199
13,260
53,390
38,627
–
16,682
64,403
–
–
3,822
4,212
38,627
35,199
33,764
122,005
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 $4.4 million 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.
During Fiscal 2018, an amount of $0.4 million ($0.4 million – 2017) 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 2018 | Stingray Digital Group Inc. | 39
Capital resources
The Corporation has a revolving credit facility (revolving facility) for an authorized amount up to $100.0 million maturing in
June 2020. The revolving facility bears interest at an annual rate equal to the banker’s acceptance rate plus an applicable
margin based on a financial covenant (1.38% as at March 31, 2018 and 1.50% as at March 31, 2017) 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 0.28% (0.30% as at March 31, 2017) on the unused portion of the revolving
facility. The Corporation is required to comply with financial covenants.
The following table summarizes the net change in Net debt that occurred in the year ended March 31, 2018 including related
ratios:
Movement in Net debt(1)(2)
$41.0
$10.8
$(42.8)
$35.2
$(8.9)
$35.3
As at March 31, 2017 Business acquisitions
outlays and holdbacks
payments
Dividend payments
Net proceeds from
equity financing
Remaining net change
of revolving facility
and cash
As at March 31, 2018
$33.9
1.04
Adjusted EBITDA(1)(2)
Net debt to Adjusted EBITDA(1)(2)
$41.5
0.85
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS measures” on pages 26 and 32.
In millions of Canadian dollars.
Annual Report 2018 | Stingray Digital Group Inc. | 40
CONSOLIDATED FINANCIAL POSITION
AS AT MARCH 31, 2018 AND 2017
The following table shows the main variances that have occurred in the consolidated financial position of the Corporation for
the year ended March 31, 2018:
(in thousands of Canadian dollars)
March 31,
2018
March 31,
2017
Variance
Significant contributions
Trade and other receivables
$34,834
$27,073
$7,761 ▲
Intangible assets
$54,355
$49,519
$4,836 ▲
Goodwill
$98,467
$68,725
$29,742 ▲
Accounts payable and accrued
liabilities
$35,199
$29,773
$5,426 ▲
Revolving facility
$38,627
$41,040
$(2,413) ▼
Contingent consideration and
balance payable on business
acquisitions, including current
portion
$24,917
$18,801
$6,116 ▲
Receivables from acquisitions and
additional sales in Broadcast Music
in the U.S. and Commercial Music in
Canada.
Recognition of
intangibles via
business acquisitions offset by
amortization in the current period.
Goodwill related to the acquisitions
of Qello Concerts, SMA, Yokee
Music, Classica, SBA and C Music
Entertainment Ltd (C Music).
Payables
timing of payments to suppliers.
from acquisitions and
Net proceeds from equity financing,
partially offset by payments of
contingent
and
balance payable on business
acquisitions, as well as dividend
payments.
consideration
Recognition of Qello Concerts,
Yokee Music and C Music’s
contingent consideration offset by
payments made for Qello Concerts,
Les Réseaux Urbains Viva Inc. and
Digital Music Distribution Pty Ltd.
(DMD).
Annual Report 2018 | Stingray Digital Group Inc. | 41
FINANCIAL RESULTS
FOR THE QUARTERS ENDED MARCH 31, 2018 AND 2017
Revenues
Revenues for Q4 2018 increased 24.7% to $33.0 million, from $26.5 million for the Q4 2017. The increase in revenues was
primarily due to the acquisitions of Yokee Music, Qello Concerts, SMA and SBA combined with organic growth of subscription
video on demand (SVOD) in the U.S.
Trends by Revenues Categories were as follow:
Revenues by category(1)
$24.8
$19.7
Music Broadcasting
The most significant contributors to the increase of 26.0% or
$5.1 million from Q4 2017 in Music Broadcasting revenues
were as follows (arrows reflect the impact):
▲ Acquisition of Yokee Music and Qello Concerts.
▲ Organic growth in the U.S. market, primarily related to SVOD.
Commercial Music
$6.8
$8.2
The most significant contributors to the increase of 20.9% or
$1.4 million from Q4 2017 in Commercial Music revenues
were as follows (arrows reflect the impact):
▲ Acquisition of SMA and SBA.
Music Broadcasting Commercial Music
Q4 2017
Q4 2018
Note:
(1)
In millions of Canadian dollars.
Trends by Revenues by Geographic Region:
Revenues by geography(1)
$14.0
$13.6
Canada
The most significant contributors to the decrease of (2.6)%
or $(0.4) million from Q4 2017 in revenues for Canada were
as follows (arrows reflect the impact):
▼ Decrease in equipment and installation sales related to digital
$11.6
signage.
United States
$7.8
$8.7
$3.8
The most significant contributors to the increase of 102.2% or
$4.0 million from Q4 2017 in U.S. revenues were as follows
(arrows reflect the impact):
▲ Acquisition of Qello Concerts and Yokee Music, as well as
organic growth related to SVOD.
Other Countries
The most significant contributors to the increase of 34.4% or
$2.9 million from Q4 2017 in Other Countries revenues were
as follows (arrows reflect the impact):
▲ Acquisitions Yokee Music, SMA and SBA.
Canada
United States
Other
Countries
Q4 2017
Q4 2018
Note:
(1)
In millions of Canadian dollars.
Annual Report 2018 | Stingray Digital Group Inc. | 42
Operating Expenses
(in thousands of Canadian
dollars)
Q4 2018
% of
revenues
Q4 2017
% of
revenues
Variance
Significant contributions to
variance:
Music programming, cost
of services and content
$10,553
31.9%
$9,125
34.4%
$1,428
15.6% ▲
Primarily due
in
increase
acquisitions.
to costs related
revenues
and
to
to
Selling and marketing
$3,830
11.6%
$3,302
12.5%
$528
16.0% ▲
Primarily due to additional employees
to support growth and incremental
selling costs from recent acquisitions.
Research and
development, support
and information
technology
$2,139
6.5%
$2,324
8.8%
$(185)
(8.0)%
General and
administrative
$7,413
22.4%
$6,385
24.1%
$1,028
16.1%
▼
to
to capitalised costs
Primarily due
related
developed
internally
intangible assets (refer to page 44),
partially offset by IT costs related to
Yokee Music and additional staff to
support new technologies and growth.
▲
Primarily due to additional staff to
support international expansion and
administrative costs related to recent
acquisitions and growth, partially offset
by lower legal fees.
Depreciation,
amortization and write-off
$5,613
17.0%
$4,619
17.4%
$994
21.5% ▲
Primarily due
intangible
acquisitions.
to
assets
the addition of
to
related
Adjusted EBITDA(1)(2)
$11.8
$9.0
Q4 2017
Q4 2018
increased 29.9%
Adjusted EBITDA
to
for Q4 2018
$11.8 million, from $9.0 million for Q4 2017. Adjusted EBITDA
margin was 35.6% for Q4 2018 compared to 34.1% for
Q4 2017. The increase in Adjusted EBITDA was primarily due
to the business acquisitions realized in Fiscal 2018 and to the
organic growth, partially offset by higher operating expenses
related to international expansion. The increase in Adjusted
EBITDA margin was mainly related to the decrease in
equipment and installation sales related to digital signage,
which presents lower margins.
Acquisition, legal, restructuring and other various costs
mainly included litigation fees (refer to page 46) and costs
related to the integration of our recent acquisitions.
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS measures”
In millions of Canadian dollars.
on pages 26 and 32.
Annual Report 2018 | Stingray Digital Group Inc. | 43
Research and Development, Support and Information Technology
In Fiscal 2018, demand for the Corporation’s SVOD and B2C services increased significantly. In order to keep pace with
increased customer and consumer demand, the Corporation grew its SVOD and B2C development team and concentrated
research and development efforts on important SVOD and B2C capital projects. As a result of these new projects and their
anticipated future benefits, the Corporation began to capitalize the qualified development costs and amortize them over their
estimated useful life, in accordance with IFRS guidelines. Accordingly, for Q4 2018 the Corporation capitalized a total of
$1.1 million of its development costs, net of $0.1 million of related R&D tax credits, compared to nil for Q4 2017.
Net Finance Expense (Income)
In Q4 2018, a finance gain of $0.4 million was recorded compared to a loss of $1.0 million in Q4 2017. The increase was
mainly related to higher foreign exchange gain and positive change in fair value of contingent consideration.
Change in fair value of investments
In Q4 2018, a gain on fair value of $0.4 million was recorded compared to a loss of $0.3 million in Q4 2017. The gain is related
to the translation of the investments denominated in U.S. dollars to Canadian dollars.
Income Taxes
The income tax recovery decreased to $0.4 million for Q4 2018 from $5.2 million for Q4 2017. The decrease is mainly related
to the increase in deferred tax assets on tax losses not previously recognized in the U.K that was recorded in Q4 2017. In Q4
2018, additional deferred tax assets related to unrecognized tax losses in Switzerland were also recorded, contributing to
reduce the tax expense of the Company.
Net income and net income per share
For Q4 2018, net income of $4.7 million ($0.08 per share)
compared to a net income of $4.6 million for Q4 2017 ($0.09
per share). The increase was mainly attributable to higher
operating results and net finance income, as well as lower legal
fees, partially offset by lower income tax recovery and higher
larger number of shares
amortization expense. The
outstanding following the equity issue in October 2017
impacted the earnings per share calculation.
Adjusted Net income and Adjusted Net income per share
Adjusted Net income for Q4 2018 decreased to $9.7 million
($0.17 per share) from $10.5 million ($0.20 per share) for Q4
2017, as lower income net tax recovery was partially offset by
higher Adjusted EBITDA and net finance income. As indicated
above, the equity issue in October 2017 impacted earnings per
share.
Net income and
Adjusted Net income(1)(2)
$10.5
$9.7
$4.6
$4.7
Net income
Adjusted Net
income
Q4 2017
Q4 2018
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS
In millions of Canadian dollars.
measures” on page 26 and 32.
Annual Report 2018 | Stingray Digital Group Inc. | 44
LIQUIDITY AND CAPITAL RESOURCES
FOR THE QUARTERS ENDED MARCH 31, 2018 AND 2017
CF from operating activities and
Adjusted free cash flow(1)(2)
$10.8
$10.7
$11.1
$8.0
CF from operating
activities
Adjusted free cash
flow
Q4 2017
Q4 2018
Cash flow from operating activities
Cash flow generated from operating activities amounted to
$10.7 million for Q4 2018 compared to $10.8 million for
Q4 2017. The slight decrease was primarily due to the
negative net change in non-cash operating items largely
offset by higher operating results.
Adjusted free cash flow
Adjusted free cash flow generated in Q4 2018 amounted to
$11.1 million compared to $8.0 million for Q4 2017. The
increase was mainly related to higher adjusted EBITDA and
foreign exchange gain, as well as lower income taxes paid,
partially offset by higher capital expenditures.
Notes:
(1)
(2) Refer to “Supplemental information on Non-IFRS
In millions of Canadian dollars.
measures” on page 26 and 32.
Financing Activities
Net cash flow generated by financing activities amounted to $3.6 million for Q4 2018 compared to net cash flow used in
financing activities of $7.5 million for Q4 2017. The net change of $11.1 million in cash flow was mainly attributable to the
increase of the revolving facility, partially offset by higher repayment of other payables related to business acquisitions.
Investing Activities
Net cash flow used in investing activities amounted to $15.4 million for Q4 2018 compared to $0.4 million for Q4 2017. The
net change of $15.0 million was primarily related to the acquisition of Qello Concerts and to higher capital expenditures.
Annual Report 2018 | Stingray Digital Group Inc. | 45
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 the Corporation served its invalidity
contentions on November 28, 2016. On March 27, 2017, the Corporation filed a motion for judgment on the pleadings on the
basis that the Asserted Patents are invalid under 35 U.S.C. 101 for claiming unpatentable subject matter. The parties
exchanged amended infringement and invalidity contentions on April 28, 2017. In addition, on November 14, 2016, the
Corporation 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 the Corporation’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, and on September 6, 2017, the Court adopted the report and denied Music Choice’s motion. On
July 6, 2017, the Court issued a Markman Order construing certain claim terms of the Asserted Patents. On
September 14, 2017, Music Choice dropped one of the five patents-in-suit (U.S. Patent No. 8,769,602). On October 17, 2017,
the Corporation filed a motion to adjourn the trial date and remaining case deadlines, in part because the PTAB instituted inter
partes review for three of the four patents-in-suit. On October 27, 2017, the PTAB instituted inter partes review on the fourth
patent-in-suit, and on October 30, 2017, the Corporation filed a motion to stay the litigation pending the inter partes reviews.
On December 12, 2017, the Court granted the Corporation’s motion to stay, staying the litigation pending resolution of the
IPRs, and dismissed without prejudice Stingray’s motion for judgment on the pleadings.
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 false 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 closed, and expert discovery has commenced.
In view of the Court’s adjournment of the trial date and stay in Music Choice v. Stingray, this case is stayed as well.
SOCAN and Re:Sound legal proceedings
From May 2, 2017 until May 10, 2017, the Corporation, together with its Canadian Broadcast Distribution Undertaking
customers (together, 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 (together,
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. While the Objectors and the Collectives await the final determination of the Board on the
proper quantum of the Tariff, in early 2018 the Board released a tentative ruling proposing that allocation of affiliation payments
across the suite of Stingray services is reasonable and appropriate and asking the parties to propose favoured approaches to
allocation. The parties have responded to the Board’s request, with the Objectors proposing an allocation based on a “cost
approach”, as supported by independent, expert advice. The Copyright Board of Canada continues its consideration of the
matter, and the Corporation anticipates a decision in about 12 to 24 months, based on past experience and the complexity of
this proceeding.
Annual Report 2018 | Stingray Digital Group Inc. | 46
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 director’s fees include the following:
(in thousands of Canadian dollars)
Short-term employee benefits
Share-based compensation
Restricted and performance share units
Deferred share units
Off-Balance Sheet Arrangements
2018
2017
$
$
4,350
921
557
911
6,739
$
$
3,361
810
407
896
5,474
The Corporation had no off-balance sheet arrangements, other than operating leases (which have been discussed 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.
Disclosure of Outstanding Share Data
Issued and outstanding shares and outstanding stock options consisted of:
Issued and outstanding shares:
Subordinate voting shares
Subordinate voting shares held in trust through employee share
purchase program
Variable subordinate voting shares
Multiple voting shares
Outstanding stock options and subscription receipts:
Stock options
Subscription receipts
June 6, 2018
March 31, 2018
39,630,840
39,641,040
(8,704)
386,639
16,294,285
56,303,060
1,965,227
13,279,950
(6,011)
376,439
16,294,285
56,305,753
1,965,227
–
The Corporation has a 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, which was amended on June 7, 2017, 10%
of all multiple voting shares, subordinate voting shares and variable subordinate voting shares issued and outstanding on a
non-diluted basis is reserve for issuance. In the year ended March 31, 2018, 85,198 options were exercised, 29,189 options
were forfeited, and 682,429 options were granted to eligible employees, subject to service vesting periods of 4 years.
Financial Risk Factors
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 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
Annual Report 2018 | Stingray Digital Group Inc. | 47
well as any material transactions out of the ordinary course of business, including proposals on mergers, acquisitions or other
major investments or divestitures.
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 more 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
Annual Report 2018 | Stingray Digital Group Inc. | 48
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.
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 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 intends to adopt retrospectively IFRS 15 in its consolidated financial statements for the annual period
beginning on April 1, 2018, and does not expect the standard to have a material impact on the financial statements except for
the gross or net presentation of certain B2C applications revenues streams, such as mobile applications. The Corporation
currently accounts for its applications revenues on a net basis presentation.
Under current IFRS guidance, determining whether an entity is acting as an agent or principal is not based on the application
of specific indicators and judgment is required to determine whether gross or net presentation is appropriate. Under IFRS 15
guidance, the new model of revenue recognition is based on the core “transfer of control” principle that is used to determine
the primary obligator of the service rendered. In this context, the Company will be considered as the principal and therefore
will recognize these revenues on a gross basis presentation.
The impact on net income is expected to be nil, and the impact on revenues and music programming, cost of services and
content as follows:
(in thousands of Canadian dollars)
Revenues
Music programming, cost of services and content
IFRS 9 - Financial instruments
2018 under
current IFRS
$
$
126,953
44,227
2018 under
IFRS 15
$
$
130,475
47,749
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 a 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 intends to adopt IFRS 9 (2014) in its consolidated
financial statements for the annual period beginning on April 1, 2018. The Corporation does not expect IFRS 9 (2014) to have
a material impact on the consolidated financial statements.
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 amendments provide requirements on the accounting for the effects
of vesting and non-vesting conditions on the measurement of cash-settled share-based payments; share-based payment
transactions with a net settlement feature for withholding tax obligations; and a modification to the terms and conditions of a
Annual Report 2018 | Stingray Digital Group Inc. | 49
share-based payment that changes the classification of the transaction from cash-settled to equity-settled. The Corporation
intends to adopt the amendments to IFRS 2 in its financial statements for the annual period beginning on April 1, 2018. The
Company does not expect the amendments to have a material impact on the financial statements.
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 Corporation will adopt the Interpretation in its financial statements for the annual period beginning on
April 1, 2018. The Corporation does not expect the Interpretation to have a material impact on the financial statements.
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.
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”).
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, 2018, 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, 2018.
As at March 31, 2018, 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, 2018.
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.
Management’s assessment of and conclusion on the design and the effectiveness of the Corporation’s ICFR as at June 7,
2018, did not include the controls or procedures of the operations of Yokee Music, C Music, SBA and SMA which were acquired
in Fiscal 2018. 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.
Annual Report 2018 | Stingray Digital Group Inc. | 50
The following table summarizes the financial information for Fiscal 2018 for these entities:
Yokee Music
C Music
SBA
SMA
$
$
$
$
7,058
41
2,553
12,805
1,479
1,145
1,095 $
(330)
1,378 $
5,881
714
–
1,618 $
(72)
411 $
4,120
463
–
2,007
28
1,355
6,250
551
–
(in thousand of Canadian dollars)
Results of operations
Revenues
Net income (loss)
Financial Position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Subsequent Events
Agreement for a business acquisition
On May 2, 2018, the Corporation announced that it had entered into a definitive agreement with NCC pursuant to which the
Corporation will acquire all of the NCC Shares for $14.75 per NCC share (the “Purchase Price”), representing a total
consideration of approximately $506.0 million. Under the terms of the agreement, NCC shareholders will receive shares of the
Corporation equivalent to $40.0 million, representing approximately 8% of the total consideration.
Completion of the acquisition, expected to occur by the end of 2018 but no later than May 2, 2019, is subject to, and conditional
upon, the receipt of all necessary approvals, including approval of Canadian Radio-Television and Telecommunications
Commission (CRTC) and securing necessary funding.
The cash element of the Purchase Price will be funded through a combination of the following: $450.0 million of new committed
credit facilities, $83.0 million bought deal public offering of subscription receipts of the Corporation at a price of $10.40 per
subscription receipt, $40.0 million private placement of subscription receipts of the Corporation at a price of $10.40 per private
placement subscription receipt and $17.0 million in subscription receipts through the exercise by some shareholders of their
multiple voting shares of the Corporation.
Subscription receipt offerings
Following the agreement to purchase NCC, on May 23, 2018, the Corporation completed a subscription receipt offering and
issued from treasury 7,981,000 subscription receipts of the Corporation (the “Public Subscription Receipts”), on a bought deal
basis, at a price of $10.40 per Public Subscription Receipts for gross proceeds of $83.0 million and net proceeds of
$79.7 million. The Corporation has granted the underwriters an option to purchase up to 1,197,150 additional Public
Subscription Receipts at a price of $10.40 at any time up until June 22, 2018 for gross proceeds of $12.0 million.
Concurrently with the closing of the public offering, the Corporation has issued from treasury 3,846,100 subscription receipts
(the “Private Placement Subscription Receipts”) at a price of $10.40 per Private Placement Subscription Receipts for gross
proceeds of $40.0 million.
As a result of the public offering and concurrent private placement, a holder of multiple voting shares of the Corporation, has
exercised subscription rights attached to the multiple voting shares of the Corporation and consequently the Corporation issued
from treasury 1,452,850 subscription receipts (the “Subscription Receipts”) at a price of $10.40 for gross proceeds of $15.0
million.
The holders of the Public Subscription Receipts, Private Placement Subscription Receipts and of the Subscription Receipts
(together referred as the “Receipt”) are entitled to receive a dividend of $0.055 per Receipt totalling $0.1 million, which will be
payable on June 15, 2018.
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 2018 | Stingray Digital Group Inc. | 51
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, 2018 and March 31,
2017, 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
audits. We conducted our audits 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, 2018 and March 31,
2017, and its consolidated financial performance and its consolidated cash flows for the years then
ended in accordance with International Financial Reporting Standards.
June 6, 2018
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.
Consolidated Statements of Comprehensive Income
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars,
except per share amounts)
Note
2018
2017
Revenues
4
$
126,953
$
101,501
Music programming, cost of services and content
Selling and marketing
Research and development, support and information technology,
net of tax credits of $790 (2017 - $887)
General and administrative
Depreciation, amortization and write-off
Net finance expense (income)
Change in fair value of investments
Income before income taxes
Income tax 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 (loss), net of tax
Items that may be reclassified to profit and loss
Exchange differences on translation of foreign operations
Total other comprehensive income (loss)
44,227
14,705
10,647
30,030
21,287
3,174
600
2,283
(13)
35,270
12,338
8,960
19,016
17,168
2,036
(408)
7,121
(3,596)
$
2,296
$
10,717
0.04
0.04
0.21
0.21
53,455,073
54,080,184
51,242,611
51,497,510
5
6
15
7
8
8
8
8
$
2,296
$
10,717
1,640
1,640
(1,085)
(1,085)
Total comprehensive income
$
3,936
$
9,632
Net income is entirely attributable to Shareholders.
The accompanying notes are an integral part of these consolidated financial statements.
Annual Report 2018 | Stingray Digital Group Inc. | 53
Consolidated Statements of Financial Position
March 31, 2018 and March 31, 2017
(In thousands of Canadian dollars)
Note
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Research and development tax credits
Income taxes receivable
Inventories
Other current assets
Non-current assets
Property and equipment
Intangible assets
Goodwill
Investments
Investment in an associate
Investment in joint venture
Other non-current assets
Deferred tax assets
Total assets
Liabilities and Equity
Current liabilities
Accounts payable and accrued liabilities
Dividend 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 23)
Subsequent events (note 2)
Total liabilities and equity
9
10
11
12
13
14
15
16
7
17
20
19
18
19
7
20
$
March 31,
2018
March 31,
2017
(recasted, see note 3)
$
3,362
34,834
610
989
1,784
6,793
48,372
11,135
54,355
98,467
15,533
1,106
834
954
12,950
5,862
27,073
486
1,212
1,233
4,780
40,646
5,336
49,519
68,725
17,351
–
738
954
12,225
$
243,706
$
195,494
$
$
35,199
3,097
1,530
13,212
2,403
55,441
38,627
14,875
5,156
29,773
–
1,094
9,498
1,396
41,761
41,040
13,040
4,705
114,099
100,546
146,354
3,825
(21,936)
1,364
129,607
102,700
2,872
(10,299)
(325)
94,948
$
243,706
$
195,494
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors,
(Signed) Eric Boyko, Director
(Signed) Pascal Tremblay, Director .
Annual Report 2018 | Stingray Digital Group Inc. | 54
–
–
–
–
Consolidated Statements of Changes in Equity
Years ended March 31, 2018 and 2017
(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
Balance at March 31, 2016
51,107,975 $ 102,040
$
2,196 $
(14,646) $
804
$ 90,394
Insurance of shares upon
exercise of options (note 20)
Dividends (note 20)
Share-based compensation
Net income
Other comprehensive income (loss)
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
Issuance of shares upon
exercise of options (note 20)
Dividends (note 20)
Issuance of subordinate voting shares
and variable subordinate voting
shares (note 20)
Share issuance costs, net of income
taxes of $604 (note 20)
Share-based compensation
Employee share purchase plan
(notes 20 and 22)
Net income
Other comprehensive income (loss)
85,198
–
301
–
(133)
–
–
(13,884)
4,900,200
45,082
(1,669)
–
–
–
1,039
(6,011)
(60)
–
–
–
–
47
–
–
–
–
–
–
2,296
(49)
1,689
Balance at March 31, 2018
56,305,753 $ 146,354
$
3,825 $
(21,936)
$
1,364
$ 129,607
The accompanying notes are an integral part of these consolidated financial statements.
Annual Report 2018 | Stingray Digital Group Inc. | 55
–
–
–
–
262
(6,414)
1,074
10,717
–
–
–
–
–
–
–
168
(13,884)
45,082
(1,669)
1,039
(13)
2,296
1,640
Consolidated Statements of Cash Flows
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars)
Note
2018
2017
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 of financing fees
Interest expense and standby fees
Change in fair value of investments
Change in fair value of contingent consideration and
balance payable on business acquisition
Accretion expense on balance payable on business
acquisition
Accretion expense of CRTC tangible benefits
Share of results of joint venture
Income tax recovery
Interest paid
Income taxes received
Net change in non-cash operating items
Financing activities:
Increase (decrease) in the revolving facility
Issuance of shares
Share issuance costs
Payments of dividends
Proceeds from the exercise of stock options
Shares purchased under the employee share purchase plan
Repayment of other payables
Other
Investing activities:
Business acquisitions, net of cash acquired
Intangible assets acquired through asset acquisitions
Investment in an associate
Proceeds from disposal of an investment
Acquisition of property and equipment
Acquisition of equipment for leasing purpose
Acquisition of intangible assets other than internally developed
intangible assets
Addition to internally developed intangible assets
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
22
22
12
13
6
6
15
21
18
20
20
20
20
20
3
16
15
$
2,296
$
1,325
1,313
911
3,062
18,225
100
1,445
600
3,196
369
244
(96)
(13)
(1,374)
(91)
31,512
(12,127)
19,385
(2,413)
45,082
(2,253)
(10,787)
168
(77)
(10,022)
–
19,698
(29,417)
–
(1,106)
1,218
(4,546)
(3,316)
(2,403)
(2,013)
(41,583)
(2,500)
5,862
Cash and cash equivalents, end of year
$
3,362
$
The accompanying notes are an integral part of these consolidated financial statements.
Annual Report 2018 | Stingray Digital Group Inc. | 56
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
5,862
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(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, 2018:
- On December 1, 2017, the Corporation signed an agreement to acquire certain assets of New-York based Qello
Holdings LLC, the world's leading over-the-top (OTT) streaming service for full-length, on-demand concerts and music
documentaries for total consideration of $US11,621 ($14,546). It resulted in the recognition of goodwill
(notes 3 and 14), intangible assets (notes 3 and 13), balance payable on business acquisitions and contingent
consideration (notes 3 and 19).
- On October 24, 2017, the Corporation completed a bought deal offering of an aggregate 4,348,000 subordinate voting
shares and variable subordinate voting shares of the Corporation at a price of $9.20 per share for gross proceeds of
$40,002 and net proceeds of $38,402. On November 7, 2017 the underwriters exercised part of their over-allotment
option and bought an additional 552,200 subordinate voting shares at a price of $9.20 for gross proceeds of $5,080
and net proceeds of $4,877. It resulted in an increase of share capital (note 20) and a decrease in the revolving facility
(note 18).
- On July 31, 2017, the Corporation signed an agreement to acquire and operate Satellite Music Australia PTY Ltd., a
subsidiary of Macquarie Media Operations PTY Limited and a leading Australian provider of in-store media solutions
servicing more than 2,200 locations for total consideration of AU$6,213 ($6,200). It resulted in the recognition of
goodwill (notes 3 and 14), intangible assets (notes 3 and 13) and contingent consideration (notes 3 and 19).
- On July 31, 2017, the Corporation signed an agreement to acquire and operate SBA Music PTY Ltd., a leading
Australian provider of in-store media solutions carrying over 20 years of expertise as a background music provider for
total consideration of AU$3,867 ($3,817). It resulted in the recognition of goodwill (notes 3 and 14) and intangible
assets (notes 3 and 13).
- On May 26, 2017, the Corporation signed an agreement to acquire and operate C Music TV, a classical and cinematic
music video television channel for total consideration of GBP3,345 ($5,790). It resulted in the recognition of goodwill
(notes 3 and 14), intangible assets (notes 3 and 13) and contingent consideration (notes 3 and 19).
- 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
total consideration of
US$10,888 ($14,602). It resulted in the recognition of goodwill (notes 3 and 14), intangible assets (notes 3 and 13)
and contingent consideration (notes 3 and 19).
Annual Report 2018 | Stingray Digital Group Inc. | 57
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
2. Subsequent events:
Agreement for a business acquisition
- On May 2, 2018, the Corporation announced that it had entered into a definitive agreement with Newfoundland Capital
Corporation Limited (“NCC”) pursuant to which the Corporation will acquire all of NCC’s issued and outstanding shares
(the “NCC Shares”) for $14.75 per NCC share (the “Purchase Price”), representing a total consideration of
approximately $506,000. Under the terms of the agreement, NCC shareholders will receive shares of the Corporation
equivalent to $40,000, representing approximately 8% of the total consideration.
Completion of the acquisition, expected to occur by the end of 2018 but no later than May 2, 2019, is subject to, and
conditional upon, the receipt of all necessary approvals, including approval of Canadian Radio-Television and
Telecommunications Commission (CRTC) and securing necessary funding.
The cash element of the Purchase Price will be funded through a combination of the following: $450,000 of new
committed credit facilities, $83,000 bought deal public offering of subscription receipts of the Corporation at a price of
$10.40 per subscription receipt, $40,000 private placement of subscription receipts of the Corporation at a price of
$10.40 per private placement subscription receipt and $17,000 in subscription receipts through the exercise by some
shareholders of their multiple voting shares of the Corporation. The terms and conditions of new committed credit
facilities are under negotiation.
Subscription receipt offerings
-
Following the agreement to purchase NCC, on May 23, 2018, the Corporation completed a subscription receipt
offering and issued from treasury 7,981,000 subscription receipts of the Corporation (the “Public Subscription
Receipts”), on a bought deal basis, at a price of $10.40 per Public Subscription Receipts for gross proceeds of $83,000
and net proceeds of $79,682. The Corporation has granted the underwriters an option to purchase up to 1,197,150
additional Public Subscription Receipts at a price of $10.40 at any time up until June 22, 2018 for gross proceeds of
$12,000.
Concurrently with the closing of the public offering, the Corporation has issued from treasury 3,846,100 subscription
receipts (the “Private Placement Subscription Receipts”) at a price of $10.40 per Private Placement Subscription
Receipts for gross proceeds of $40,000.
As a result of the public offering and concurrent private placement, an holder of multiple voting shares of the
Corporation, has exercised subscription rights attached to the multiple voting shares of the Corporation and
consequently the Corporation issued from treasury 1,452,850 subscription receipts (the “Subscription Receipts”) at a
price of $10.40 for gross proceeds of $15,000.
The holders of the Public Subscription Receipts, Private Placement Subscription Receipts and of the Subscription
Receipts (together referred as the “Receipt”) are entitled to receive a dividend of $0.055 per Receipt totalling $730,
which will be payable on June 15, 2018.
Annual Report 2018 | Stingray Digital Group Inc. | 58
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
3. Business acquisitions:
Year ended March 31, 2018
Qello Concerts
On December 28, 2017, the Corporation purchased certain assets of Qello Holdings LLC, (“Qello Concerts”) for total
consideration of US$11,621 ($14,546). Qello Concerts is a provider of on-demand concerts and music documentaries. As
a result of the acquisition, goodwill of $11,980 was recognized related to the operating synergies expected to be achieved
from integrating the acquired business into the Corporation’s existing business. The intangible assets and goodwill will 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 based on the annual growth over the next 3 years ending in November 2020. The fair value of the
contingent consideration was determined using an income approach based on the estimated amount and timing of
projected cash flows.
The balance payable on business acquisition is comprise of an amount of US$7,759 ($9,712) paid on January 3, 2018 to
the former owners as well as assumed liabilities in the amount of US$2,822 ($3,532). The fair value of these assumed
liabilities was $3,532, which represented the gross contractual amount.
The results of the business acquisition of Qello Concerts for the year ended March 31, 2018 are included in results since
the date of the acquisition Revenues recorded from the acquisition date to March 31, 2018 were $1,885 and net income
was $669. Had the acquisition occurred at the beginning of the fiscal year, revenues related to this acquired business
would have been approximately $5,654 and net income would have been $2,006.
Assets acquired :
Intangible assets
Goodwill
Liabilities assumed :
Deferred revenues
Net assets acquired at fair value
Consideration given :
Balance payable on business acquisition
Contingent consideration
Preliminary
$
2,865
11,980
14,845
299
299
$
14,546
13,244
1,302
$
14,546
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 remains to be obtained.
Annual Report 2018 | Stingray Digital Group Inc. | 59
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
Satellite Music Australia PTY Ltd.
On July 31, 2017, the Corporation purchased all of the outstanding shares of Satellite Music Australia PTY Ltd. (“SMA”)
for total consideration of AU$6,213 ($6,200). SMA is an Australian provider of in-store media solutions. As a result of the
acquisition, goodwill of $4,941 was recognized related to the operating synergies expected to be achieved from integrating
the acquired business into the Corporation’s existing business. The goodwill will not be deductible for tax purposes.
The fair value of acquired trade receivables was $555 which represented the gross contractual amount. The contingent
consideration arrangement requires the Corporation to pay, in cash, to the former owners, a fixed amount of
AU$900 ($898) upon achievement of certain revenue targets over the next 12 and 18-month periods ending July 2018 and
January 2019, respectively. The fair value of the contingent consideration was determined using an income approach
based on the estimated amount and timing of projected cash flows.
The results of the business acquisition of SMA for the year ended March 31, 2018 are included in results since the date of
the acquisition. Revenues recorded from the acquisition date to March 31, 2018 were $2,007 and net income was $28.
Had the acquisition occurred at the beginning of the fiscal year, revenues related to this acquired business would have
been approximately $3,011 and net income would have been $42.
Assets acquired :
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Property and equipment
Intangible assets
Goodwill
Deferred tax assets
Liabilities assumed :
Accounts payable and accrued liabilities
Deferred tax liabilities
Net assets acquired at fair value
Consideration given :
Cash
Working capital payable
Contingent consideration
$
Preliminary
20
555
46
43
9
1,115
4,941
46
6,775
240
335
575
$
6,200
4,989
450
761
$
6,200
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 remains to be obtained.
Annual Report 2018 | Stingray Digital Group Inc. | 60
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
SBA Music PTY Ltd.
On July 31, 2017, the Corporation purchased all of the outstanding shares of SBA Music PTY Ltd. (“SBA”) for a total
consideration of AU$3,867 ($3,817). SBA is an Australian provider of in-store media solutions. As a result of the acquisition,
goodwill of $3,023 was recognized related to the operating synergies expected to be achieved from integrating the acquired
business into the Corporation’s existing business. The goodwill will not be deductible for tax purposes.
The fair value of acquired trade receivables was $47 which represented the gross contractual amount.
The results of the business acquisition of SBA for the year ended March 31, 2018 are included in results since the date of
the acquisition. Revenues recorded from the acquisition date to March 31, 2018 were $1,618 and net loss was $72. Had
the acquisition occurred at the beginning of the fiscal year, revenues related to this acquired business would have been
approximately $2,157 and net loss would have been $96.
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 receivable
$
Preliminary
212
47
109
19
1,155
3,023
4,565
402
346
748
$
3,817
3,948
(131)
$
3,817
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 remains to be obtained.
Annual Report 2018 | Stingray Digital Group Inc. | 61
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
C Music Entertainment Limited
On May 26, 2017, the Corporation purchased all of the outstanding shares of C Music Entertainment Limited
(“C Music TV”), for total consideration of GBP3,345 ($5,790). C Music TV is a London-based satellite and cable television
channel dedicated to classical, crossover, and cinematic music videos. As a result of the acquisition, goodwill of $2,019
was recognized related to the operating synergies expected to be achieved from integrating the acquired business into the
Corporation’s existing business. The goodwill will not be deductible for tax purposes.
The fair value of acquired trade receivables was $742 which represented the gross contractual amount. The contingent
consideration arrangement requires the Corporation to pay, in cash, to the former owners, a fixed amount of
GBP1,440 ($2,492) upon achievement of certain revenues targets over the next 2 years ending in April 2019, subject to a
shortfall clause. In addition, in the event that the Corporation exceeds the revenues targets, the Corporation must pay the
excess revenues to the former owners. The fair value of the contingent consideration was determined using an income
approach based on the estimated amount and timing of projected cash flows.
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 results of the business acquisition of C Music TV for the year ended March 31, 2018 are included in results since the
date of the acquisition. Revenues recorded from the acquisition date to March 31, 2018 were $1,095 and net loss was
$253. Had the acquisition occurred at the beginning of the fiscal year, revenues related to this acquired business would
have been approximately $1,276 and net loss would have been $295.
Assets acquired :
Cash and cash equivalents
Trade and other receivables
Property and equipment
Intangible assets
Goodwill
Liabilities assumed :
Accounts payable and accrued liabilities
Deferred tax liabilities
Preliminary
Adjustments
Final
$
$
8
742
41
4,516
2,553
7,860
429
819
1,248
$
–
–
–
(428)
(534)
(962)
–
(140)
(140)
8
742
41
4,088
2,019
6,898
429
679
1,108
Net assets acquired at fair value
$
6,612
$
(822)
$
5,790
Consideration given :
Cash
Working capital payable
Contingent consideration
3,739
270
2,603
–
–
(822)
3,739
270
1,781
$
6,612
$
(822)
$
5,790
Annual Report 2018 | Stingray Digital Group Inc. | 62
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
Yokee Music Limited
On May 8, 2017, the Corporation purchased all of the outstanding shares of Yokee Music LTD. (“Yokee”) for total
consideration of US$10,888 ($14,602). Yokee is an Israel-based provider of three social music apps: Yokee, Yokee Guitar,
and Yokee Piano. As a result of the acquisition, goodwill of $5,614 was recognized related to the operating synergies
expected to be achieved from integrating the acquired business into the Corporation existing business. The goodwill will
not be deductible for tax purposes.
The fair value of acquired trade receivables was $970 which represented the gross contractual amount. The contingent
consideration arrangement requires the Corporation to pay, in cash, to the former owners, a fixed amount of
US$3,000 ($4,023) over the next 3 years ending in April 2020, if certain conditions are met. In addition, the Corporation
must pay an additional amount of $US3,500 ($4,695) over the same period of time upon achievement of certain revenue
growth targets . The fair value of the contingent consideration was determined using an income approach based on the
estimated amount and timing of projected cash flows.
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 results of the business acquisition of Yokee for the year ended March 31, 2018 are included in results since the date
of the acquisition. Revenues recorded from the acquisition date to March 31, 2018 were $7,058 and net income was $41.
Had the acquisition occurred at the beginning of the fiscal year, revenues related to this acquired business would have
been approximately $7,771 and net income would have been $45.
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
Preliminary
Adjustments
Final
$
1,342 $
926
34
114
9,642
3,561
15,619
676
2,410
3,086
$
–
44
(1)
–
(962)
2,053
1,134
277
(1,212)
(935)
1,342
970
33
114
8,680
5,614
16,753
953
1,198
2,151
Net assets acquired at fair value
$
12,533 $
2,069
$
14,602
Consideration given :
Cash
Working capital payable
Contingent consideration
8,611
–
3,922
–
795
1,274
8,611
795
5,196
$
12,533 $
2,069
$
14,602
Annual Report 2018 | Stingray Digital Group Inc. | 63
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
Year ended March 31, 2017
Nature Vision
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
Trade and other receivables
Intangible assets
Goodwill
Liabilities assumed :
Accounts payable and accrued liabilities
Deferred tax liabilities
Preliminary as at
March 31, 2017
Adjustments
Final
$
172 $
–
380
853
1,405
3
57
60
$
–
56
–
(13)
43
120
–
120
172
56
380
840
1,448
123
57
180
Net assets acquired at fair value
$
1,345 $
(77) $
1,268
Consideration given :
Cash
Working capital payable
Contingent consideration
587
183
575
–
(77)
–
587
106
575
$
1,345 $
(77) $
1,268
Purchase price adjustments within the measurement period have been recorded as at March 31, 2017 (recasted).
Annual Report 2018 | Stingray Digital Group Inc. | 64
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
Classica GMBH
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
Trade and other receivables
Other current assets
Property and equipment
Intangible assets
Goodwill
Liabilities assumed :
Accounts payable and accrued liabilities
Deferred tax liabilities
Preliminary as at
March 31, 2017
Adjustments
Final
$
368 $
1,080
63
11
7,911
4,106
13,539
1,608
1,092
2,700
$
–
(3)
–
–
–
(50)
(53)
31
–
31
368
1,077
63
11
7,911
4,056
13,486
1,639
1,092
2,731
Net assets acquired at fair value
$
10,839 $
(84) $
10,755
Consideration given :
Cash
Working capital receivable
Balance payable on business acquisition
Contingent consideration
5,541
(189)
5,395
92
–
(84)
–
–
5,541
(273)
5,395
92
$
10,839 $
(84) $
10,755
Purchase price adjustments within the measurement period have been recorded as at March 31, 2017 (recasted).
Annual Report 2018 | Stingray Digital Group Inc. | 65
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
Festival 4K B.V.
The Corporation finalized the assessment of the fair values of the assets acquired and liabilities assumed related to this
acquisition and no adjustments to the preliminary assessment were recorded in the statement of financial position.
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
$
Final
16
61
317
7
79
906
1,777
3,163
333
186
519
$
2,644
1,438
84
1,122
$
2,644
Annual Report 2018 | Stingray Digital Group Inc. | 66
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
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.
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, 445694 Canada Inc., Stingray Business Inc., Music Choice Europe Limited, Stingray Digital International Ltd.,
Music Choice India Private Ltd., Xtra Music Ltd., Stingray Europe B.V., Alexander Medien Gruppe GmbH., 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, Think inside the box LLC (Nature Vision TV), Yokee Music Limited, C Music Entertainment Limited,
SBA Music PTY Ltd. and its wholly-owned subsidiary, Satellite Music Australia PTY Ltd., and Stingray Music, S.A. de C.V..
Operating segments
Under IFRS 8, Operating Segments, the Corporation determined that it operated in a single operating segment 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, goodwill and investment in an associate.
Revenues is derived from the following geographic areas based on selling locations.
Revenues
Canada
United States
Other countries
$
2018
59,184
23,870
43,899
$
2017
56,129
13,609
31,763
$
126,953
$
101,501
Non-current assets are derived from the following geographic areas based on subsidiaries locations.
Property and equipment, intangible assets, goodwill,
investment in an associate and investment in joint venture
Canada
Netherlands
Australia
United Kingdom
United States
Israel
Switzerland
Germany
Other countries
2018
2017
(recasted, see note 3)
$
51,657
23,634
20,726
20,608
16,414
12,470
9,249
7,628
3,511
$
52,172
23,745
11,600
14,954
1,370
–
9,455
7,679
3,343
$
165,897
$
124,318
Annual Report 2018 | Stingray Digital Group Inc. | 67
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(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 and performance share unit expense
Deferred share unit expense
$
2018
33,521
6,589
6,618
1,325
1,313
911
$
The following table shows the depreciation and amortization and CRTC tangible benefits allocated by function:
Depreciation, amortization and write-off:
Music programming, cost of services and content
General and administrative
2018
18,927
2,360
21,287
$
$
$
$
2017
24,964
6,994
4,493
1,332
1,112
896
2017
15,612
1,556
17,168
Music programming, cost of services and content and general and administrative expenses would have been, respectively,
$63,154 (2017 – $50,882) and $32,390 (2017 – $20,557), if the presentation by function of depreciation, amortization and
write-off expense had been adopted in the statements of comprehensive income.
Transaction costs related to business acquisitions amounting to $1,337 (2017 – $351) have been recognized in general
and administrative in the statements of comprehensive income.
Share of the profit of a joint venture of $96 has been presented in general and administrative in the statements of
comprehensive income (2017 – $66). No dividends were received from the joint venture during the year ended on
March 31, 2018 (2017 - $143).
6. Net finance expense (income):
Interest expense and standby fees
Change in fair value of contingent consideration and balance
payable on business acquisitions
Accretion expense on balance payable on business acquisitions
Accretion expense on CRTC tangible benefits
Amortization of financing fees
Foreign exchange gain
2018
2017
$
1,445
$
1,170
3,196
369
244
100
(2,180)
3,174
$
822
–
287
213
(456)
2,036
$
Annual Report 2018 | Stingray Digital Group Inc. | 68
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
7.
Income taxes:
The income tax 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
$
2018
1,905
(284)
1,621
(254)
334
(1,714)
(1,634)
$
2017
2,103
18
2,121
137
21
(5,875)
(5,717)
Total income tax recovery
$
(13)
$
(3,596)
The following table reconciles income tax computed at the Canadian statutory rate of 26.8% (2017 – 26.9%) and the total
income tax expense for the years ended March 31:
2018
2017
Income before income taxes
$
2,283
$
7,121
Income tax at the combined Canadian statutory rate
(Decrease) increase resulting from:
Impact of foreign tax rate differences
Permanent differences
Share-based compensation
Non-deductible (taxable) exchange loss (gain) on conversion
of foreign subsidiaries
Other permanent differences
Change in recognized tax losses and deductible temporary
differences
Withholdings taxes
Other
Total income tax recovery
Significant estimate
$
612
(873)
355
188
1,146
(1,714)
184
89
(13)
1,916
(541)
358
(620)
242
(5,875)
973
(49)
(3,596)
$
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 2018 | Stingray Digital Group Inc. | 69
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(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:
2018
2017
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
1,184 $
716
1,523
11,416
–
845
1,127
729
256
17,796
(4,846)
$
–
8,017
–
–
1,897
–
–
–
88
10,002
(4,846)
409 $
112
1,554
10,644
–
1,002
835
924
112
15,592
(3,367)
Net deferred tax assets and liabilities
$
12,950 $
5,156
$
12,225 $
17
5,944
–
–
1,981
–
–
–
130
8,072
(3,367)
4,705
Changes in deferred tax assets and liabilities for the year ended March 31, 2018 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,
2017
392
(5,832)
1,554
10,644
(1,981)
1,002
835
Recognized
in net
income
792
1,362
(635)
23
84
(157)
292
Recognized
in equity
–
–
604
–
–
–
–
–
Exchange
rate change
–
(319)
–
749
–
–
–
Business
acquisitions
–
(2,512)
–
–
–
–
–
Balance
as at
March 31,
2018
1,184
(7,301)
1,523
11,416
(1,897)
845
1,127
acquisitions
Others
924
(18)
$
7,520
(268)
141
1,634
–
604
73
45
548
–
–
729
168
(2,512)
7,794
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
Annual Report 2018 | Stingray Digital Group Inc. | 70
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
Unrecognized deferred tax assets:
The Corporation has operating tax losses carried forward of $96,045 that are available to reduce future taxable income. A
tax benefit was not recognized for $33,385 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, 2018 and 2017, the amounts and expiry dates of the tax
losses carried forward were as follows:
Tax losses carried forward:
2018
2019
2020
2021
2022
2023
2024
Indefinite
2018
2017
Singapore
Switzerland
United
Kingdom
Switzerland
United
Kingdom
$
$
– $
–
–
–
–
–
–
383
383 $
- $
4,221
5,096
4,826
3,461
2,055
–
–
– $
–
–
–
–
–
–
76,003
5,157 $
4,540
5,036
4,769
3,420
2,030
336
–
19,659 $
76,003
$
25,288 $
–
–
–
–
–
–
76,845
76,845
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.
Annual Report 2018 | Stingray Digital Group Inc. | 71
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
8. Earnings per share:
2018
2017
Net income
$
2,296
$
10,717
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
53,455,073
625,111
51,242,611
254,899
54,080,184
51,497,510
Earnings per share – Basic
Earnings per share – Diluted
9. Trade and other receivables:
Trade
Other receivables
Sales taxes receivable
$
$
$
$
0.04
0.04
$
$
0.21
0.21
2018
31,335
1,929
1,570
34,834
2017
(recasted, see note 3)
$
$
24,252
1,799
1,022
27,073
10. Research and development tax credits:
As at March 31, 2018, tax credits receivable of $610 (2017 - $486) 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.
Tax credits amounted to $790 (2017 - $887) was credited to research and development, support and information
technology expense in the statement of comprehensive income and $106 (2017 – nil) was credited to intangible assets.
11. Inventories:
Music transmission equipment hardware
Television equipment, speakers and other
2018
877
907
1,784
$
$
2017
550
683
1,233
$
$
Annual Report 2018 | Stingray Digital Group Inc. | 72
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
12. Property and equipment:
Cost:
Balance at March 31, 2016
Additions
Additions through business acquisitions
Disposals and write-off
Foreign exchange differences
Balance at March 31, 2017
Additions
Additions through business acquisitions
Disposals and write-off
Foreign exchange differences
Balance at March 31, 2018
Accumulated depreciation:
Balance at March 31, 2016
Depreciation for the year
Disposals and write-off
Foreign exchange differences
Balance at March 31, 2017
Depreciation for the year
Disposals and write-off
Foreign exchange differences
Balance at March 31, 2018
Net carrying amounts:
March 31, 2017
March 31, 2018
Furniture,
fixtures and
equipment
Computer
hardware
Other
Total
$
$
$
$
6,587 $
1,868
–
(408)
43
8,090
4,932 $
973
90
–
(5)
5,990
1,185 $
194
–
–
3
1,382
5,879
33
(184)
14
13,832
3,908
992
(311)
41
4,630
2,213
133
(3)
109
8,442
3,363
1,077
–
(4)
4,436
562
18
–
1
1,963
805
252
–
3
1,060
1,322
(86)
25
5,891 $
1,370
(4)
75
5,877 $
273
–
1
1,334 $
12,704
3,035
90
(408)
41
15,462
8,654
184
(187)
124
24,237
8,076
2,321
(311)
40
10,126
2,965
(90)
101
13,102
3,460 $
7,941 $
1,554 $
2,565 $
322 $
629 $
5,336
11,135
Annual Report 2018 | Stingray Digital Group Inc. | 73
1,089
99,285
360
10,518
214
19,435
179
6,488
1,862
148,944
6,123
837
2,489
–
(19)
89
9,519
1,421
8,281
4,852
998
(19)
49
5,880
3,048
83
9,011
Non-
compete
agreement
Total
$
3,605 $
–
109,061
1,142
1,603
9,197
–
–
5,904
(300)
13
5,221
137
125,141
–
4,038
1,088
17,903
2,411
540
–
(5)
2,946
61,160
14,750
(300)
12
75,622
1,136
18,225
50
4,132 $
742
94,589
2,275 $
2,356 $
49,519
54,335
$
$
$
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
13. Intangible assets:
Internally
developed
intangible
assets
Music
catalog
Client list
and
relationships Trademark
Licenses,
website
application
and
computer
software
$
– $
–
8,242 $
300
86,714 $
–
4,377 $
5
234
2,081
2,790
Cost:
Balance at March 31, 2016
Additions
Additions through
business acquisitions
Additions through
asset acquisition
Disposals and write-off
Foreign exchange
differences
Balance at March 31, 2017
Additions
Additions through
business acquisitions
Foreign exchange
differences
Balance at March 31, 2018
Accumulated
depreciation:
Balance at March 31, 2016
Amortization for the year
Disposals and write-off
Foreign exchange
differences
Balance at March 31, 2017
–
–
–
–
–
1,975
–
–
1,975
–
–
–
–
–
–
1,904
(281)
(6)
10,393
625
205
20
11,243
3,767
665
(281)
(1)
4,150
4,000
–
–
–
(15)
92,780
56
7,228
–
17
5,416
2,913
49,205
11,941
–
(29)
61,117
925
606
–
(2)
1,529
Amortization for the year
Foreign exchange
differences
Balance at March 31, 2018
$
869
12,070
1,102
–
– $
9
5,028 $
518
73,705 $
82
2,713 $
Net carrying amounts:
March 31, 2017
March 31, 2018
$
$
– $
1,975 $
6,243 $
6,215 $
31,663 $
25,580 $
5,699 $
7,805 $
3,639
10,424
Annual Report 2018 | Stingray Digital Group Inc. | 74
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
14. Goodwill:
Balance, beginning of year
Business acquisitions (note 3)
Foreign exchange differences
Balance, end of year
2018
68,725
27,577
2,165
98,467
$
$
2017
(recasted, see note 3)
$
$
61,805
6,673
247
68,725
For the purpose of impairment testing, goodwill of $98,467 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 2018. 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.
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 value in use was calculated using unobservable (Level 3) inputs such as the budgeted and projected 2019-2023
revenues and EBITDA margin. The EBITDA is defined as net income before net finance costs, change in fair value of
investments, 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 32%. The Corporation also used a discount rate of 12%, 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.
Annual Report 2018 | Stingray Digital Group Inc. | 75
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
15. Investments:
Balance, beginning of year
Proceeds from disposal of an investment
Change in fair value during the year,
including foreign exchange gain (loss)
Balance, end of year
$
2018
17,351
(1,218)
(600)
$
2017
16,943
–
408
$
15,533
$
17,351
As at March 31, 2018, investment consist of an investment in convertible preferred shares of a private entity, AppDirect.
As at March 31, 2017, investments consist 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 ($330) in convertible preferred
shares. The fair value of this investment is US$12,046 ($15,533) as at March 31, 2018 and was US$12,046 ($16,021) as
at March 31, 2017.
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 ($1,335) in convertible note having a five years maturity. The
convertible note 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. During the year ended March 31, 2018, the convertible note was
entirely settled in cash and a foreign exchange loss of $112 was recognized in net finance expense (income) (note 6). The
fair value of this investment was US$1,000 ($1,330) as at March 31, 2017.
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 25.
16. Investment in an associate:
On November 24, 2017, the Corporation acquired a 40% interest in Business Transportation Services Limited Partnership
(the “Partnership”), formed to own and operate one or more airplanes for the benefit of the limited partners and third
parties. The acquisition of the 40% interest in the Partnership was completed for cash consideration of $1,106.
The following table summarized financial information of the Partnership as at March 31, 2018:
Current asset
Non-current asset
Current liabilities
Net asset
Carrying amount of the Corporation’s interest in the Partnership
The associate had no capital commitments as at March 31, 2018.
Annual Report 2018 | Stingray Digital Group Inc. | 76
2018
–
2,765
–
2,765
1,106
$
$
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
17. Accounts payable and accrued liabilities:
Trade
Accrued liabilities
Sales taxes payable
18. Revolving facility:
Movements in revolving facility are as follows:
Balance, beginning of year
Net increase (decrease) in revolving facility
Balance, end of year
Current portion
Non-current portion
2018
7,908
26,297
994
35,199
2018
41,040
(2,413)
38,627
–
38,627
$
$
$
$
$
2017
(recasted, see note 3)
$
$
$
$
$
8,125
20,824
824
29,773
2017
35,035
6,005
41,040
–
41,040
The Corporation has a revolving credit facility (“revolving facility”) for an authorized amount up to $100,000, maturing in
June 2020. The revolving facility bears interest at an annual rate equal to the banker’s acceptance rate plus an applicable
margin based on a financial covenant (1.38% as at March 31, 2018 and 1.50% as at March 31, 2017) 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 0.28% (0.30% as at March 31, 2017) on the unused portion of
the revolving facility. The Corporation is required to comply with financial covenants.
As at March 31, 2018, the Corporation was in compliance with all the requirements of its credit agreement.
19. Other payables:
Other payables consist of the following:
Contingent consideration
Balance payable on business acquisitions
CRTC tangible benefits
Post employment benefit obligations
Current portion
$
2018
15,596
9,321
3,170
–
28,087
(13,212)
$
2017
12,956
5,845
3,724
13
22,538
(9,498)
$
14,875
$
13,040
Annual Report 2018 | Stingray Digital Group Inc. | 77
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
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. 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 $15,596 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 25.
The estimates are based on a discount rate ranging from 5% to 27%. During the year ended March 31, 2018, the contingent
consideration of Les Réseaux Urbains Viva Inc. and Festival 4K B.V. have been reviewed, as the actual sales revenues
expected to be achieved by the acquired companies are either above or below the maximum threshold. An aggregate gain
of $204 was included in net finance expense (income). During the year ended March 31, 2018, the contingent consideration
of Digital Music Distribution Pty Ltd. and Telefonica – On the Spot were paid and a partial payment was also made
regarding the contingent consideration of Les Réseaux Urbains Viva Inc. (see note 25).
Annual Report 2018 | Stingray Digital Group Inc. | 78
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
20. Share capital:
Authorized:
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, 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
Year ended March 31, 2018
As at March 31, 2017
Subordinate voting shares and variable subordinate voting shares
Multiple voting shares
Issuance upon bought deal and exercise of over-allotment option
Subordinate voting shares and variable subordinate voting shares
Share issuance costs, net of income taxes of $604
Issued upon exercise of stock options
Subordinate voting shares
Purchased and held in trust through employee share purchase plan
Subordinate voting shares
As at March 31, 2018
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
Number of
shares
$
100,924
1,116
102,040
660
101,584
1,116
102,700
$
Carrying amount
35,032,081
16,294,285
51,326,366
$
101,584
1,116
102,700
4,900,200
–
85,198
(6,011)
45,082
(1,669)
301
(60)
40,011,468
16,294,285
56,305,753
145,238
1,116
146,354
$
Annual Report 2018 | Stingray Digital Group Inc. | 79
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
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, 2018
On March 29, 2018, the Corporation declared a dividend of $0.055 per subordinate voting share, variable subordinate
voting share and multiple voting share, totaling $3,097 that will be payable on or around June 15, 2018 to holders of
subordinate voting share, variable subordinate voting share and multiple voting share on record as of May 31, 2018.
On October 24, 2017, the Corporation completed a bought deal offering of an aggregate 4,348,000 subordinate voting
shares and variable subordinate voting shares of the Corporation at a price of $9.20 per share for gross proceeds of
$40,002 and net proceeds of $38,402. On November 7, 2017 the underwriters exercised part of their over-allotment option
and bought an additional 552,200 subordinate voting shares at a price of $9.20 for gross proceeds of $5,080 and net
proceeds of $4,877.
Share issuance costs for both issuances amounted to $2,273 which have been recognized as a reduction of share capital
net of income taxes of $604.
During the year, 85,198 stock options were exercised and consequently, the Corporation issued 85,198 subordinate voting
shares. The proceeds amounted to $168. An amount of $133 of contributed surplus related to those stock options was
transferred to the subordinate voting shares’ account balance.
On February 7, 2018, the Corporation declared a dividend of $0.055 per subordinate voting share, variable subordinate
voting share and multiple voting share. The dividend of $3,096 was paid on March 15, 2018.
On November 8, 2017, the Corporation declared a dividend of $0.05 per subordinate voting share, variable subordinate
voting share and multiple voting share. The dividend of $2,814 was paid on December 15, 2017.
On August 1, 2017, the Corporation declared a dividend of $0.05 per subordinate voting share, variable subordinate voting
share and multiple voting share. The dividend of $2,567 was paid on September 15, 2017.
On April 28, 2017, the Corporation declared a dividend of $0.045 per subordinate voting share, variable subordinate voting
share and multiple voting share. The dividend of $2,310 was paid on June 15, 2017.
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.
Annual Report 2018 | Stingray Digital Group Inc. | 80
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
21. 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
Other
2018
(6,209)
(80)
(551)
(1,928)
–
(848)
413
(1,187)
(1,724)
(13)
(12,127)
$
$
2017
1,401
(250)
(315)
(874)
(79)
(1,092)
166
(482)
(793)
(53)
(2,371)
$
$
Additions to property and equipment and intangible assets and not affecting cash and cash equivalents amounted to $899
(2017 – $513) and $159 (2017 – $9), respectively, during the year ended March 31, 2018.
22. Share-based compensation:
Stock options plan
The Corporation has a 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, which was amended on
June 7, 2017, 10% of all multiple voting shares, subordinate voting shares and variable subordinate voting shares issued
and outstanding on a non-diluted basis is reserve for issuance. The terms and conditions for acquiring and exercising
options are set by the Board of Directors. Unless otherwise determined by the Board of Directors, each option shall expire
at the latest on the tenth anniversary of the grant date. The total number of shares issued to a single person cannot exceed
10% of the Corporation’s total issued and outstanding common shares on a fully diluted basis.
Under the stock option plan, 1,965,227 stock options were outstanding as at March 31, 2018. Outstanding options are
subject to employee service vesting criteria which range from nil to four years of service.
The following summarizes the changes in the plan’s position for the years ended March 31, 2018 and 2017:
2018
Number of
options
Weighted
average
exercise price
2017
Number of
options
Weighted
average
exercise price
Options outstanding, beginning of year
Granted
Exercised (note 20)
Forfeited
Options outstanding, end of year
1,397,185 $
682,429
(85,198)
(29,189)
1,965,227
4.93
7.66
1.98
6.11
5.99
1,288,757 $
369,187
(218,391)
(42,368)
1,397,185
Exercisable options, end of year
780,045 $
3.97
573,022 $
3.50
7.37
1.21
2.26
4.93
2.74
Annual Report 2018 | Stingray Digital Group Inc. | 81
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
The following is a summary of the information on the outstanding stock options as at March 31, 2018 and 2017:
Exercise price
March 31, 2018
$ 0.46
1.46
2.26
6.25
7.00
7.27
7.62
8.89
9.00
$ 5.99
March 31, 2017
$ 0.46
1.46
2.26
6.25
7.00
7.27
8.20
9.00
$ 4.93
Outstanding
options
Weighted average
outstanding
contractual life
outstanding (years)
Number of options
outstanding
130,000
25,000
270,731
387,880
125,000
327,631
661,421
21,008
16,556
1,965,227
155,000
25,000
335,118
387,880
125,000
344,215
8,416
16,556
1,397,185
4.18
5.63
6.69
7.12
7.36
8.21
9.23
9.42
8.90
7.69
5.18
6.63
7.68
8.12
8.36
9.21
9.61
9.90
7.98
Exercisable
options
Number
130,000
25,000
261,725
214,773
62,500
81,908
–
–
4,139
780,045
155,000
25,000
254,385
107,387
31,250
–
–
–
573,022
The weighted average fair value of the stock options granted during the year ended March 31, 2018 was $1.64 per stock
option (2017 – $2.42). 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
2018
2017
30%
1.12% – 1.51%
5 years
$7.62 – $8.89
2.25% – 2.37%
35%
1.12% – 1.76%
5 years
$7.27 – $9.00
1.78% – 1.95%
The weighted average volatility used is calculated based on a combination of comparable publicly-traded companies and
the Corporation’s historical volatility.
Total share-based compensation costs recognized under this stock option plan amount to $1,126 for the year ended
March 31, 2018 (2017 – $1,332).
The weighted average share price at the date of exercise for share options exercised during the year ended
March 31, 2018 was $8.75 (2017 – $7.30).
Annual Report 2018 | Stingray Digital Group Inc. | 82
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
Employee share purchase plan
The Corporation established on July 1, 2017 an employee share purchase plan (“ESPP”) to attract and retain employees.
Under this plan, eligible employees, including certain key management personnel, are permitted to contribute up to a
maximum of 6% of their eligible earnings to purchase the Corporation’s subordinate voting shares and variable subordinate
voting shares. Subject to certain conditions, the Corporation will match a percentage of the employee’s contributions up
to a maximum of 2% of the employee’s eligible earnings and the shares purchased with the Corporation’s contributions
become vested on January 31st of the following year. All contributions are used by the plan’s trustee to purchase
subordinate voting shares and variable subordinate voting shares in the open market, on behalf of employees.
The following summarizes the changes in the plan’s position for the year ended March 31, 2018:
Unvested contributions, beginning of year
Contributions
Dividend credited
Vested
Unvested contributions, end of year
2018
Number of
units
– $
7,850
34
(1,839)
6,045 $
Amount
–
77
–
(17)
60
The weighted average fair value of the shares contributed was $9.87 during the year ended March 31, 2018 (2017 – nil).
Total share-based compensation costs recognized under the ESPP amount to $80 during the year ended March 31, 2018
(2017 – nil).
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, 2018, 1,319 RSU (2017 – 3,115 RSU) were granted at a range of $7.64 to $9.99
(2017 – $7.27 to $8.59) per unit to executives and employees and no outstanding RSU were vested. The total share-
based compensation expense related to RSU plans amounted to $430 in 2018 (2017 – $751). As at March 31, 2018, the
fair value per unit was $10.36 (2017 – $8.43) for a total amount of $680 (2017 – $1,468) and was presented in accrued
liabilities on the consolidated statements of financial position.
Annual Report 2018 | Stingray Digital Group Inc. | 83
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
The following summarizes the changes in the plan’s position for the years ended March 31, 2018 and 2017:
Balance, beginning of year
Granted
Revision of estimates
Liabilities settled
Forfeited
Balance, end of year
Balance, vested
Performance share unit plan
2018
Number of
units
Amount
2017
Number of
units
Amount
197,448 $
1,319
–
(136,581)
(2,474)
59,712 $
–
1,468
–
444
(1,218)
(14)
680
–
219,772 $
3,115
–
(11,624)
(13,815)
197,448 $
–
771
–
859
(54)
(108)
1,468
–
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, 2018, 166,287 PSU (2017 – 135,787) were granted at a range of $7.57 to $10.04
(2017 – $6.98) per unit to executives and employees and no outstanding PSU were vested. The total share-based
compensation expense related to PSU plans amounted to $883 in 2018 (2017 – $361). As at March 31, 2018, the fair
value per unit was $10.36 (2017 – $8.43) for a total amount of $1,244 (2017 – $361) 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, 2018 and 2017:
Balance, beginning of year
Granted
Revision of estimates
Forfeited
Balance, end of year
Balance, vested
Deferred share unit plan
2018
Number of
units
Amount
2017
Number of
units
Amount
131,781 $
166,287
–
(13,588)
284,480 $
–
361
–
926
(43)
1,244
–
– $
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.
Annual Report 2018 | Stingray Digital Group Inc. | 84
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
During the year ended March 31, 2018, 62,740 DSU (2017 – 85,350) were granted at a range of $7.55 to $10.10 per unit
to directors (2017 – $8.39 to $8.95) and no outstanding DSU were vested. The total expense related to DSU plans
amounted to $911 in 2018 (2017 – $896). As at March 31, 2018, the fair value per unit ranged from $10.22 to $10.36 (2017
– $8.43 to $8.45) for a total amount of $1,886 (2017 – 1,267) 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, 2018 and 2017:
2018
Number of
units
Amount
2017
Number of
units
Amount
138,072 $
62,740
(18,443)
–
182,369 $
–
1,267
–
(174)
911
2,004
–
52,722 $
85,350
–
–
138,072 $
–
371
–
–
896
1,267
–
Balance, beginning of year
Granted
Liabilities settled
Revision of estimates
Balance, end of year
Balance, vested
23. Commitments:
Operating leases
As at March 31, 2018, the balance of the commitments under the terms of the operating leases for premises amounts to
$14,415. Minimum lease payments over the next five years and thereafter are as follows:
2019
2020
2021
2022
2023 and thereafter
$
4,931
3,561
2,822
1,971
1,130
During the year ended March 31, 2018, an amount of $5,132 (2017 – $4,734) 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.
Annual Report 2018 | Stingray Digital Group Inc. | 85
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
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, 2018, an amount of $358 (2017 – $388) 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.
24. 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 19 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 for carried forward tax losses – note 7
• Estimated fair value of certain investments – note 15
• Estimated goodwill impairment – note 14
• Estimation of
fair value of
identified assets,
liabilities and contingent consideration of business
acquisitions – notes 3 and 19
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.
Annual Report 2018 | Stingray Digital Group Inc. | 86
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
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 property and equipment, 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.
• Recognition of internally developed intangible assets
Management must use its judgment in determining whether an internally developed intangible asset qualifies for
recognition, such as, but not limited to, assessing the technological feasibility of a project and determining the
appropriate internal costs to be capitalized. This exercise requires management to distinguish between the costs
necessary to generate an intangible asset from the costs necessary to maintain it. Recognition of an internally
developed intangible asset would lead to an increase of amortization expense as the opposite would lead to an
increase of research and development costs.
Judgment is also involved in determining the estimated useful life of an internally developed intangible asset.
Increasing an asset’s estimated useful life would result in a decrease of the annual amortization expense.
Annual Report 2018 | Stingray Digital Group Inc. | 87
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
25. 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, 2018
Carrying value
Fair value
Level 1
Level 2
Level 3
Financial assets measured at amortized cost
Cash and cash equivalents
Trade and other receivables
$
3,362
33,264
Financial assets measured at fair value
Investment
$
15,533
$
15,533 $
– $
– $ 15,533
Financial liabilities measured at amortized
cost
Revolving facility
Accounts payable and accrued liabilities
CRTC tangible benefits
Balance payable on business acquisitions
$
38,627
34,205
3,170
9,321
Financial liabilities measured at fair value
Contingent consideration
$
15,596
$
15,596 $
– $
– $ 15,596
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
26,051
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
28,949
3,737
5,845
Financial liabilities measured at fair value
Contingent consideration
$
12,956
$
12,956 $
– $
– $ 12,956
Annual Report 2018 | Stingray Digital Group Inc. | 88
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
Fair value measurement (Level 3):
Year ended March 31, 2017
Opening amount as at March 31, 2016
Additions through business acquisitions
Additions through asset acquisition
Change in fair value
Settlements
Closing amount as at March 31, 2017
Year ended March 31, 2018
Opening amount as at March 31, 2017
Additions through business acquisitions
Change in fair value
Settlements
Closing amount as at March 31, 2018
Investments
Equity instrument in a private entity
Investments
Contingent
consideration
16,943 $
–
–
408
–
17,351 $
17,351 $
–
(600)
(1,218)
15,533 $
12,196
1,789
651
669
(2,349)
12,956
12,956
9,040
2,480
(8,880)
15,596
$
$
$
$
The fair value of the equity instrument in a private entity, AppDirect, was estimated using the market approach.
For the years ended March 31, 2018 and 2017, 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, 2018 and 2017, the equity instrument in a private entity is classified as a financial asset at
fair value through profit and loss. A change of 5% in the liquidity discount would have increased / decreased the fair value
of the investment by approximately $1,035 and $1,068 during the years ended March 31, 2018 and 2017, respectively.
Convertible note
During the year ended March 31, 2018, the convertible note was entirely recovered and a foreign exchange loss of $112
was recognized in net finance expense (income).
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 $1,995 and if projected cash flows were 10% lower, the fair value would have decrease by
$1,613. Discount rates ranging from 5% to 27% 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 $141. The contingent consideration
is classified as a financial liability and is included in other payables (note 19). The change in fair value is recognized in net
finance expense (income) (note 6).
Annual Report 2018 | Stingray Digital Group Inc. | 89
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
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 receivables; 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
receivables is limited.
The aging of trade receivable balances and the allowance for doubtful accounts as at March 31, 2018 and March 31, 2017
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 accounts
2018
12,409
6,484
3,522
1,737
7,749
31,901
566
31,335
$
$
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
2018
474
741
(649)
566
$
$
2017
8,980
5,825
2,374
2,207
5,340
24,726
474
24,252
2017
349
267
(142)
474
$
$
$
$
The Corporation also has credit risk relating to cash and cash equivalents and other receivables. 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 2018 | Stingray Digital Group Inc. | 90
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(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, 2018:
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
$
38,627
$
38,627
$
–
$
38,627
$
–
34,205
28,087
34,205
33,764
34,205
13,260
–
16,682
–
3,822
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”) 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.
Annual Report 2018 | Stingray Digital Group Inc. | 91
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
The Corporation's exposure to currency risk on its consolidated financial statements was as follows:
Cash and cash equivalents
Trade receivables
Income tax receivable (payable)
Investments
Investments in joint venture
Credit facility
Accounts payable and accrued liabilities
Contingent consideration and balance payable on business
acquisitions
Net balance exposure
Equivalent in Canadian dollars
March 31, 2018
USD
EURO
March 31, 2017
USD
EURO
938
10,542
(216)
12,046
–
(14,150)
(2,250)
(10,365)
(3,455)
(4,455)
949
3,989
28
–
525
–
(1,061)
(6,419)
(1,989)
(3,156)
922
6,016
(66)
13,046
–
–
(3,870)
(657)
15,391
20,470
502
3,990
(64)
–
518
(1,700)
(777)
(2,843)
(374)
(533)
The following exchange rates are those applicable to the following periods and dates:
USD per CAD
EURO per CAD
1.2926
1.5936
1.2894
1.5867
1.3371
1.4286
1.3300
1.4251
2018
2017
Average
Reporting
Average
Reporting
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 and EURO would have increased (decreased) the net income and reduced (increased)
the deficit as follows, assuming that all other variables remained constant:
Increase (decrease) in net income
(223)
(160)
1,024
(27)
March 31, 2018
USD
EURO
March 31, 2017
USD
EURO
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.
Annual Report 2018 | Stingray Digital Group Inc. | 92
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
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 $38,627 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 net income by approximately $145 (2017 – $117) during the year. This analysis assumes that all other variables, in
particular foreign currency rates, remained constant.
26.
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 payable on business acquisitions, including current portion
Revolving facility
Cash and cash equivalents
Net debt including contingent consideration
Total equity
$
2018
15,596
9,321
38,627
(3,362)
60,182
129,607
$
2017
12,956
5,845
41,040
(5,862)
53,979
94,948
$
189,789
$
148,927
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.
Annual Report 2018 | Stingray Digital Group Inc. | 93
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
27. 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 units
Deferred share units
28. Basis of preparation:
a) Statement of compliance:
2018
4,350
921
557
911
6,739
$
$
2017
3,361
810
407
896
5,474
$
$
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 6, 2018.
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;
• Liabilities related to deferred share unit plan, restricted share unit and performance share unit plan measured at
fair value at year-end in accordance with IFRS 2;
• Equity stock options which are measured at fair value at date of grant pursuant to IFRS 2; and
• Assets and liabilities acquired in business combinations are measured at fair value at acquisition date.
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
Annual Report 2018 | Stingray Digital Group Inc. | 94
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
currency are translated using the exchange rate at the date of the transaction. Foreign currency gains and losses
are reported on a net basis.
(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.
29. 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., 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, Think inside the box LLC (Nature Vision
Annual Report 2018 | Stingray Digital Group Inc. | 95
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
TV), Yokee Music Limited, C Music Entertainment Limited, SBA Music PTY Ltd. and its wholly-owned subsidiary,
Satellite Music Australia PTY Ltd., and Stingray Music, S.A. de C.V.
Investment in an associate:
An associate is an entity over which the Corporation has significant influence. The Company has significant influence
when it has the power to participate in the financial and operating policy decisions of the investee, but does not have
control or joint control. The Company accounts for its investment in an associate using the equity method. Under the
equity method, the investment is initially recognized at cost. Subsequent to initial recognition, the consolidated
financial statements include the Corporation’s share of the earnings and losses of the associate until the date
significant influence ceases. Distributions received from an associate reduce the carrying amount of the investment.
The consolidated statements of comprehensive income include the Corporations’ share of any amounts recognized
by its associate in other comprehensive income, if any. Intercompany balances between the Corporation and its
associate are not eliminated.
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.
Annual Report 2018 | Stingray Digital Group Inc. | 96
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
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.
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 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.
Annual Report 2018 | Stingray Digital Group Inc. | 97
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
(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.
(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.
Annual Report 2018 | Stingray Digital Group Inc. | 98
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
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.
(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, net of tax credits, are recognized in profit or loss as incurred, unless the costs can be measured
reliably, the product or process is technically feasible, future economic benefits are probable and the Corporation
intends to and has sufficient resources to complete the development and to use or sell the asset. In such a case,
costs are recognized as internally developed intangible assets (see (m) intangible assets).
(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) Leases 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 contingent consideration. Interest
income is recognized as it accrues in profit or loss, using the effective interest method.
Finance costs comprise interest expense on revolving facility, 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 2018 | Stingray Digital Group Inc. | 99
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(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 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 2018 | Stingray Digital Group Inc. | 100
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(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 profit or 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 or 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 prospectively.
(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 clients 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.
Amounts capitalized as internally developed intangible assets include the total cost of any external products or
services and labour costs directly attributable to development.
Annual Report 2018 | Stingray Digital Group Inc. | 101
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(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.
Internally developed intangible assets, net of related tax credits, are amortized starting from the date the products and
services are commercialized.
The estimated useful lives for the current and comparative years are as follows:
Intangible assets
Internally developed intangible assets
Music catalog
Client list and relationships
Trademarks
Licenses, website applications and computer software
Non-compete agreements
Period
2 to 5 years
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 prospectively.
(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 2018 | Stingray Digital Group Inc. | 102
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(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) 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.
(iii) Restricted and performance share units and deferred share units plans:
Restricted share units, performance unit plan and deferred share units 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 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.
Annual Report 2018 | Stingray Digital Group Inc. | 103
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
(iv) Employee share purchase plan:
The Corporation’s contributions, used to purchase shares on the open market on behalf of employees, are
recognized when incurred as an employee benefit expense, with a corresponding increase in contributed surplus.
The amount expensed is adjusted to reflect the number of awards for which it is expected that the vesting
conditions will be met, so that the amount ultimately expensed will depend on the number of awards that meet
the vesting conditions at the vesting date.
Unvested shares held in trust on behalf of employees are treasury shares and therefore deducted from equity
until they become vested.
(r) Share capital:
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.
30. New and amended standards not yet adopted by the Corporation:
IFRS 15 - Revenue from Contracts with Customers
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 intends to adopt retrospectively IFRS 15 in its consolidated financial statements for the annual period
beginning on April 1, 2018 and does not expect the standard to have a material impact on the financial statements except
for the gross or net presentation of certain B2C applications revenues streams, such as mobile applications. The
Corporation currently accounts for its applications revenues on a net basis presentation.
Under current IFRS guidance, determining whether an entity is acting as an agent or principal is not based on the
application of specific indicators and judgment is required to determine whether gross or net presentation is appropriate.
Under IFRS 15 guidance, the new model of revenue recognition is based on the core “transfer of control” principle that is
used to determine the primary obligator of the service rendered. In this context, the company will be considered as the
principal and therefore will recognize these revenues on a gross basis presentation.
The impact on net income is expected to be nil, and the impact on revenues and music programming, cost of services and
content as follows:
(in thousands of Canadian dollars)
Revenues
Music programming, cost of services and content
2018 under
current IFRS
$
$
126,953
44,227
2018 under
IFRS 15
$
$
130,475
47,749
Annual Report 2018 | Stingray Digital Group Inc. | 104
Notes to Consolidated Financial Statements
Years ended March 31, 2018 and 2017
(In thousands of Canadian dollars, unless otherwise stated)
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 a 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 intends to adopt IFRS 9 (2014)
in its consolidated financial statements for the annual period beginning on April 1, 2018. The Corporation does not expect
IFRS 9 (2014) to have a material impact on the consolidated financial statements.
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 amendments provide requirements on
the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based
payments; share-based payment transactions with a net settlement feature for withholding tax obligations; and a
modification to the terms and conditions of a share-based payment that changes the classification of the transaction from
cash-settled to equity-settled. The Corporation intends to adopt the amendments to IFRS 2 in its financial statements for
the annual period beginning on April 1, 2018. The Company does not expect the amendments to have a material impact
on the financial statements.
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 Corporation will adopt the Interpretation in its financial statements
for the annual period beginning on April 1, 2018. The Corporation does not expect the Interpretation to have a material
impact on the financial statements.
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 2018 | Stingray Digital Group Inc. | 105
Annual Report 2018 | Stingray Digital Group Inc. | 106
GLOSSARY
OF TERMS
Video On Demand (VOD)
A system in which viewers choose their own filmed
entertainment, by means of a PC or interactive TV
system, from a wide selection.
Subscription Video On Demand (SVOD)
Refers to a service that gives users unlimited access
to a wide range of programs for a monthly flat rate.
The users have full control over the subscription, and
can decide when to start the program.
Over the top (OTT)
Refers to film and television content provided via a
high-speed Internet connection rather than a cable or
satellite provider.
4K UHD
Ultra-high-definition (UHD) television, also
abbreviated UHDTV, is a digital television display
format in which the horizontal screen resolution is on
the order of 4000 pixels (4K UHD).
Pay TV
Television broadcasting in which viewers pay by
subscription to watch a particular channel.
IPTV
Internet Protocol television (IPTV) is the process of
transmitting and broadcasting television programs
through the Internet using Internet Protocol (IP)
Satellite TV
Television broadcasting using a satellite to relay
signals to appropriately equipped customers in a
particular area.
ANNUAL GENERAL
MEETING OF SHAREHOLDERS
The Annual General Meeting will be held
on August 8, 2018 at:
Stingray Headquarters
730 Wellington Street
8th Floor
Montreal, Quebec
H3C 1T4
STOCK
EXCHANGE
TSX: RAY.A and RAY.B
PROVISIONAL CALENDAR
OF RESULTS
First quarter of 2019
August 8, 2018
Second quarter of 2019
November 8, 2018
Third quarter of 2019
February 7, 2019
Fourth quarter of 2019
June 6, 2019
TRANSFERT
AGENT
AST Trust Company
2001 Boulevard Robert-Bourassa
Suite 1600
Montreal, Quebec
H3A 2A6
Canada
1-514-285-8300 or 1-800-387-0825
help@astfinancial.com
www.astfinancial.com
stingray.com