Mr. David Montpetit reports

D-BOX TECHNOLOGIES REPORTS FISCAL 2024 THIRD QUARTER RESULTS

D-Box Technologies Inc. has released its financial results for the third quarter ended Dec. 31, 2023. All dollar amounts are expressed in Canadian currency.

Q3 fiscal 2024 highlights (compared with Q3 fiscal 2023):

• Total revenues decreased 23 per cent to $8.1-million;
  • System sales decreased 21 per cent to $6.7-million;
  • Rights for use, rental and maintenance revenues decreased 29 per cent to $1.4-million;
• 19 net new screens installed, bringing the total number of active D-Box cinema screens to 898 as at Dec. 31, 2023;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) decreased from $500,000 to $100,000;
• Net loss increased from $100,000 to $400,000.

"Our fiscal year-to-date results remain well ahead of last year at this time; however, as expected, our third quarter results were impacted by the 2023 strikes in Hollywood," said Sebastien Mailhot, president and chief executive officer of D-Box. "Those work stoppages delayed the box office releases of certain movies, reducing our rights for use revenues, and postponed some capital spending by our cinema partners, affecting our system sales revenues. This temporary issue did not impact our business in SIM racing or professional simulation and training. Nevertheless, we continue to manage expenses where appropriate and remain focused on resuming our path of profitable growth."

Third quarter overview

Third quarter revenues decreased 23 per cent to $8.1-million, compared with $10.5-million for the same period last year.

Systems sales revenue decreased 21 per cent to $6.7-million, compared with $8.4-million a year ago, mostly due to lower sales to theatrical customers. During the quarter, there were 19 net new screen installations in the theatrical business, compared with 27 for the same period last year. The total number of active D-Box screens increased to 898 as at Dec. 31, 2023.

Rights for use, rental and maintenance revenues were down 29 per cent to $1.4-million, compared with $2.0-million a year ago. The 2023 labour disruptions in Hollywood resulted in a weaker slate of movies for the quarter, whereas the same quarter a year ago benefited from an exceptionally strong showing from Avatar: The Way of the Water.

Gross profit excluding amortization decreased to $4.0-million from $5.0-million for the same period last year. However, the gross margin, excluding amortization, increased from 48 per cent to 50 per cent for the same period, driven by a lower proportion (market mix) of system sales to theatrical customers in the current period as compared with the same period last year. Generally, system sales to theatrical customers have a slightly lower margin due to rights for use, rental and maintenance revenues following the system sale.

Operating expenses for the quarter were $4.0-million, or 50 per cent of revenues, compared with $4.6-million, or 44 per cent of revenues, in the same quarter a year earlier. Selling and marketing expenses decreased 14 per cent to $1.6-million; administration expenses fell 8 per cent to $1.6-million; and research and development expenses were down 19 per cent to $900,000; however, all three of these expense categories represented increases as a percentage of total revenues over the comparable periods.

Net loss for the quarter was $425,000, compared with a net loss of $110,000 a year earlier. Adjusted EBITDA for the quarter was $90,000, down from $491,000 a year ago.

At quarter-end, D-Box had a cash position and undrawn credit facilities totalling $7.6-million.

Conclusion of strategic review process

The corporation also announced the conclusion of its previously announced formal review process to explore available strategic alternatives with a view to enhance shareholder and stakeholder value.

Since the review process was initiated by the board of directors of the corporation in the third calendar quarter of 2022, a strategic review committee of the board, consisting solely of independent directors, conducted an extensive and thorough review of the corporation's strategic alternatives with the assistance of financial and legal advisers.

The review process included broad and extensive marketing efforts by the corporation's financial adviser, Stifel Nicolaus Canada Inc., to solicit interest in a sale of the corporation or other transaction to maximize value for all stakeholders of the corporation. Over the course of the review process, the corporation and Stifel together contacted a large number of potential strategic and private equity buyers. This outreach, as well as the announcement by the corporation in August, 2023, that it had initiated a review process, resulted in a limited number of expressions of interest. After careful consideration, analysis and advice from its financial and legal advisers, as well as with the board's approval, the strategic review committee pursued a proposal received from one of those potential buyers. However, in light of factors including strategic fit and current stock market dynamics, the strategic review committee later determined that the proposed transaction was not in the best interests of the corporation, as it was not adequately reflecting the intrinsic value of the corporation based upon its assets, operations, and prospects for growth and profitability, and recommended to the board to continue to execute on the corporation's revised strategic plan, which is now focused on the commercial markets, specifically in theatrical, racing simulation, and professional simulation and training.

"In light of the thorough review process completed by the strategic review committee, and with the corporation showing increasing revenue, profit and adjusted EBITDA growth in the last few quarters, it is clear that our current strategic plan focused on commercial markets, specifically in theatrical, racing simulation, and professional simulation and training, is the best path forward for D-Box at this time," said Denis Chamberland, chair of the board. "The board has decided to dissolve the strategic review committee for the time being but will continue to consider and evaluate all actionable, value-accretive opportunities with an open-minded approach."

Notice of video investor presentation

Management of D-Box will be publishing a video presentation to investors on the corporation's website on Thursday, Feb. 15, 2024, at 9 a.m. ET. During the presentation, management will discuss the corporation's third quarter results and outlook for the balance of the fiscal year. Investors are invited to submit relevant questions in advance by e-mail to investors@d-box.com.

Additional information regarding the third quarter ended Dec. 31, 2023

The financial information relating to the third quarter ended Dec. 31, 2023, should be read in conjunction with the corporation's audited consolidated financial statements and the management's discussion and analysis dated Feb. 13, 2024. These documents are available on SEDAR+.

Non-IFRS (international financial reporting standards) financial performance measures

D-Box uses three non-IFRS financial performance measures in its MD&A (management's discussion and analysis) and other communications. The non-IFRS measures do not have any standardized meaning prescribed by IFRS and are unlikely to be comparable with similarly titled measures reported by other companies. Investors are cautioned that the disclosure of these metrics is meant to add to, and not to replace, the discussion of financial results determined in accordance with IFRS. Management uses both IFRS and non-IFRS measures when planning, monitoring and evaluating the corporation's performance.

About D-Box Technologies Inc.

D-Box creates and redefines realistic, immersive entertainment experiences by moving the body and sparking the imagination through effects: motion, vibration and texture. D-Box has collaborated with some of the best companies in the world to deliver new ways to enhance great stories. Whether it is movies, video games, music, relaxation, virtual reality applications, metaverse experience, themed entertainment or professional simulation, D-Box creates a feeling of presence that makes life resonate like never before. D-Box is headquartered in Montreal, with offices in Los Angeles, U.S., and Beijing, China.

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