Ms. Shahrzad Rafati reports
BBTV ANNOUNCES Q1 2023 FINANCIAL RESULTS
BBTV Holdings Inc. has released financial results for first quarter 2023 for the period ended on March 31, 2023.
Management's discussion and analysis, along with full financial statements, is posted and available on SEDAR. All dollar amounts are expressed in thousands of dollars except where otherwise indicated.
"The first quarter saw early stages of YouTube Shorts monetization, which now represents about 46 per cent of total views in the quarter. With more Shorts content coming on-line, total views in our Base Solutions business grew year over year by 8 per cent, our first growth quarter since the end of the pandemic," said Shahrzad Rafati, chairperson and chief executive officer of BBTV Holdings. "Our outlook for our monetization opportunity for our Base Solutions increases substantially for the remainder of 2023 as a result of growing views. In the first quarter, we began deploying some of the largest Plus Solution contracts signed to date, which should positively impact performance for the remainder of fiscal year 2023. Our pipeline for content management solutions for the quarter continues to be the strongest ever, and we expect that Plus Solutions revenue should continue to grow by 30 per cent on an annualized basis."
K.B. Brinkley, chief financial officer of BBTV Holdings, commented: "We extended our cost containment and optimization efforts by realigning operations towards Plus Solutions and removing costs from our increasingly automated Base Solutions line of business. Our cost containment efforts resulted in a 22-per-cent decline in operating expenses compared to Q1 2022. Our liquidity remains adequate, allowing us to fulfill our strategic plans while accelerating our path to profitability and helping to create a buffer against potential macroeconomic risks and uncertainties."
Q1 2023 financial and operational highlights
Management believes the company's current cash on hand, the sale of trade receivables pursuant to the receivables purchase agreement, available credit, expected debt financing and continuing cost optimization programs will provide sufficient liquidity to meet its working capital requirements, as well as its financial obligations due.
BBTV Holdings ended Q1 2023 with $18.8-million in cash compared with $21.6-million in the previous year Q1. Its long-term debt balance was $69.5-million as of March 31, 2023, with maturities primarily in 2026 or 2027, which is up by $17.0-million from $52.5-million in the prior-year first quarter. The increase of debt is primarily related to the $21.5-million MEP loan announced during the quarter, which was partially offset by a reduction in the company's secured convertible promissory loan note by approximately $12.8-million.
In the past two quarters, and especially during the first quarter of 2023, the company has worked to optimize margins generated from Base Solutions. In that effort, the company has discontinued contracts with a number of creators for which margins were very low in comparison with its portfolio of thousands of creators and to the market generally. These undertakings negatively impacted Base Solutions views, Base Solutions revenue and total revenue in the short term, although gross margin on Base Solutions revenue should be positively impacted over the coming quarters. Initiatives to optimize gross margins will continue throughout the year. Notwithstanding these optimization efforts, total views for the quarter reached 113.2 billion, an 8-per-cent increase compared with the previous year quarter, and a 12-per-cent increase compared with fourth quarter. The increase in views was driven by a 143-per-cent year-over-year increase in YouTube Shorts viewership to 51.8 billion views in Q1, which are approximately 46 per cent of total views. For the first time since the end of the pandemic, year-over-year views grew organically, despite offsetting contract cancellations initiated by BBTV Holdings.
The company continued efforts to optimize its cash cost base, to realign operations for maximum performance and to accelerate toward profitability. Combined with cost optimization completed last year, the company has reduced cash expenses in the Base Solutions business. The company continues to focus on operational efficiencies and alignment toward maximum performance, and the expense ratio in the Base Solutions business supports current strategies going forward.
Over all, BBTV Holdings' operating expenses of $12.1-million have declined by $3.3-million or 22 per cent compared with the previous year Q1 and 6 per cent compared sequentially with fourth quarter 2022 due to staff reductions and operational realignment. The company expects to continue to find ways to optimize operations in the coming months.
On Feb. 1, 2023, YouTube began to share monetization with BBTV Holdings for YouTube Shorts. Although the first few months of YouTube Shorts monetization is modest, it is in line with internal forecasts, and monetization growth is tracking as expected. Due to this early stage of monetization of Shorts content, revenue per thousand views (RPMs) declined by 36 per cent to 53 cents compared with Q1 2022. Excluding Shorts, the monetization of 61.6 billion standard form content views remained steady near typical rates at 97 cents, a 5-per-cent decline compared with $1.03 in Q1 2022. As YouTube Shorts RPMs track higher, notwithstanding typical seasonality, overall RPMs are expected to increase over time.
Plus Solutions, including popular solutions such as content management and direct advertising sales, delivers higher-margin monetization opportunities for BBTV Holdings. Over all, during Q1, Plus Solutions represented approximately 15 per cent of total revenue and 35 to 40 per cent of adjusted gross profit compared with 13 per cent and 30 to 35 per cent, respectively, in Q1 2022. With a large pipeline of mostly global enterprise clients, Plus Solutions should continue to grow as a percentage of total revenue and adjusted gross profit, even as Shorts monetization increases.
As of Q1, content management revenue is tracking its strongest Plus Solutions with solid visibility on pipeline conversion. During the quarter, the company began deploying a major content management contract that has the potential to become the single largest content management revenue stream. As a result, management expects Plus Solutions revenue to grow by 30 per cent on an annualized basis for fiscal 2023.
Over all, total revenue of $71.8-million declined by 27 per cent compared with $98.8-million in Q1 2022 primarily due to a higher mix of YouTube Shorts views, which are at early stages of monetization, and some cancellations of unprofitable contracts.
BBTV Holdings' monetization is closely tied to the performance of YouTube. Consumer preference has shifted from long-form content to microcontent across all major platforms, and while YouTube introduced YouTube Shorts a number of years ago to respond to consumer preferences, BBTV Holdings' monetization on YouTube Shorts only began on Feb. 1, 2023. This format now represents about 46 per cent of BBTV Holdings' viewership, up from 20 per cent of viewership in Q1 2022. Once monetization of YouTube Short views matures across the company's entire library, it could represent significant incremental revenue to BBTV Holdings depending upon the uptake. Google has stated publicly that, over time, it expects to close the monetization gap between YouTube Shorts and regular YouTube content.
Plus Solutions continues to represent significant revenue growth potential for the company, as well as viewership and valuable incremental revenue streams for content creators. Led by recent content management contract success and a growing overall pipeline for the solution, the company expects to maintain a 30-per-cent annualized growth rate for Plus Solutions for this fiscal year. Additionally, direct advertising sales should continue to grow.
Over all, the diversity of revenue streams, combined with improved liquidity and cost optimization programs, has positioned BBTV Holdings to weather future macro uncertainties while also accelerating toward sustained profitability.
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