Mood Media's (FDMCF) CEO Steve Richards on Q3 2016 Results - Earnings Call Transcript

| About: Mood Media (FDMCF)

Mood Media Corporation (OTCPK:FDMCF) Q3 2016 Earnings Conference Call November 10, 2016 8:30 AM ET


Randal Rudniski - EVP, IR & Corporate Development

Steve Richards - President & CEO

Tom Garrett - EVP & CFO

Ken Eissing - President, In-Store Media


Rob Goff - Echelon Wealth Partners

Christian Hoffman - Thornburg

Todd Morgan - Jefferies


Good morning, ladies and gentlemen, and welcome to the Mood Media Corporation Third Quarter 2016 Earnings Conference Call. Our session this morning will be 45 minutes in duration. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on November 10, 2016.

I would now like to turn the conference over to Randal Rudniski. Please go ahead, sir.

Randal Rudniski

Thanks, Chris, and good morning, everyone. We appreciate your time with Mood Media Management to discuss our third quarter results. Presenting on this call is Steve Richards, Mood's President and CEO; Tom Garrett, Mood's Chief Financial Officer; and Ken Eissing, Mood's President of In-Store Media.

The purpose of this call is to discuss Mood's third quarter financial results as released yesterday following the close of the markets. We refer participants to our financial documents as they contain disclosures, reconciliations to non-IFRS measures and forward looking Safe Harbor language important to understanding our results. The information in our release and remarks made today contain statements about future events and financial results that are forward-looking and subject to certain risks and uncertainties.

These forward-looking statements represent our expectations as of today and accordingly are subject to change. Actual results may differ materially. The documents we electronically filed with the Canadian Securities Administrators at contain such risks and assumptions, which could cause our results to differ from today's discussion.

With that, I will turn it over to Steve Richards.

Steve Richards

Thanks, Ran, and good morning everyone, and thanks for joining us. Mood's third quarter results show increasing momentum and free cash generation with 16.1 million improvement in free cash flow relative to prior year. In Q3, we generated 9.8 million of free cash flow compared with a minus 6.4 million in the prior period. This improvement reflects our focus and discipline in implementing an expense of set efficiency in growth initiatives and marks another very positive sign post that Mood's transformation continues to make good progress.

In the quarter, we showed further progress and enhancing recurring revenues which decline by only 0.3% relative to prior year. That slim decrease represents a substantial improvement from where the business was just two years ago when Mood was recording mid single digit recurring revenue decline.

Turning to site performance in the quarter, Mood grew the site base by 1,696 sites driven by a 2% improvement in gross site additions and a substantial decrease in churn to 0.8% from 1% in the prior year. On a year-to-date basis, we have increased gross site additions by 10% relative to prior year posting gains in both audio and visual metrics. Our quarterly results also show that ARPU continues to post the stabilizing trend with the decrease of only 1.1% year-over-year and the quarter on a reported basis and down only 0.7% on an underlying basis. These achievements reflect and show that the transformation is stepping along nicely and our efforts are increasingly having a positive effect on the Company's performance.

Our progress reflects the returns from investments made in sales, marketing and operations in '15 and early '16 and as planned and reported previously, we have grown the size of our sales teams upon a new business development and market leadership, launched and expanded the insight sales teams in North America, developed new revenue and technology partnerships and implement a robust operation and service delivery initiatives that enhance the overall Mood clients and customer experience.

And given those investments, we are now achieving improved results in the site and churn performance. To continuously refine Moods cost structure, we remain intently focused on global consolidations and efficiencies, and those will produce 2016 annualized savings of $4.5 million or $1 million ahead of our original $3.5 million objectives. For 2017, we’ve identified 3 million an incremental efficiency gains. Once we execute those Wave 6 plans, we will deliver more than $28 million in reduction since we began.

Our collective efforts put Mood on track to stabilize revenues across most of the business in ’16 and grow recurring revenues in future quarters, one of the most significant milestones in our multiyear transformational roadmap. While the core recurring business has improved dramatically from where it was in the past, in 2016, we’ve encountered shortfalls in our nonrecurring Technomedia business. As this business experienced revenue decrease of $3.6 million relative to prior year, it explains all of the underlying consolidated decrease in revenues of $2.6 million.

As shared previously, this is a transactional segment of the business and as such requires constant refilling of sales pipeline and the implementation of the backlog process because of that it's far less predictable than our core recurring segments. Following a record revenue performance in ’15, Technomedia has experienced decreases this year as they work to rebuild their ongoing deal pipeline. While this is happening, we’ve implemented cost cutting initiatives to shore up Techno’s ’16 performance, but cannot mitigate the fact that the Techno business will be down relative to prior year and relative to our original ’16 expectations.

The results mean that we will post a slight reduction in Mood's EBITDA guidance for full year shifting from flat relative to prior year to slightly down. While the Techno performance does influence reported total results, our In-Store Media operations continue to show improvements in their KPIs and recurring revenues as well as core equipment revenues and key value drivers for the In-Store business. It’s important to note that even with the Techno shortfall, we have experienced year-to-date, we are not changing the goal for producing positive free cash flow in 2016. It’s our primary objective for ’16 and we remain on track for delivering against this important Mood objective.

Turning now to other third quarter highlights. Our North American business segment generated revenue growth of 2.6% relative to prior year including 0.5% growth in recurring revenues. In North America, our visual recurring revenues were up 7% relative to prior year, partnership revenues were up 15% versus prior year, and equipment revenues were up 16% as compared to prior year. Moods underlying performance as measured by KPIs is increasingly strengthening with our achievement of enhanced gross side additions, reduced client churn, stabilizing ARPU and overall site growth.

We are now growing key revenue segments in North America, which is a huge turnaround from ’14 to ’15, when most were declining previously. Overall, in North America, the pulse of the core business continues to feel good to us as it ever has. Our combined North America and International In-Store Media unit generated record gross site additions for the third quarter as a period. While up 2% relative to prior year in aggregate, we’ve grown year-to-date gross side additions by 10% year-over-year, given the strength of Mood sales initiatives investments and appointments.

Key customer activity in the third quarter in North America includes wins for Crocs, for music and messaging Men's Wearhouse for visuals, Burlington Coat music and messaging, Holiday Retirement music and Verizon Dealers for music and visuals. In International, we want to install Cop Shop for music, NYX Cosmetics with audio, Topaz for audio, [Indiscernible]. And so far in 2016, we’ve installed 550 sites for our Shire Property Management in the Middle East and Q3 with plans for 900 sites by October 31st, and further gains of great potential for an incremental 1,200 stores that are in discussions.

Key wins in the third quarter that will translate the installation activity in Q4 include Quest Diagnostics labs for a 200 site visual deal and the potential to grow that base by more than 1,000 to 2,000 incremental sites, and case industries with our initial sale of more than 100 sites and that likely grow to a 1,000 plus opportunity for visuals overtime.

Turning to our inside sales team, the Euro Group continues to post record results. They achieved a pinnacle sales month in September with 730,000 in new recurring contract value deals at higher than Mood's average ARPUs in fact $62 of ARPU on average in September, and with average customer contract length at 43 month versus 36 months for Mood overall in local and strategic sales. In terms of operating platform enhancements, we’re performing ahead of plan. Mood will exceed our efficiency targets in ’16, and we’re achieving planned growth in our service technician field up-sell activities as well as for our up-sell activities across accessory programs.

We continue to enhance Mood service delivery processes and platforms which are fundamental to reducing churn and to reduce Mood CapEx and inventory spending. In 2016, we will reduce CapEx expenditures by more than 25%. Overall, while the results of our Techno and nonrecurring segments have been lighter or weaker than we targeted. We continue to achieve positive momentum in free cash flow recurring revenues and gross recurring margin performance. We remain on track to deliver our number one priority in ’16 and that’s a positive free cash flow consistent with early year expectations and guidance.

In looking at the transformation of Mood to-date, the business has changed from steady and significant declines in recurring revenues to virtual stability. Importantly, we’re on our way to positive growth in the future. We’ve turned from widespread declines in revenue streams to revenue growth in many of our segments. We’ve turned from a significant user of cash to a moderate generator of cash in ’16, and we’ve enhanced our operational and sales performance dramatically with that progress reflected in both our gross site additions and churn statistics.

So with that, I’ll turn the call over to Tom for more detailed remarks on the financials in the quarter. Tom?

Tom Garrett

Thank you, Steve. As we turned to a more detailed review of the financials, it is important to understand the lower comparative EBITDA performance and the context of our significant improvements in free cash flow and our underlying KPIs, which indicate continued positive traction in key areas across our business. First, free cash flow, significant gains have been made relative to prior year. We continue to remain on track to achieve guidance which is that Mood continues to expect to be positive cash flow for the year. Free cash flow for the year to date period is improved by 15.5 million relative to prior year with year to date free cash flow 6.2 positive versus a negative 9.3 prior year-to-date.

Business performance is generally tracking to expectations except for in our large jobs Technomedia Business. Cash generation from working capital and reduced CapEx had been ahead of expectation, and we expect to reduce CapEx spending this year by approximately 25% versus prior year. Free cash flow or change in net debt for just Q3 was a positive free cash flow of 9.8 million compared to a negative 6.4 million in Q3 2015 for a year-over-year improvement of 16.2 million. An 8.8 million working capital improvement and lower CapEx of 3.5 million contributed to the positive year-over-year comparison.

EBITDA performance, looking at our performance through just our first half, EBITDA performance was on track to achieve our full year EBITDA guidance even with shortfalls at Technomedia, which through the first half had been tracking down 1.2 million or 59% versus the prior year and also well below expectations. Q3 EBITDA of 22.3 million was however down 3.4 million or 13.4% on an underlying basis, after level setting from both foreign exchange and the sale of major comps. This decline is attributable to lower growth margin dollars and a higher SG&A compared to the prior year Q3.

Gross margin of 58.9 million decreased 1.7 million on an underlying basis, 1.3 million of which was related to Technomedia performance. In the quarter, gross margin dollars from equipment increased relative to prior year. Gross margin related installation and service declined, and the gross margin related to recurring revenues declined by approximately 0.5 million, on a 200,000 reduction in recurring revenues. Recurring gross margin dollars continued to underperform relative to recurring sales due to the change in mix of our recurring business. However, through the positive effects of our sales and operating efforts, we have significantly reduced the pace of recurring gross margin erosion.

And in Q3 2016, our gross margin dollars in North America declined by only a 147,000 relative to prior year. In contrast, a year ago Q3 '15, our North America gross margin dollars declined by 3.5 million year over year. G&A expenses level set for foreign exchange in major comp increased 1.8 million on a year-over-year comparative basis, due primarily to the nonrecurring nature of a couple of expense reduction items in the '15 prior period, the effects of which were offset by year-over-year G&A expense reduction this year in both Mood International 300,000 and Technomedia, 400,000.

In terms of operating expense, while it looks like we increased OpEx relative to prior year, please keep in mind that we are continuing to build our local and premier sales teams, our global assistance sales group and our marketing capabilities. Furthermore, we are managing a portfolio of assets and businesses where there can often be timing related items that affect a particular quarter, such as the items that affected Q3 '15 in the year-over-year variant.

In Q4 '16, we expect our OpEx will resume the downward trajectory year-over-year that you've generally seen from us. The Q3 '16 run rate is a pretty good is a pretty good indication of where the business is present. Our Q3 EBITDA performance for mean full year EBITDA likely to fall slightly below prior year; however, Q4 ’16 EBITDA is projected to improve relative to Q3 performance given seasonally higher demand, and we also expect to achieve an improved EBITDA margin rate is compared to Q3.

Turning to revenue performance and momentum, let me summarize what we are achieving in that area of the business. In terms of total revenue performance, our underlying revenues decline by 2.6 million relative to prior year. Of this decrease, Technomedia related revenues represented a decline of 3.6 million while North America International and BIS collectively grew revenues by a 1 million.

In particular, our recurring revenue momentum is trending positively with lower levels of decline in recurring revenues and gross margins. In fact, on a year-to-date basis recurring revenues in North America have declined by only a 100,000 relative to prior year-to-date. Whereas in 2015 year-to-date period, North America recurring revenues decline by 7 million year-over-year that illustrates the strong progress we’ve made. On a total company basis, recurring revenues decline 2 million or 1.1% in 2016 versus 2015 comparison where they declined 8.9 million or 4.3% Q3 year-to-date in the 2015 versus 2014 comparison, all excluding the impact of the foreign exchange and asset sales.

KPI performance is also trending in a positive direction including Q3 KPIs with materially lower churn and positive growth and site counts relative to prior quarter. We believe that the inflection point, the positive growth and recurring revenues is likely to be achieved in 2017 assuming our sales and operational performance gains continue. Equipment revenues for core business show continued growth at 16% in North America and 8% in Mood International. Although, we continue to experience volatility from the large job oriented business Technomedia, as Steve and I have shared.

Q3 group revenues of 113.9 million were down 4.2 million on a reported basis or 3.6% below Q3 2015. Underlying revenues were down 2.6 million or 2.2%. Technomedia accounted for 3.6 million of revenue decline when considering their reported decline of 1.3 million and the 2.3 million lower revenue from their Primark Madrid projects in Q3 2015 that was required to be built through Mood International given the geographic locale and nature of the project.

North America revenues of 64.7 million were up 1.7 million primarily attributable to higher equipment revenues of 1.6 million and higher recurring revenues of 300,000, offset by lower installation service and other revenues of 200,000. A significant importance Q3 follows Q2 as the first positive year-over-year growth quarters in North America recurring monthly revenue since the 2012 merger of the Company and the first since pre-2007 for core North America. Mood International revenues of 25 million were down 3.4 million or 11.9% on an underlying basis, after level setting with foreign exchange in the sale of major comp with 2.3 million of that reported reduction related to the prior year Primark Madrid project built on behalf of Technomedia and a $700,000 in lower recurring revenue.

Next, let's turn our discussion to the key Mood KPIs. First, with regard to site count, churn, and gross ads. Company total sites at September 30 were 409.9 thousand, where we recorded a net decrease -- I am sorry, we reported a net increase of 1,696 sites, up 0.4% from June 30, 2016. Mood consolidated showed gross ads of 10,897. Total churn was 0.8% monthly for the quarter with audio churn at 0.8% and visual churn at 0.4%.

Secondly ARPU, reported blended ARPU of $41.81 declined by 1.1% compared to the third quarter of 2015. And on an FX neutral basis was down 0.7%. This total company ARPU performance compares very favorably to previous trend in 2013 to 2015, an underlying ARPU decline by approximately 4% on average each year. North America total ARPU of $42.38 was stable, while Mood International ARPU of $40.21 was down 2.2% year-over-year on an underlying base. Audio ARPU for Q3 was $40.43 versus last year's $40.97 for $0.54 or 1.3% decline. Visual ARPU for Q3 was $78.71 versus last year $82.26 for $3.55 or 4.50% decrease.

Financial guidance, turning now to Mood's 2016 guidance for both EBITDA and free cash flow, as I shared previously our Q3 EBITDA performance in Mood's full year EBITDA is likely to fall slightly the low levels of last year. As we stated previously, Q4 '16 EBITDA is projected to improve relative to Q3 performance given seasonally higher demand. We also expect to achieve improved EBITDA margin rates as compared to Q3. With respect to 2016 cash flow, Mood continues to expect to be positive cash flow for the year. For 2017 that we won’t provide formal guidance for the year, we can share expectations for further improvements in recurring revenues, ongoing operational performance gain and enhancements in sales performance in both our recurring and non-recurring equipment sales segments.

Some final thoughts on our ongoing transformation, in summary, while Q3 EBITDA results were below prior year in our expectation. We remain on track to deliver positive free cash flow in 2016 as originally guided too. The elements of positive momentum in our recurring revenues continue. The goal of our sales and market initiatives is to achieve across over recurring revenue inflection point where return lower leads to decrease in recurring revenues positive leads of recurring growth for future gain.

This quarter mark another real milestone to North America with the recurring growth and we are working very hard to turn that into a long trend. As we achieve success in these efforts, our EBITDA and free cash flow results were benefit nicely from the high margin profile of our recurring business and the operating leverage of our cost basis we achieved over the last almost three years. With the continuing achievements that Steve shared, we look forward to a future that enhanced performance as a realistic and very positive outcome.

With that, I’ll turn it over to the operator, who will provide Q&A instructions.

Question-and-Answer Session


Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Rob Goff, Echelon Wealth Partners. Rob, please go ahead.

Rob Goff

My question would be, in this quarter would it be characterized as a quarter of unusually high renewal levels and looking ahead to Q4 would you anticipate that it would be a unusual quarter for renewals or just business as usual?

Steve Richards

Ken, do you want to take that.

Ken Eissing

Yes, this is Ken. I would characterize it as a relatively normal quarter, both this quarter and last quarter, and we are always engaged and conversations with renewals, with our client base. There was nothing particularly materially different over the last quarter, and I would say we are pretty much in the normal cycle of renewals.

Rob Goff

And, Ken, that relates to the question. Could you talk to renewal pricing?

Ken Eissing

Sure. I mean, I think as we’ve shared in the past, I think as reflected on ARPU. There is a continuing trend toward renewal pricing stability. I mean there are some instances where perhaps little above market we bring down the market. There are other instances where we are able to sell other products and services and take the price up, and there is a vast majority of instances where the pricing is very stable. So, at a macro level, I would say that the trend that was reported over the last few years of increasing pricing stability at time of renewal continues and we expect it will continue.

Rob Goff

And it was very encouraging to see the churn reduction. In the past you’ve talked about call volumes, are you correspondingly seeing call volumes lower on a year-over-year basis?

Ken Eissing

Yes, operationally, we continue to see our call volumes trend down probably 5% to 10% on a consistent basis. And we use that obviously as leading indicator of how we are doing the client typically don't have a reason to call that, that means generally speaking things are going well. And we are obviously in contact from that sales and account management standpoint, on a regular basis. But again, we view the operational call volume as somewhat of a leading indicator and we’ve been pleased with that trend and expect that will continue as well.

Rob Goff

Thank you. And two more if I may. Could you talk to the performance in the momentum of your channel partners? And then perhaps the last question, could you talk to any highlights of the new product roadmap?

Ken Eissing

Sure. So from a channel partner standpoint, I mean we’ve been very happy, we’ve announced over the last few years and we’ve talked about some of the partners we’ve had. So I think in this call, which we highlighted the partnership revenues up 15% kind of year-over-year basis. So obviously we are pleased with that and look for that to continue and we’ll continue to add partners where it makes sense. And we’ll continue to invest in and support the existing partners that we have and you know a key part of our strategy that we talked about quite a bit over the last few years has been aligning ourselves with leading partners in the media and tech space, and we’re very happy with the progress we’ve made there and the relationships that we have.

From a product roadmap standpoint, we continue to make very nice progress on our visual products, and in particular we’re seeing nice continuing momentum with our Mood, what we call our Mood TV, be that Mood TV for QSR or healthcare or other verticals. So, we’re seeing very nice product momentum there, and we’ve made some recent enhancements over the last probably six to nine months in our audio product as well with the announcement and rollout if you will of social mix, which provides our clients the ability to allow their consumers to have a bit of influence over what plays onsite.

We think that’s a nice enhancement to the product portfolio and overtime will be a feature that more and more clients want. So, very happy with the progress we’ve made from a product standpoint and generally happy with how that translated this quarter in particular into the gross ad and churn enhancement.

Steve Richards

And importantly Rob, I don’t think there is not a great deal that we have to do with the investments that we made in '15 and early '16 from a product perspective, there is not a great deal that we have to do to invest with heavy lifting on new products. We feel we are pretty well prepared for what we need to win in the market. We have some flipping that we can do with any of the audio and visual and mobile solutions, but not major stuff. And if anything, it would be just thinking about how we deploy things like Mood TV for some of our key European or international markets. But the heavy lifting is out of the way.


Thank you. Your next question comes from Christian Hoffmann, Thornburg. Christian, please go ahead.

Christian Hoffmann

I was just hoping you’d spend a few minutes talking about Technomedia, I think it's popped up a few times. It’s being a source of weakness and again forgive me if I am being dense, but is it -- does that mean you're winning less new business, you’re winning less new jobs that there is macro softness that those jobs are being won by competitor. Can you just help me understand what’s going on in the big picture and has been going on?

Steve Richards

I’ll take that. So, the issues at Techno from the quarter and year-to-date are really comparing this year versus last year. Last year was a particularly strong year, I think we’ve highlighted in the past that this is a nonrecurring, and on this call on a nonrecurring segment of the business. We are still attacking and going after the same verticals from hospitality to entertainment and that sort of thing, casinos, some education and government et cetera. We are in a far better position at this time in this quarter versus where we were at the end of first quarter are one, but uninstalled backlog is now up to 10.1 million versus that was only 6.1 million at March of 16th. And if it's 10.1 million now, it's about 8 million this time last year.

So, we are not -- we don't feel we're losing jobs in a great way to any competitive threat that we haven't seen in the past say very much a world dependent upon client spends in very large jobs in their infrastructure and that sort of thing, and one of the questions you might ask is, so with the backlog then going on when do see this changing that backlog will obviously help us in the quarters to come. But we're going to have to continue to win in the same segments that I've spoken about previously.

We've right sized the cost structure there. We're variabalizing components of the business as we can. The GOCO component which is the advertising agency segment of Technomedia is performing very strongly this year. They'll have a record year even on top of their record year last year. But their record up is not carrying through the Technomedia large job volume that's down, so we just got to continue to focus on winning in the marketplace in the verticals that we attack, the jobs that we've done in the past for clients of similar nature in getting our materials back out to clients that are doing work like that and then winning.

Christian Hoffman

I guess, is the bigger pressure macro or competitive?

Steve Richards

We believe that some of that would be macro, but I can't cite for you specific evidence of that. We do not feel that we're losing to specific competitors vis-a-vis those that we've competed with in the past.

Christian Hoffman

Okay, you don't think there's any changes in the competitive dynamic?

Steve Richards

I do not believe so.


[Operator Instructions] Your next question comes from Todd Morgan, Jefferies. Todd, please go ahead.

Todd Morgan

Thank you, good morning. Two questions, if I, and I think you probably touched on this here, but I apologize if I didn't catch it, but the North American segment revenues were up, segment profits were a little bit lower. I know that Technomedia factors I think are outside of that particular segment trend. Could you perhaps help me bridge that the segment profit change?

Steve Richards

Sure, we'd be happy to do that. When you take a look at the segment results you can see that North American revenues grew while gross margins declined about 230 basis points to 54.2% in the quarter on a dollar basis gross margins declined by 0.5 million relative to prior year while revenues increased by 1.7. Recurring gross margins were essentially stable being down only $100,000 while equipment gross margins increased 600,000, installation service and other gross margin was down a million. The decline in the install service and other is attributable primarily to a $1 million adjustment to labor expense in the prior period where we had reversed some previously over expensed installation cost which led to unusually low cost in that Q3 prior period, so barring that accounting impact the underlying install service and other gross margins stable.

Todd Morgan

Okay, no that helps a lot, and then secondly if I just looked at visual gross ads over time you know between what 800 or 1000 per quarter that’s a pretty sort of range. Can you just talk about that cadence? Is that, what are the constraints to having at the bigger number? Is a labor insulation resource or is that having orders to go in field?

Ken Eissing

This is Ken, I’ll take that. From a visual standpoint, I think it’s the barrier if you will, there is converting our clients from primarily flagship installations to chain wide installation. And that’s really the, I don’t want to be spend there is a barrier, that’s what exists. So I mean, we continuing to be focus on that, a lot of what we productize if you will around are Mood TV is intended to open up products and solutions to retail chains and verticals that are more likely to provide scale. And I think we’re seeing some of the momentum we have. So that’s what I would say to the extent there is a barrier, it’s more and moving a visual deployment from the 10 or 20 locations flagship like locations to the 800 or 1,000 chain wide.

Todd Morgan

And then can I have third question, if I could along those lines. My sense of the business is you can have two big buckets and again please correct me. But the first one would be that more sort of transactional sales or your existing customer or one-off business or small location, where you and have a fairly short sales cycle. And then again sort of the longer chain wide sales that you talk about. Is there any way you can sort of generalize about sort of activity levels in each of those areas. My sense is that you probably done a decent job of kind of picking up sort of small quicker cycle transactional services, but if you could help me there? Thanks.

Ken Eissing

Sure. I mean, you’re right and that there are two primary segments, if you will and we’ve referred to them and do refer them as premier and local. I would say we’ve had nice momentum in both of those. From a visual standpoint, I think historically, we’ve had more success in the past in for visual in the local segment and primarily in the QSR and other franchise segments. And that’s where some of our product portfolio Mood TV et cetera place and to that category. So I’d say historically, we’ve probably been stronger had a certainly in North America in local and visual, that has, we’ve began to change and that over the last six to nine months in North America seen some very nice pick-ups and activity at a premier level.

Conversely in Europe, our international business is almost very heavily to premier. And we’ve most of our visual activity in Europe is premier. And what we’ve done, we’ve focus the last year in particular on is really learning from what we’ve done well in international and bring some of those learnings to North America and we’re beginning to see the initial fruits of that focus if you will, where over the last 12 to 18 months, we’ve done some very nice work in international within the automotive market. We’ve been preferred supplier currently call the digital showroom of the future and we’ve rolled out hundreds of the sites and automotive across Europe.

We’re beginning to do that with one of those brands in North America as well which build well for future quarters. So that’s our characterize it broadly, I think two segment local and premier historically North America with that more success visually and local but that’s clearly changed over the last six to 12 months or beginning to get momentum in premier as well. And then from an audio standpoint, I would say we had similar momentum in both local as well as premier. And again over the last 12 months in premier I think our audio momentum has picked up quite a bit as well especially on new wins.

Randal Rudniski

And, it's a Randal here. Let me help you a little bit more, if I could. So, we can see correct I mean our businesses more than half of it is of our long term recurring nature and a little bit of less than half is sort of shorter term transactional sales. The core of the business is that recurring revenue elements. And we disclosed those recurring revenues explicitly in our quarterly financials and in the quarterly press release. And that’s really where the rubber meets the road in terms of the subscriber and partnership performance because that’s all of recurring. And what you see in the latest quarter is that those revenues were essentially flat whereas last year we were down, I believe by around 4%.

And so that’s kind of a trend line that we are moving. You can see that the pieces of getting there in our KPIs, year-to-date our gross sites are up 10%, so that’s a pace of improvement. Our churn is down 100 basis points on a year-to-date basis relative to last year. So that’s a pace of improvement. Our ARPU was down only 0.7% on an underlying basis, so that’s a measure of improvement. And so those are the guides for recurring. When it comes to which is the important category for us because that the high margin component of our business model.

When it comes to equipment installation services other that’s a combination of the core business as well as Technomedia is. And we do report those in that business segment, it is also in our financial statements, so you can see that performance of those businesses relative to the quarter. And those businesses, we have been growing equipment installation and service with the exception of Techno and Techno; we have highlighted on this and prior calls the weakness that they are having. So I hope that helps a bit more.


Thank you. There are no further questions at this time. I’ll now turn it back to Steve Richards for closing remarks.

Steve Richards

Thanks. Thanks for everyone's time today. We appreciate your continued interest in Mood. The core Mood In-Store business is showing significant intangible progress and to summarize that briefly. Our revenue profile has improved substantially driven by stabilized recurring revenues, reduced declines in ARPU and improvements in gross site activation and churn. The In-Store Media revenue trends were showing the beginning is a sustainable growth versus previous years of significant decline. We market smoothly and enhanced the gross margin performance of the business driven by enhanced recurring revenue trends.

We remained committed to generating positive free cash flow in '16 and beyond with third quarter results showing dramatically improved Mood cash flow given a 60 million improvement relative to prior year. Mood is achieving the milestones of our transformation more encourage by the gains we have achieved across most areas of the business and we remained committed enhancing and strengthening the Company for the benefit of new shareholders and stakeholders.

With that, we’ll sign off for today and look forward to updating you on our next conference call. So, thanks and have a great day.


Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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