D-Box Technologies Q2 2027 Earnings Call Transcript

D-Box Technologies (TSX:DBO) reported second-quarter financial results on Wednesday. The transcript from the company’s second-quarter earnings call has been provided below.

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Summary

D-Box Technologies reported a record recurring revenue of $5.1 million, representing 42% of total revenue, up from 28% a year ago, despite a 40% decline in hardware system sales.

The company expanded its global footprint with 16 new screens, reaching 1,249 active screens, and added three new exhibitor customers, enhancing its future installation pipeline.

Gross margins improved to 64% from 55% a year ago, and adjusted EBITDA margin reached 36%, highlighting the company’s strategic focus on recurring revenue growth and operational scalability.

The company repurchased 1.3 million shares and ended the quarter with $19.9 million in cash, emphasizing a strong balance sheet and capital allocation strategy.

Management highlighted the strategic focus on expanding the installed base, growing recurring revenue, advancing technology, and disciplined capital allocation for future growth.

Full Transcript

OPERATOR

Good morning and welcome to the D-Box Technologies Second Quarter Fiscal 2027 Earnings Conference Call. All participants are in a listen-only mode. Please type your questions in the chat at any time. We will address as many as we can during the Q&A following management’s prepared remarks. This call is being recorded, and a replay will be available on D-Box Technologies’ investor relations website. I would now like to turn the call over to D-Box Technologies’ Chief Executive Officer and President, Naveen Prasad.

Naveen Prasad (Chief Executive Officer and President)

Thank you, operator, and good morning everyone. Welcome to our second quarterly earnings call. When we held our first call in August, we committed to engaging with the investment community on a regular basis and giving you a consistent view on how we are tracking against our strategy. The second quarter was the first real test of our business strategy and tells a clear story about the resilience of this business. Our growing royalty base delivered a record quarter.

This drove high margins and adjusted EBITDA margins. All this considering a quarter where hardware sales came in lower than the previous year. That year did not follow historical patterns. What this quarter demonstrates is how we have better positioned our business to navigate quarter-to-quarter fluctuations of system sales. I’ll walk you through what drove the quarter results and the progress we are making against our strategy. Then David Reed, our Chief Financial Officer, will take you through the financials in more detail before we open up the call to all your questions.

A quick reminder on our plan before we begin: This presentation contains forward-looking information about our future plan, strategy, and financial performance. It involves known and unknown risks and uncertainties, and actual results could differ materially from what we discuss today. We also refer to non-IFRS measures including adjusted EBITDA and gross margin, which have no standardized meaning under IFRS and may not be comparable to measures by other companies.

Full detail, including reconciliations, is in our MD&A and continuous disclosure filings on SEDAR+, and the adjusted EBITDA reconciliation is also in the appendix to this presentation. With that, let’s turn to the business. As always, we like to highlight the key things one should focus on this quarter. We have five to talk about. First, recurring revenue — rights for use, rental, and maintenance revenue — grew 14% to a record 5.1 million. This is our second consecutive record quarter, and recurring revenue represents 42% of our total revenue for the quarter, compared with 28% a year ago. Part of that jump reflects a softer hardware quarter, so the mix will move around from quarter to quarter, but it gives you a glimpse of where we’re headed over the long term.

Our vision is a business where recurring royalties make up an equal or larger share of total revenue on a sustained basis. Second, the footprint: we added 16 net new screens in the quarter, bringing our global installed base to 1,249 active screens, up 15.2% year over year. We are also moving quickly with three new exhibitor customers we signed over the last four months. Two have already completed their initial deployments and are fully operational now, contributing to our royalty base.

Third, hardware system sales were 7 million, down 40% from a very strong second quarter last year. As we said last quarter, hardware is low. This quarter reflects what we feel is a typical summer slowdown in exhibitor capital spending and moderating demand from some of our OEM partners. Fourth, capital returns: we repurchased close to 1.3 million shares for cancellation during the quarter under our NCIB, and we still ended the quarter with 19.9 million of cash, up from 17.6 million at year end.

And fifth, margins: gross margins expanded to 64% from 55% a year ago, and adjusted EBITDA margin reached 36%, the highest in the last eight quarters. As I mentioned in the opening, this quarter was the first real test of our business strategy. Hardware sales stepped back, and adjusted EBITDA came in at 4.4 million compared with 5.6 million a year ago. Yet the business earned more adjusted EBITDA per dollar of revenue than at any point in the last two years.

That is exactly what our strategy was designed to do, and this quarter shows that it worked. So, last quarter we introduced you all to our value creation framework. This is built on four pillars. Let me tell you where we’re at. White Space: we are at 1,249 active screens, still less than 1% of the more than 200,000 cinema screens worldwide. Net additions were 16 this quarter versus 37 a year ago. You’ll notice the last quarter did not follow historical seasonal patterns. That reflects the timing of exhibitor capital cycles, not a change or slowdown in demand.

We also announced three new customers around our last call at the beginning of the quarter, which we believe will strengthen our installation pipeline for years to come. Technology Leadership: D-Box was featured in nine of the top 10 grossing films this quarter, and we continue to invest in our core haptic platform, with that investment supported by higher government assistance for our R&D programs. Recurring Revenue engine: a record 5.1 million, up 14% and 42% of total revenue. These high-quality revenues help us support the business during lower system sale quarters.

Profitability: a 64% margin and a 36% adjusted EBITDA margin. For the first half, adjusted EBITDA margin was 34% compared with 31% a year ago. So record recurring revenue, our highest adjusted EBITDA margin in two years, three new exhibitor customers added to our pipeline — we are staying on our path, and it is working. So let’s get into business. The scale of our runway has not changed. D-Box is installed in 1,249 of the world’s more than 200,000 cinema screens. In North America, our most proven market, we earn fewer than 2% of the more than 40,000 screens available to us. This quarter we added 16 net new screens. This is fewer than the 37 we added in the same quarter last year. So to give you some context, summer is when exhibitors focus on operating through a strong blockbuster slate rather than on renovating auditoriums.

This is a typical cyclical pattern, and the comparison was particularly challenging because the second quarter of last year was exceptionally strong and did not follow those historical trends. This is why we continue to ask our shareholders to look at D-Box’s trajectory on a trailing twelve-month basis. What hasn’t changed is how exhibitors view D-Box. It remains a preferred capital allocation priority because it maximizes per-patron yield, it is operationally simple to deploy, and it offers an experience audiences just cannot get at home. We also started making D-Box easier to buy for those who may require it. Our flexible financing offers catering to strategic financing deployments continue to gain traction. Finance lease receivables grew to 1.8 million from 1.3 million at year end.

That lowers the upfront barrier for exhibitors and creates a recurring, predictable cash flow stream for us. And the exhibitor relationships we announced around our last call — B&B Theatres, Marcus Theatres, and Malco Theatres — broaden the base from which we expect future deployments to come. Content is the other half of our flywheel. In the second quarter, D-Box was featured in nine of the top ten films — Brand New Day, The Odyssey, Minions and Monsters, and Tourists: The River — all notable titles that contributed meaningfully to a record quarter. That breadth comes from long-standing relationships with major studios and distributors. Most hits of the year come to D-Box as part of that release, and more encoded content makes every screen in our network more valuable, which in turn makes every studio partnership more valuable.

Now I want to address a question that some of you may have. North American box office grew 28.6% in the quarter, while our recurring revenue grew 14%. Let me explain that gap. The first is concentration. Two films alone accounted for around 52% of the domestic box office receipts of the quarter. Historically, the top two titles in a given quarter account between 26% and 36%. That matters for D-Box because of how exhibitors program our screens. Many of our complexes have several D-Box auditoriums.

When there are three or four strong titles in the market, exhibitors can program D-Box across all of them at the same time, and patrons have more opportunities to choose D-Box. When one or two films dominate, traffic is concentrated in fewer showings, and our limited seats are in use at once. So a broad slate is better for us than a narrow one, even at the same total box office. There’s also a second factor, and that is occupancy. On average, D-Box seats run at a higher occupancy than the rest of the auditorium. So when a major blockbuster fills an auditorium, our seats near complete occupancy before the rest of the auditorium does. Once we are sold out, every additional ticket for that showing goes to a regular seat. That’s why our royalties do not track gross box office one-for-one, especially in a quarter driven by very few large films.

The important point is this: even in a concentrated summer where only two films delivered the majority of the box office, we still delivered a record recurring revenue quarter. For the first half, recurring revenue grew 19%. Over the trailing 12 months, it grew 16% ahead of the 15.2% growth in our installed base. Now, this chart here shows the last eight quarters of rights for use, rental, and maintenance revenue. Two things stand out. First, seasonality: our first and second fiscal quarters, April through September, include the summer box office season, and they are consistently our strongest recurring revenue quarters. Second, the trajectory: the second quarter came in at 5.1 million, compared with 4.5 million a year ago. And that is our second record quarter in a row.

And what’s important is the mix is shifting. Recurring revenue was 42% of total revenue this quarter, compared with 28% a year ago. Because that revenue carries structurally higher margins, this shift in our revenue mix is the single most important driver of our profitability. Which brings me to the next slide. This is where the strategy shows up the most clearly. The chart on the left shows our quarterly adjusted EBITDA margin over the last eight quarters. The second quarter was 36%, the highest in that period, and it came in a quarter when revenue was down 25%. This is the operating leverage of our model at work. When the revenue mix shifts towards recurring royalties, which carry minimal incremental costs, margins expand — even when hardware revenues step back.

On an annual basis, you’ve seen that progression: 5% in fiscal 2023, 8% in 2024, 17% in 2025, and 27% in fiscal 2026. For the first half of fiscal 2027, we are at 34%. Now, keep in mind the first half includes our seasonally strongest royalty quarters. The comparable figure for the first half of last year was 31%. But let me hand it over to David to take you through the quarter’s financials in more detail.

David (Chief Financial Officer)

Merci. Thank you, Naveen, and bonjour tout le monde. Today I’ll cover four areas: our income statement performance, what’s driving our margins and costs, our cash flow and balance sheet, and how we are allocating capital. Let’s start with the headline numbers for the quarter. Total revenues were $12.1 million, compared with $16.1 million in the second quarter last year, a decrease of 25%. That decrease came entirely from system sales, which were $7 million, down 40%. Recurring revenue, meaning rights for use, rental and maintenance revenues, grew 14% to a record $5.1 million. Because of that mix shift, gross profit was $7.7 million, only 13% lower than last year on revenue that was 25% lower overall, and gross margin expanded to 64% from 55%.

That’s the power of a recurring revenue model. Adjusted EBITDA was $4.4 million, compared with $5.6 million last year, and adjusted EBITDA margin increased to 36% from 35%. Net profit before income taxes was $2.7 million, compared with $4.5 million. Net profit was $2.6 million, or 1.2 cents per basic share. We ended the quarter with 1,249 active screens, up 15.2% year over year, and $19.9 million of cash. Because hardware timing can swing any single quarter, the bottom of this slide shows the first six months as a whole. Revenue was $25.5 million, down 13%. Recurring revenue was up 19%. Adjusted EBITDA was $8.6 million, down 3% on a margin of 34% versus 31%. And cash flow from operating activities was $5.1 million, up 22%.

Let me unpack the revenue line by customer group. Theatrical system sales were $3.1 million, down 52% from $6.4 million. As we mentioned before, this reflects typical summer slowdown in exhibitor capital spending measured against an exceptionally strong quarter last year. Sim racing sales were $2.1 million, down 21%, and simulation and training was $1.4 million, down 20%. In both cases, certain third-party OEM partners adjusted their production schedules and tempered procurement during the quarter.

These timing-driven fluctuations are characteristic of an OEM sales model. So the takeaway is this: The decline in the quarter came from the lumpy, lower-margin part of our revenue, while the high-margin recurring part continues to grow. Shifting to margins and costs. Gross margin was 64% this quarter, up from 55% a year ago and 59% last quarter. The driver is revenue mix. Recurring revenue carries structurally higher margins than system sales, and it made up a much larger share of revenue this quarter. Lower theatrical system sales, which carry lower margins, added to that mix effect. As I said last quarter, gross margins will move with hardware timing. A strong hardware quarter will pull the percentage down even as it adds gross profit dollars and future royalty streams.

So again, we’d encourage you to look at the trend rather than any single quarter. On operating expenses. Reported operating expenses were $5.1 million compared with $4.3 million last year. The main driver was share-based compensation, which increased to $1.4 million from $0.1 million. About $0.6 million of that relates to our share-based liabilities, which are revalued each quarter at our share price, and the rest reflects stock options granted at higher share price than a year ago. Those option grants are in line with our strategy of aligning executive compensation with shareholder interests.

So the increase in these costs is driven mainly by the appreciation in D-Box Technologies’ stock price over the past year rather than by growth in our operating cost base. Excluding share-based compensation, operating expenses were about $3.7 million, compared with $4.2 million a year ago, roughly 11% lower. Now, I’ll give you that part of the difference is $0.4 million of restructuring costs in last year’s quarter that did not reoccur in the current year.

And even excluding those restructuring costs, operating expenses were still down about 2%. Within those operating expenses, research and development expense was $0.8 million, down from $1.2 million, mainly because of a $0.3 million increase in government assistance. Now, all this to say that our underlying development activities were unchanged. And lastly, it’s nice to continue to see that net financial items were actually income, $0.1 million this quarter. Our interest income continues to more than cover our financial expenses.

Turning to the cash flow and the balance sheet, this chart walks our cash from $17.6 million at fiscal year end to $19.9 million at September 30. For the first six months, operations generated $8 million before working capital, up from $7.2 million last year. Then working capital and income taxes used $3 million. That was mainly higher receivables, reflecting the timing of royalty revenue from several blockbuster releases late in the period, along with inventory purchased to support demand.

That left $5.1 million of cash from operating activities, up 22% year over year. From there we returned $1.9 million to shareholders through the NCIB and used nearly $1 million for equipment purchases, lease and debt repayments, as well as some other small items. On the balance sheet, working capital increased $4.6 million to $29.3 million. Shareholders’ equity increased to $39.7 million, which is 76% of total assets. Long-term debt is now just $0.2 million, all of which is non-interest-bearing government loans. And our $8 million credit facility with National Bank remains fully undrawn. We continue to hold most of our cash—86% at quarter end—in high-interest savings accounts to help maximize our return on idle cash.

Now the takeaway here is: this is a self-funded, conservatively capitalized business that gives us real flexibility in how we deploy capital. Let me bring that together into how we are allocating capital. First, cash generation: $5.1 million of operating cash flow in the first half and $19.9 million of cash on hand lets us fund growth and shareholder returns at the same time without straining the balance sheet. Second, the screen network remains our highest-return use of capital. We added 16 net new screens this quarter, bringing our footprint to 1,249. And we are increasingly using our balance sheet to support customers through financing, which helps accelerate deployments and creates recurring revenue for the future.

Third, returning capital: in the second quarter we repurchased nearly 1.3 million shares for cancellation at an average price of $1.09. For the first half, that is nearly 1.8 million shares at an average price of $1.02, plus nearly 80,000 shares held in treasury awaiting cancellation, for about $1.9 million total. We view the NCIB as an opportunistic tool when we believe our shares trade below intrinsic value, and it does not come at the expense of our organic growth investments.

Fourth and final, operating leverage: our 36% adjusted EBITDA margin this quarter, with recurring revenue at 42% of total revenues, shows how scalable this asset-light model is. Now with that, I’ll hand it back to Naveen.

Naveen Prasad (Chief Executive Officer and President)

Thanks, David. So let me share our priorities for the second half of fiscal 2027. As always, we are not providing financial guidance, but I want you to know what we’re focused on. First, expanding the installed base. That means converting opportunities with new and existing exhibitor partners, including the circuits we have already added this year. Second, growing recurring revenue. We do this by expanding the installed base and by keeping D-Box across the broadest possible slate of special partners.

Third, advancing the technology. We continue to refine our haptic platform for theatrical and to support our sim racing and simulation and training OEM partners as the production schedules evolve. And fourth, disciplined execution and capital allocation, cost discipline, investing behind our highest return opportunities, and using the NCIB when it makes sense. So as we wrap things up, let me reiterate why we think D-Box Technologies is poised for continued profitable growth. We have a global footprint of 1,249 screens in more than 40 countries, and every installation drives long-term recurring royalties. And we are widening that footprint with new exhibitor partnerships that we believe will continue to grow with us over time. We have proven profitability, $5.6 million of net profit before taxes in the first half and a 36% adjusted EBITDA margin this quarter.

We have a strong balance sheet, $19.9 million of cash and essentially no debt. We are returning capital to shareholders through the NCIB, and our model scales. Recurring revenue now makes up 42% of the total, and it grows with our footprint at minimal incremental costs. Less than 1% global penetration means the opportunity ahead of us is far larger than what we have captured so far. Thank you for your time and your interest in D-Box Technologies.

We’re now happy to take your questions.

OPERATOR

Good morning. We will now begin the question and answer portion of today’s call. Questions have been submitted in advance and we will address them in the order received. David, can you explain the timing as to when royalties are earned, recognized and received? In that vein, can you offer any color regarding what degree of accounts receivable is royalties payable?

David (Chief Financial Officer)

Great question. So generally royalties are earned when the performance obligation is performed, which in our case is when the activation has occurred. In layman’s terms, when the ticket is sold and used, and that’s generally when it’s recognized. As for when it’s received, that depends on the payment terms of each individual cinema. But you can see based on our financial statements that our DSO is less than 60 days. So overall the business collects their receivables in an appropriate manner.

OPERATOR

Thank you, David. Let’s move to our next question. Nadine, one of your customers reported 62% growth in its motion seat revenues for the quarter, which I believe represented D-Box seats primarily. Yet your royalties were up 14% for the quarter. Can you provide some context on this discrepancy? Is there a cap on your royalties once you reach a certain utilization rate?

Nadine

Yeah, absolutely. I can appreciate that discrepancy. First of all, there is no cap tied to utilization. We earn a royalty on every paid D-Box admission. The growth as reported by that exhibitor—we don’t have a breakdown of how much came from more admissions, higher base ticket price, or at a premium. A D-Box ticket can include upcharges for premium large format, 3D, both, and other upcharges. But overall our royalties grew 14% to a record quarter.

That reflects what we earn from exhibitors in more than 40 countries, as well as from the studios. For us, having a partner report that type of growth—it’s a concrete example of the revenue potential of D-Box for exhibitors. It strengthens the case for putting D-Box on more screens. And every screen we add gives us more opportunities to earn royalties.

OPERATOR

Thank you, Nadine. Turning to our next question, David, share-based compensation was $1.36 million this quarter. What unrecognized compensation costs remain at September 30th?

David (Chief Financial Officer)

Well, share-based compensation is recognized as an expense in two ways for us. For stock options, it’s recognized over the period that they vest. So generally our stock options are exercised with a three-year vesting, so the expense is incurred over those three years. And then there’s our share-based liabilities, which are mark-to-market, which means that they are expensed as the stock price increases and also over the vesting period increases or decreases.

So that can cause some volatility in the stock-based compensation expense. But the good news on all is in the period that they vest, they’re non-cash. So that’s why they’re backed out of EBITDA. And we encourage you to look at our EBITDA figure for the most appropriate metric of our cash use.

OPERATOR

Thank you. Our next question is: finished goods inventory rose 23% in the first half. Is it allocated to specific customer orders?

David (Chief Financial Officer)

Sure, I’ll take that one. So yeah, generally we like to order on a just-in-time basis. There are some materials that we order in bulk to take advantage of pricing and scale pricing adjustments. But generally speaking, all of our inventory is just in time and is associated to orders or incoming orders.

Nadine

Thank you. Let’s move to our next question. Can you share details on the pipeline of new screens to be installed in the next 12 months?

Naveen Prasad (Chief Executive Officer and President)

Sure, I’ll take that one. Thank you for the question. The expectation for the next 12 months. As you know, we do not give actual guidance on how many we anticipate over any given future period. I mean, we look at last year, which to note, both Q2 and Q3 were very high, but that was us taking advantage of an opportunity. We would rather have as many screens go live as quickly as possible and take advantage of the recurring revenue that those screens will generate.

But as I mentioned, our goal is to continue to expand the base and that’s not just with active clients, but also future clients that we hope we will be able to bring on board. And we feel very confident that our product delivers the results that will warrant both continued growth with clients that we have as well as future clients.

Nadine

Thank you. Let’s move to our next question. How does management view the TAM opportunity of number of D-Box screens that could be added by global giants such as AMC, Regal, Cineworld, Cinemark, and Cinepolis over the next three years?

Naveen Prasad (Chief Executive Officer and President)

I’m very bullish on our opportunity with those global clients. We are proving to work with the clients that we do have. As I said before, it is a long sales cycle from when we first start talking to them to actual deployments, announcement and deployment. As you have to understand, there’s a lot that goes into launching a new client even when it’s decided that we’re going to do it. But it still takes a while to ramp up and ensure that we can deliver the experience that we are well known for.

So, yes, feel very, very good about our TAM and how we’re going to maximize that opportunity.

Nadine

Our next question: what should we expect from the sim racing and simulation and training revenue lines? Explain the minus 20% this quarter and future expectations relative to this decline.

Naveen Prasad (Chief Executive Officer and President)

Sure. Well, first of all, both lines of business contribute meaningfully to our cost base as well as our economy of scale. We use the same actuators in those lines of business. So it’s opportunistic. We do not see a desire to get out of those businesses, how they contribute. We’ll keep on working to maximize the opportunity in front of us. But I would urge people to consider those lines of business as contributing to our cost base as well as perhaps providing a halo benefit for our ability to continue to be the world’s best haptic provider.

Nadine

Thank you. Turning to our next question, can you discuss the variables that made the quarter a year ago so strong for theatrical installations that made the lap so difficult this year, because seemingly they should have felt the effects of seasonality last year as well?

Naveen Prasad (Chief Executive Officer and President)

Certainly last year was very much a refocus of our business, new management, new strategy, new product priorities. When you have such a scenario like that, you’re able to take advantage of what may be called low-hanging fruit that delivers results for the long term. And those quarters were great quarters and as we keep on saying, they’re remarkable. But we would caution our shareholders to understand that we need to, they have to understand that there is a cycle to our install base and we will continue to maximize it as we add new clients that will shift and continue to add opportunities and growth.

Nadine

Thank you. Let’s move to our next question. Trade press called it a D-Box all-time global record and Cinemark called it its best ever D-Box title. What were its D-Box admissions and royalties and its share of Q2 royalties? How did The Odyssey perform on D-Box given IMAX?

David (Chief Financial Officer)

That’s a good question. What we discussed in our remarks and also in our MD&A is that concentration of two titles can impact how royalties end up, how we end up earning those royalties. You know, for several quarters D-Box royalties grew faster than the box office, you know, because this quarter was an exception with just two films accounting for more than half of domestic box office. But even so, we set that new royalty record and delivered strong margins despite, for example, the decline in system sales from an exceptional quarter last year.

That performance reinforces our profit model and what it can deliver. And as we expand our screen base, we still have a very long runway for growth.

Nadine

Our next question, what’s the signed backlog in screens and dollars entering Q3 and Q4? New exhibitors signed this quarter: what are the initial screen count and rollout timing for them? Malco, 13 auditoriums. Marcus and BNB.

Naveen Prasad (Chief Executive Officer and President)

Okay, yeah. So Malco and Marcus have launched many of their screens already. BNB, I believe, is being set up. It may actually be launching as early as this weekend. We’re expecting great results for them and the growth of those partners to continue. Obviously they’re going to be testing it for a bit, but we anticipate that it will be successful and we’ll see further rollout.

Nadine

Thank you. We will now move to our final question. How much of the 1.3 million share-based liability do you expect to pay in cash and when?

David (Chief Financial Officer)

Great question. So I think you’re referring to share-based payment expense, 1.3 million. And generally it’s only the share-based liability that has the potential to be paid out in cash. And based on the biggest chunk of that, that’s the DSUs which could potentially be paid in cash. All of those, following the put in place of the omnibus plan last year, can be paid in shares as well, but for the moment they are recorded as liabilities as they’re most likely being paid in cash when the board members leave D-Box.

I should also state that all of our share-based compensation that is reflected in this quarter is based on our share growth. But again, it is a focus of this company to make sure that all of our executives and board members are aligned constantly to shareholder value.

Nadine

So this concludes today’s call. We thank everybody that took the opportunity and the time to join us.

Naveen Prasad (Chief Executive Officer and President)

Thank you everyone.

OPERATOR

Thank you. Ladies and gentlemen, that concludes today’s presentation. We thank you for your participation. You may now disconnect and have a wonderful day.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.