Stingray Group Inc. — Interim / Quarterly Report 2022

Aug 4, 2021

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Fiscal 2022 For the three-month period ended June 30, 2021
MANAGEMENT'S DISCUSSION AND ANALYSIS
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TABLE OF CONTENTS

Overview	3	Financial results for the periods ended
		June 30, 2021 and 2020	7
Key performance indicators	3
		Business segment performance	9
Financial and business highlights	4
		Liquidity and capital resources for the periods
Selected consolidated financial information	5	ended June 30, 2021 and 2020	14
Supplemental information on
Non-IFRS measures	6

BASIS OF PREPARATION AND FORWARD-LOOKING STATEMENTS

The following is Management’s Discussion and Analysis (“MD&A”) of the results of operations and financial position of Stingray Group Inc., (“Stingray” or “the Corporation”), and should be read in conjunction with the Corporation’s unaudited interim consolidated financial statements and accompanying notes for the three-month periods ended June 30, 2021 and 2020, and with the most recent audited consolidated financial statements and MD&A for the year ended March 31, 2021. This MD&A reflects information available to the Corporation as at August 3, 2021. Additional information relating to the Corporation is also available on SEDAR at www.sedar.com. The auditors of the Corporation have not performed a review of the interim financial report for the three-month periods ended June 30, 2021 and 2020.

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 included 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 risk factors disclosed in the Annual Information Form for the year ended March 31, 2021 available on SEDAR.

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 shows stable results from its operations which allows users of the financial statements to better assess the trend in the profitability of the business. The Corporation believes that Adjusted free cash flow and Adjusted free cash flow per share are important measures 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 dividends and reduce debt. The Corporation believes that Net debt and Net debt to Pro Forma Adjusted EBITDA are important to analyse the company's debt repayment capacity on an annualized basis, taking into consideration the annualized adjusted EBITDA of acquisitions made during the last twelve months. 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.

First Quarter Report 2022 | Stingray Group Inc. | Management’s Discussion and Analysis

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OVERVIEW

Montreal-based Stingray Group Inc. (TSX: RAY.A; RAY.B) is a leading music, media, and technology company with over 1,000 employees worldwide. Stingray is a premium provider of curated direct-to-consumer and B2B services, including audio television channels, more than 100 radio stations, SVOD content, 4K UHD television channels, FAST channels, karaoke products, digital signage, in-store music, and music apps, which have been downloaded over 160 million times. Stingray reaches 400 million subscribers (or users) in 160 countries.

KEY PERFORMANCE INDICATORS[(1) ]

For the three-month period ended June 30, 2021 (“Q1 2022”):

$64.8 M $4.2 M $16.3 M ▲ 23.9% from Q1 2021 Or $0.06 per share ▼ 57.0% from Q1 2021 Revenues Net income Cash flow from operating activities Or $0.23 per share

$24.2 M $11.2 M $15.0 M ▼ 5.2% from Q1 2021 Or $0.16 per share ▼ 16.8% from Q1 2021 Adjusted EBITDA Adjusted Net income Adjusted free cash flow Or $0.21 per share

Note:

(1) Refer to “Supplemental information on Non-IFRS measures” on page 2 and 6.

First Quarter Report 2022 | Stingray Group Inc. | Management’s Discussion and Analysis

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FINANCIAL AND BUSINESS HIGHLIGHTS

Highlights of the first quarter ended June 30, 2021:

Compared to the quarter ended June 30, 2020 (“Q1 2021”):

• Revenues increased 23.9% to $64.8 million from $52.3 million;

• Adjusted EBITDA[(1)] decreased 5.2% to $24.2 million from $25.5 million. Adjusted EBITDA[(1)] by segment was $14.7 million or 41.2% of revenues for Broadcasting and Commercial Music, $10.8 million or 37.0% of revenues for Radio and $(1.3) million for Corporate;

• Net income was $4.2 million ($0.06 per share) compared with $7.0 million ($0.10 per share);

• Adjusted Net income[(1)] of $11.2 million ($0.16 per share) compared with $13.5 million ($0.18 per share);

• Cash flow from operating activities decreased 57.0% to $16.3 million compared to $38.0 million;

• Adjusted free cash flow[(1)] decreased 16.8% to $15.0 million, or $0.21 per share, compared to $18.0 million or $0.25 per share;

• Net debt to Pro Forma Adjusted EBITDA[(1)] ratio of 2.88x, and;

• 643,000 shares repurchased and cancelled for a total of $4.7 million.

Business Highlights:

• On August 3, 2021, the Corporation declared a dividend of $0.075 per subordinate voting share, variable subordinate voting share and multiple voting share. The dividend will be payable on or around September 15, 2021 to shareholders on record as of August 31, 2021.

• On July 5, 2021, the Corporation announced that it has acquired Calm Radio, the world’s largest online music streaming service focused on the wellness and relaxation markets. With this acquisition, Stingray grows its portfolio of curated music content, significantly increases its subscriber base and dives into the health and wellness industry.

• On June 4, 2021, the Corporation announced that it has partnered with Shaw Communications Inc. to make its Stingray Music TV app available to all Shaw TV IPTV customers across Western Canada. Shaw TV customers will have access to 2,000 professionally curated channels in over 100 genres including pop, rock, hip-hop, indie, country music and more at no extra cost.

• On May 5, 2021, the Corporation announced the launch of free, ad-supported TV channels and premium SVOD services with thirteen major OTT providers: Alteox (Luxembourg), Amazon Prime Video Channels (Italy, Spain and Netherlands), ChannelBox (United Kingdom), Maskatel (Canada), Pluto TV (Latin America and United States), Pzaz (Global), Rakuten TV (Europe), Redbox (United States), Rostelecom (Russia), Ruutu (Finland), Samsung TV Plus (Brazil, Mexico, Netherlands and Sweden) Totalplay (Mexico) and Zeasn (Austria and Germany). These distribution agreements grow Stingray’s audience over new platforms in new territories and add millions of potential viewers.

• On April 28, 2021, the Corporation announced that free, ad-supported channels Qello Concerts by Stingray and Stingray Karaoke have become available on Samsung TV Plus Mobile in Germany and the UK. Mobile and tablet users will access both channels on Samsung’s free ad-supported video service through the TV Plus App and the Samsung Free page. The distribution agreements grow Stingray’s potential reach by millions of users. The service was launched in June 2021 in Austria and Switzerland.

Note:

(1) Refer to “Supplemental information on Non-IFRS measures” on page 2 and 6.

First Quarter Report 2022 | Stingray Group Inc. | Management’s Discussion and Analysis

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SELECTED CONSOLIDATED FINANCIAL INFORMATION

(in thousands of Canadian dollars, except per share amounts)	3 months
	June 30, 2021 Q1 2022 June 30, 2020 Q1 2021 March 31, 2021 Q4 2021
	$ % of revenues $ % of revenues $ % of revenues
Revenues Operating expenses Depreciation, amortization and write off Net finance expense (income)(1) Change in fair value of investments Acquisition, legal, restructuring and other expenses(income)	64,808 100.0 % 52,293 100.0 % 60,316 100.0 % 42,907 66.2 % 28,294 54.2 % 38,941 64.6 % 9,447 14.6 % 9,523 18.2 % 9,821 16.3 % 5,253 8.1 % 4,601 8.8 % (7,284) (12.1) % – 0.0 % 892 1.7 % – 0.0 % 1,168 1.8 % (397) (0.8)% 2,714 4.5 %
Income before income taxes Income taxes	6,033 9.3 % 9,380 17.9 % 16,124 26.7 % 1,833 2.8 % 2,359 4.5 % 4,047 6.7 %
Net income	4,200 6.5 % 7,021 13.4 % 12,077 20.0 %
Adjusted EBITDA(2) Adjusted Net income(2) Cash flow from operating activities Adjusted free cash flow(2) Net debt(2) Net debt to Pro Forma Adjusted EBITDA(2)(3)	24,155 37.3 % 25,481 48.7 % 23,638 39.2 % 11,238 17.3 % 13,509 25.8 % 11,981 19.9 % 16,337 25.2 % 37,993 72.7 % 24,514 40.6 % 15,007 23.2 % 18,045 34.5 % 13,808 22.9 % 331,129 – 336,776 – 326,405 – 2.88x – 2.91x – 2.81x – 0.06 – 0.10 – 0.17 – 0.16 – 0.18 – 0.17 – 0.16 – 0.18 – 0.16 – 0.23 – 0.52 – 0.34 – 0.21 – 0.25 – 0.19 – 35,578 54.9 % 35,947 68.7 % 36,356 60.3 % 29,230 45.1 % 16,346 31.3 % 23,960 39.7 %
Net income per share basic and diluted
Adjusted Net income per share basic(2)
Adjusted Net income per share diluted(2)
Cash flow from operating activities per share basic and diluted
Adjusted free cashflow per share basic and diluted(2)
Revenues by segment Broadcasting and Commercial Music Radio
Revenues	64,808 100.0 % 52,293 100.0 % 60,316 100.0 %
Revenues by geography Canada United States Other Countries	41,376 63.8 % 28,057 53.7 % 35,594 59.1 % 10,278 15.9 % 10,302 19.7 % 10,942 18.1 % 13,154 20.3 % 13,934 26.6 % 13,780 22.8 %
Revenues	64,808 100.0 % 52,293 100.0 % 60,316 100.0 %

Notes:

(1) Interest paid during the Q1 2022 was $3.9 million (Q1 2021; $3.7 million and Q4 2021; $5.1 million)

(2) Refer to “Forward-looking statements” and “Supplemental information on Non-IFRS measures” on page 2 and for reconciliations to the most directly comparable IFRS financial measure, refer to “Supplemental information on Non-IFRS measures” on page 6.

(3) Refer to page 17 for a reconciliation of Pro Forma Adjusted EBITDA to the most directly comparable IFRS financial measure. Refer to “Forward-looking statements” and “Supplemental information on Non-IFRS measures” on page 2 and for reconciliations of Adjusted EBITDA to the most directly comparable IFRS financial measure, refer to “Supplemental information on Non-IFRS measures” on page 6.

First Quarter Report 2022 | Stingray Group Inc. | Management’s Discussion and Analysis

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SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES

Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net income, Adjusted Net income per share, Adjusted free cash flow, Adjusted free cash flow per share, Net debt and Net debt to Proforma Adjusted EBITDA are non-IFRS measures that the Corporation uses to assess its operating performance. See “Supplemental information on Non-IFRS Measures” on page 2.

The following tables show the reconciliation of Net income to Adjusted EBITDA and to Adjusted Net income:

(in thousands of Canadian dollars)	3 months
	June 30, 2021 Q1 2022 June 30, 2020 Q1 2021 March 31, 2021 Q4 2021
Net income Net finance expense (income) Change in fair value of investments Income taxes Depreciation and write-off of property and equipment Depreciation of right-of-use assets Amortization of intangible assets Share-based compensation Performance and deferred share unit expense Acquisition,legal,restructuringand other expenses(income)	4,200 7,021 12,077 5,253 4,601 (7,284) – 892 – 1,833 2,359 4,047 2,524 2,701 3,082 1,296 1,412 1,436 5,627 5,410 5,303 164 166 235 2,090 1,316 2,028 1,168 (397) 2,714
Adjusted EBITDA	24,155 25,481 23,638
Net finance expense (income), excluding mark-to-market losses (gains) on derivative financial instruments Income taxes Depreciation of property and equipment and write-off Depreciation of right-of-use assets Income taxes related to change in fair value of investments, share-based compensation, performance and deferred share unit expense, amortization of intangible assets, mark- to-market losses (gains) on derivative financial instruments and acquisition, legal, restructuring and other expenses (income)	(4,735) (3,338) (3,214) (1,833) (2,359) (4,047) (2,524) (2,701) (3,082) (1,296) (1,412) (1,436) (2,529) (2,162) 122
Adjusted Net income	11,238 13,509 11,981

The following table shows the reconciliation of Cash flow from operating activities to Adjusted free cash flow:

(in thousands of Canadian dollars)	3 months
	June 30, 2021 Q1 2022 June 30, 2020 Q1 2021 March 31, 2021 Q4 2021
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 Interest paid Repayment of lease liabilities Net change in non-cash operating working capital items Unrealized loss (gains) on foreign exchange Acquisition,legal,restructuringand other expenses(income)	16,337 37,993 24,514 (2,077) (703) (1,929) (198) (258) (194) (2,153) (1,552) (1,367) (3,891) (3,687) (5,142) (1,085) (1,214) (1,099) 6,805 (11,412) (344) 101 (725) (3,345) 1,168 (397) 2,714
Adjusted free cash flow	15,007 18,045 13,808

The following table shows the calculation of Net debt:

	June 30,	March 31,	June 30,
(in thousands of Canadian dollars)	2021	2021	2020
Credit facilities	305,779	303,704	303,504
Subordinated debt	31,766	31,741	39,665
Cash and cash equivalents	(6,416)	(9,040)	(6,393)
Net debt	331,129	326,405	336,776

First Quarter Report 2022 | Stingray Group Inc. | Management’s Discussion and Analysis

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FINANCIAL RESULTS FOR THE PERIODS ENDED JUNE 30, 2021 AND 2020

CONSOLIDATED PERFORMANCE

Revenues

Revenues are detailed as follows:

(in thousands of Canadian dollars)	3 months
	Q1 2022 Q1 2021 % Change
Revenues by geography Canada United States Other Countries	41,376 28,057 47.5 10,278 10,302 (0.2) 13,154 13,934 (5.6)
Revenues	64,808 52,293 23.9

Global

Revenues in Q1 2022 increased $12.5 million or 23.9% to $64.8 million, from $52.3 million for Q1 2021. The increase was primarily due the gradual easing of COVID-19 restrictions and the return to normal commercial operations, partially offset by the negative impact of foreign exchange.

Canada

Revenues in Canada in Q1 2022 increased $13.3 million or 47.5% to $41.4 million, from $28.1 million for Q1 2021. The increase was primarily due to the gradual easing of COVID-19 restrictions and the return to normal commercial operations.

United States

Revenues in the United States in Q1 2022 remained stable at $10.3 million compared to Q1 2021, due to the negative impact of foreign exchange, largely offset by organic growth in advertising revenues in the Broadcast and Commercial Music segment.

Other Countries

Revenues in Other countries in Q1 2022 decreased $0.8 million or 5.6% to $13.1 million, from $13.9 million for Q1 2021. The decrease was primarily due to a decrease in subscriptions revenue.

First Quarter Report 2022 | Stingray Group Inc. | Management’s Discussion and Analysis

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Operating expenses

Operating expenses in Q1 2022 increased $14.6 million or 51.6% to $42.9 million, from $28.3 million for Q1 2021. The operating expenses increase is due to lower Canadian Emergency Wage Subsidy (CEWS) (Q1 2022; $2.9 million and Q1 2021; $9.9 million), higher operating costs and increased variable expenses, caused by the gradual easing of COVID-19 restrictions and the return to normal commercial operations.

Adjusted EBITDA[(1)]

Adjusted EBITDA in Q1 2022 decreased $1.3 million or 5.2% to $24.2 million from $25.5 million for Q1 2021. Adjusted EBITDA margin in Q1 2022 was 37.3% compared to 48.7% for Q1 2021. The decrease in Adjusted EBITDA is due to lower CEWS and higher operating costs, partially offset by higher revenues, caused by the gradual easing of COVID-19 restrictions and the return to normal commercial operations.

Depreciation, amortization and write off

Depreciation, amortization and write off in Q1 2022 decreased $0.1 million or 0.8% to $9.4 million from $9.5 million for Q1 2021. The decrease was primarily due to less intangible assets to amortize compared to the prior period.

Net finance expense (income)

Net finance expense for Q1 2022 was $5.3 million compared to $4.6 million for Q1 2021. The increase was mainly related to a negative change in fair value of contingent consideration and to a lower foreign exchange gain.

Change in fair value of investments

In Q1 2022, there was no gain or loss on fair value of investments as the securities held in AppDirect Inc. were sold in Q3 2021. In Q1 2021, a loss of $0.9 million was recorded relating to an investment denominated in U.S. dollars converted to Canadian dollars.

Acquisition, legal, restructuring and other expenses (income)

(in thousands of Canadian dollars)	3 months
	Q1 2022 Q1 2021 % Change
Acquisition Legal Restructuringand other	14 282 (268) 991 (780) 1,771 163 101 62
Acquisition, legal, restructuring and other expenses(income)	1,168 (397) 1,565

In Q1 2021, a gain on legal expenses was recorded due to the reversal of a provision for professional fees due to a change in estimates in the current quarter.

Income taxes

The income taxes expense recognized in comprehensive income was $1.8 million for Q1 2022 compared to an income taxes expense of $2.4 million for Q1 2021. The effective tax rate for Q1 2022 was 30.4% compared to 25.2% for Q1 2021. The variance in the effective tax rate is mainly due to the relative importance of permanent differences compared to Net income before income taxes.

Net income and net income per share

Net income in Q1 2022 was $4.2 million ($0.06 per share) compared to a Net income of $7.0 million ($0.10 per share) for Q1 2021. The decrease was mainly related to a gain on legal expenses in Q1 2021, to lower operating results and to a negative change in fair value of contingent consideration, partially offset by a loss on fair value of investments recorded in Q1 2021.

Adjusted Net income[(1)] and Adjusted Net income per share[(1)]

Adjusted Net income in Q1 2022 was $11.2 million ($0.16 per share), compared to $13.5 million ($0.18 per share) for Q1 2021. The decrease was mainly related to lower operating results and to a negative change in fair value of contingent consideration.

Note:

(1) Refer to “Supplemental information on Non-IFRS measures” on page 2 and 6.

First Quarter Report 2022 | Stingray Group Inc. | Management’s Discussion and Analysis

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BUSINESS SEGMENT PERFORMANCE

BROADCASTING AND COMMERCIAL MUSIC

BROADCASTING ANDCOMMERCIALMUSIC
(in thousands of Canadian dollars)	3 months
	Q1 2022 Q1 2021 % Change
Revenues Operatingexpenses	35,578 35,947 (1.0) 20,916 15,580 34.2
Adjusted EBITDA(1)	14,662 20,367 (28.0)
Adjusted EBITDA margin(1)	41.2% 56.7% (27.3)

Revenues

In Q1 2022, Broadcasting and Commercial Music revenues decreased $0.3 million or 1.0% to $35.6 million, from $35.9 million for Q1 2021. The decrease was primarily due to a negative foreign exchange rate impact, largely offset by an increase in advertising revenue and by the gradual easing of COVID-19 restrictions and the return to normal commercial operations.

Adjusted EBITDA[(1)]

In Q1 2022, Broadcasting and Commercial Music Adjusted EBITDA decreased $5.6 million or 28.0% to $14.7 million from $20.3 million for Q1 2021. The decrease in Adjusted EBITDA is due to lower CEWS and higher operating costs, both caused by the gradual easing of COVID-19 restrictions and the return to normal commercial operations.

RADIO

RADIO
(in thousands of Canadian dollars)	3 months
	Q1 2022 Q1 2021 % Change
Revenues Operatingexpenses	29,230 16,346 78.8 18,405 10,585 73.9
Adjusted EBITDA(1)	10,825 5,761 87.9
Adjusted EBITDA margin(1)	37.0% 35.2% 5.1

Revenues

Radio revenues are derived from the sale of advertising airtime, which is subject to the seasonal fluctuations of the Canadian radio industry. Accordingly, the first and third quarter results tend to be the strongest and the second and fourth quarter results tend to be the weakest in a fiscal year. However, for Fiscal 2021, Radio revenues did not follow historical patterns due to the ongoing impact of the COVID-19 pandemic.

In Q1 2022, Radio revenues increased $12.9 million or 78.8% to $29.2 million from $16.3 million for Q1 2021. The increase was largely due to the gradual easing of COVID-19 restrictions and the return to normal commercial operations..

Adjusted EBITDA[(1)]

In Q1 2022, Radio Adjusted EBITDA increased $5.1 million or 87.9% to $10.8 million from $5.7 million for Q1 2021. The increase in Adjusted EBITDA is due to higher revenues, partially offset by lower CEWS and higher operating costs, all caused by the gradual easing of COVID-19 restrictions and the return to normal commercial operations.

Note:

(1) Refer to “Supplemental information on Non-IFRS measures” on page 2 and 6.

First Quarter Report 2022 | Stingray Group Inc. | Management’s Discussion and Analysis

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CORPORATE

CORPORATE
(in thousands of Canadian dollars)	3 months
	Q1 2022 Q1 2021 % Change
Operating expenses Adjust: Share-based compensation Performance and deferred share unit expense	3,586 2,129 68.4 (164) (166) (1.2) (2,090) (1,316) 58.8
Adjusted EBITDA(1)	(1,332) (647) 105.9

Adjusted EBITDA[(1)]

Corporate Adjusted EBITDA represents the head office operating expenses less the share-based compensation and performance and deferred share unit expense. The increase in operating expenses is related to increased operating costs caused by the gradual easing of COVID-19 restrictions and the return to normal commercial operations.

Note: (1) Refer to “Supplemental information on Non-IFRS measures” on page 2 and 6.

First Quarter Report 2022 | Stingray Group Inc. | Management’s Discussion and Analysis

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Quarterly results

Revenues fluctuated over the last eight quarters from $76.6 million in the second quarter of Fiscal 2020 to $64.8 million in the first quarter of Fiscal 2022. The increase in Q3 2020 was mainly due to normal business seasonality in the Radio segment. The decrease in Q4 2020 and Q1 2021 were due to the impact of the COVID-19 pandemic. The increases in Q2 2021 and Q3 2021 were due to progressive improvements in Radio advertising bookings as provinces began lifting restrictions on social and economic activity and to normal business seasonality. The decrease in Q4 2021 was due to normal business seasonality. The increase in Q1 2022 is due to the gradual easing of COVID-19 restrictions and the return to normal commercial operations.

Adjusted EBITDA[(1)] fluctuated over the last eight quarters from $27.7 million in the second quarter of Fiscal 2020 to $24.2 million in the first quarter of Fiscal 2022. The increase in Q3 2020 was mainly due to normal business seasonality in the Radio segment. The decreases in Q4 2020 and Q1 2021 were mainly due to the impact of the COVID-19 pandemic on Radio revenues, which was partially offset by the CEWS and reduced operating costs in Q1 2021. The increase in Q2 2021 was due to progressive improvements in Radio advertising bookings as provinces begin lifting restrictions on social and economic activity, partially offset by higher operating costs and lower CEWS. The increase in Q3 2021 was due to continuing improvements in Radio advertising bookings and normal business seasonality and to a settlement with SOCAN (refer to page 17), partially offset by a special bonus to employees, lower CEWS and higher operating costs. The decrease in Q4 2021 was due to normal business seasonality and to a settlement with SOCAN in Q3 2021, partially offset by a special bonus to employees in Q3 2021. The increase in Q1 2022 is due to normal business seasonality and change in product mix, partially offset by higher operating costs.

Net income (loss) fluctuated over the last eight quarters from a net income of $5.2 million in the second quarter of Fiscal 2020 to $4.2 million in the first quarter of Fiscal 2022. In Q3 2020, the increase was due to mark-to-market gains on derivative financial instruments, positive change in fair value of investments, higher operating results and gain in foreign exchange, partially offset by higher legal expenses due to the settlement with Music Choice. In Q4 2020, the decrease was due to markto-market losses on derivative financial instruments, foreign exchange loss, lower positive change in fair value of investments and lower operating results, partially offset by lower income taxes expense. In Q1 2021, the increase was due to lower markto-market losses on derivative financial instruments and a foreign exchange gain, partially offset by the impact of the COVID19 pandemic on revenues, higher income taxes expense and negative change in fair value of investments. In Q2 2021, the increase was due to higher operating results and positive change in mark-to-market on derivative financial instruments, partially offset by higher income taxes and legal expenses. In Q3 2021, the increase was due to higher operating results, positive change in fair value of contingent consideration, and higher gain in mark-to-market on derivative financial instruments, partially offset by a negative change in fair value of investments related to the sale of securities held in AppDirect Inc. In Q4 2021, the decrease was due to lower operating results, partially offset by higher gains in mark-to-market on derivative financial instruments. In Q1 2022, the decrease was due to a negative change in fair value of mark-to-market on derivative financial instruments and a lower foreign exchange gain, partially offset by lower income taxes expense, and lower acquisition and restructuring costs.

Note:

(1) Refer to “Supplemental information on Non-IFRS measures” on page 2 and 6.

First Quarter Report 2022 | Stingray Group Inc. | Management’s Discussion and Analysis

11

Summary of Consolidated Quarterly Results

(in thousands of Canadian dollars, exceptper share amounts)	3 months
	June 30, 2021 March 31, 2021 Dec. 31, 2020 Sept. 30, 2020 June 30, 2020 March 31, 2020 Dec. 31, 2019 Sept. 30, 2019
	FY2022 FY2021 FY2021 FY2021 FY2021 FY2020 FY2020 FY2020
Revenues by segment Broadcasting and Commercial Music Radio	35,578 36,356 40,186 39,169 35,947 38,483 39,894 38,742 29,230 23,960 32,379 25,125 16,346 29,915 41,419 37,831
Total revenues Revenues by geography Canada United States Other countries	64,808 60,316 72,565 64,294 52,293 68,398 81,313 76,573 41,376 35,594 47,368 39,710 28,057 43,498 57,515 52,723 10,278 10,942 10,693 10,091 10,302 10,236 9,575 9,035 13,154 13,780 14,504 14,493 13,934 14,664 14,223 14,815
Total revenues Adjusted EBITDA(1) LTM Adjusted EBITDA(1) Net income (loss) Net income (loss) per share basic and diluted Adjusted Net income(1) Adjusted Net income per share basic(1) Adjusted Net income per share diluted(1) Cash flow from operations Adjusted free Cash Flow(1)	64,808 60,316 72,565 64,294 52,293 68,398 81,313 76,573 24,155 23,638 33,993 31,156 25,481 28,217 31,033 27,671 112,942 114,268 118,847 115,887 112,402 118,086 112,276 108,462 4,200 12,077 14,118 11,888 7,021 (8,486) 8,089 5,184 0.06 0.17 0.19 0.16 0.10 (0.11) 0.11 0.07 11,238 11,981 21,054 16,311 13,509 10,095 16,710 12,416 0.16 0.17 0.29 0.22 0.18 0.13 0.22 0.16 0.16 0.16 0.29 0.22 0.18 0.13 0.22 0.16 16,337 24,514 16,333 25,406 37,993 14,062 28,833 18,952 15,007 13,808 19,645 22,861 18,045 17,974 21,033 18,756
Quarterly dividend	0.075 0.075 0.075 0.075 0.075 0.075 0.075 0.070

Note:

(1) Refer to “Supplemental information on Non-IFRS measures” on page 2 and 6. Last Twelve Months (LTM) Adjusted EBITDA represents the Adjusted EBITDA of the referenced period, plus the Adjusted EBITDA of the three quarters immediately preceding the referenced period.

First Quarter Report 2022 | Stingray Group Inc. | Management’s Discussion and Analysis

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Reconciliation of Quarterly Non-IFRS Measures

(in thousands of Canadian dollars)	3 months
	June 30, 2021 March 31, 2021 Dec. 31, 2020 Sept. 30, 2020 June 30, 2020 March 31, 2020 Dec. 31, 2019 Sept. 30, 2019
	Fiscal 2022 Fiscal 2021 Fiscal 2021 Fiscal 2021 Fiscal 2021 Fiscal 2020 Fiscal 2020 Fiscal 2020
Net income (loss) Net finance expense (income) Change in fair value of investments Income taxes Depreciation and write-off of property and equipment Depreciation of right-of-use assets Amortization of intangible assets Share-based compensation Performance and deferred share unit expense Acquisition, legal, restructuring and other expenses(income)	4,200 12,077 14,118 11,888 7,021 (8,486) 8,089 5,184 5,253 (7,284) (1,290) 2,774 4,601 33,463 (4,383) 6,362 – – 2,434 461 892 (1,914) (4,781) (188) 1,833 4,047 4,900 4,654 2,359 (4,165) 1,897 2,479 2,524 3,082 2,894 2,976 2,701 2,790 2,876 2,989 1,296 1,436 1,399 1,413 1,412 1,426 1,402 1,419 5,627 5,303 5,478 5,188 5,410 5,659 5,494 5,935 164 235 231 219 166 258 238 257 2,090 2,028 1,780 1,312 1,316 (1,507) 677 794 1,168 2,714 2,049 271 (397) 693 19,524 2,440
Adjusted EBITDA	24,155 23,638 33,993 31,156 25,481 28,217 31,033 27,671
Net finance expense (income), excluding mark-to-market losses (gains) on derivative financial instruments Income taxes Depreciation and write-off of property and equipment Depreciation of right-of-use assets Income taxes related to change in fair value of investments, share- based compensation, performance and deferred share unit expense, amortization of intangible assets, CRTC Tangible benefits, mark-to- market losses (gains) on derivative financial instruments and acquisition, legal, restructuring and other expenses(income)	(4,735) (3,214) (1,727) (4,340) (3,338) (10,976) (4,184) (5,767) (1,833) (4,047) (4,900) (4,654) (2,359) 4,165 (1,897) (2,479) (2,524) (3,082) (2,894) (2,976) (2,701) (2,790) (2,876) (2,989) (1,296) (1,436) (1,399) (1,413) (1,412) (1,426) (1,402) (1,419) (2,529) 122 (2,019) (1,462) (2,162) (7,095) (3,964) (2,601)
Adjusted Net income	11,238 11,981 21,054 16,311 13,509 10,095 16,710 12,416

(in thousands of Canadian dollars)	3 months
	June 30, 2021 March 31, 2021 Dec. 31, 2020 Sept. 30, 2020 June 30, 2020 March 31, 2020 Dec. 31, 2019 Sept. 30, 2019
	Fiscal 2022 Fiscal 2021 Fiscal 2021 Fiscal 2021 Fiscal 2021 Fiscal 2020 Fiscal 2020 Fiscal 2020
Cash flow from operating activities Acquisition of property and equipment Acquisition of intangible assets other than internally developed intangible assets Addition to internally developed intangible assets Interest paid Repayment of lease liabilities Net change in non-cash operating working capital items Unrealized loss (gain) on foreign exchange Acquisition, legal, restructuring and other expenses(income)	16,337 24,514 16,333 25,406 37,993 14,062 28,833 18,952 (2,077) (1,929) (1,849) (1,209) (703) (2,153) (1,479) (1,459) (198) (194) (649) (212) (258) (463) (495) (292) (2,153) (1,367) (1,838) (1,671) (1,552) (1,534) (1,286) (1,559) (3,891) (5,142) (6,312) (2,912) (3,687) (3,819) (4,150) (4,493) (1,085) (1,099) (1,255) (1,443) (1,214) (1,180) (1,295) (1,303) 6,805 (344) 15,858 6,530 (11,412) 7,262 (17,702) 6,143 101 (3,345) (2,692) (1,899) (725) 5,106 (917) 327 1,168 2,714 2,049 271 (397) 693 19,524 2,440
Adjusted free cash flow	15,007 13,808 19,645 22,861 18,045 17,974 21,033 18,756

First Quarter Report 2022 | Stingray Group Inc. | Management’s Discussion and Analysis

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LIQUIDITY AND CAPITAL RESOURCES FOR THE PERIODS ENDED JUNE 30, 2021 AND 2020

(in thousands of Canadian dollars)	3 months
	Q1 2022 Q1 2021
Operating activities Financing activities Investingactivities	16,337 37,993 (14,537) (31,599) (4,424) (2,513)
Net change in cash Cash – beginningofperiod	(2,624) 3,881 9,040 2,512
Cash – end ofperiod	6,416 6,393
Adjusted free cash flow(1)	15,007 18,045

Operating activities

Cash flow generated from operating activities amounted to $16.3 million for Q1 2022 compared to $38.0 million for Q1 2021. The decrease was mainly due to the negative change in non-cash operating items, to higher legal expenses and to lower operating results.

Financing activities

Net cash flow used in financing activities amounted to $14.5 million for Q1 2022 compared to $31.6 million for Q1 2021. The decrease was primarily due to lower repayment of credit facilities, partially offset by higher shares repurchased and by the repayment of contingent consideration for the acquisition of Marketing Sensorial México (MSM).

Investing activities

Net cash flow used in investing activities amounted to $4.4 million for Q1 2022 compared to $2.5 million for Q1 2021. The increase was primarily due to higher capital expenditures.

Adjusted free cash flow[(1)]

Adjusted free cash flow generated in Q1 2022 amounted to $15.0 million compared to $18.0 million for Q1 2021. The decrease was mainly related to higher capital expenditures and to lower operating results.

Note: (1) Refer to “Supplemental information on Non-IFRS measures” on page 2 and 6.

First Quarter Report 2022 | Stingray Group Inc. | Management’s Discussion and Analysis

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CONSOLIDATED FINANCIAL POSITION

The following table shows the main variances that have occurred in the consolidated financial position of the Corporation for the three-month period ended June 30, 2021:

	June 30,	March 31,
(in thousands of Canadian dollars)	2021	2021	Variance		Significant contributions
Trade and other receivables	61,832	61,114	718	▲	Timing ofpayments by clients
					Additions through business
Intangible assets	51,896	41,884	10,012	▲	acquisition of Calm Radio, partially offset by amortization of intangible
					assets
Goodwill	337,273	337,897	(624)	▼	Foreignexchange differences
Accounts payable and accrued liabilities	53,940	53,146	794	▲	Timing of payments to suppliers
					Balance payable and contingent
					consideration on business
Other liabilities	65,545	60,027	5,518	▲	acquisition of Calm Radio, partially offset by repayment of contingent
					consideration for the acquisition of
					MSM
Creditfacilities	305,779	303,704	2,075	▲	Referto the graphon next page
Subordinated debt	31,766	31,741	25	▲	Amortization of deferred financing fees

First Quarter Report 2022 | Stingray Group Inc. | Management’s Discussion and Analysis

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Capital Resources

Our principal sources of liquidity are our net cash provided by operating activities and borrowings available under our revolving facility. Our principal uses of cash are to repay our debt, finance our acquisitions and capital expenditures, pay dividends, repurchase shares and provide for working capital. We expect that cash generated from operations and borrowings available under our current credit facilities will be sufficient to meet our liquidity needs in the foreseeable future.

The credit facilities consist of a $325.0 million revolving credit facility and a $69.4 million term loan, both maturing in October 2023. On May 28, 2021, the Corporation fully repaid, on maturity, its $20.0 million term loan.

The Corporation is required to make consecutive quarterly capital repayments of 2.50% of the initial drawdown of the $69.4 million term loan. The remaining capital balance will be payable on maturity date, on October 25, 2023.

The credit facilities bear interest at either (a) the bank’s prime rate plus an applicable margin based on a financial covenant or (b) the banker’s acceptance rate plus an applicable margin based on a financial covenant. In addition, the Corporation incurs standby fees, varying between 0.40% and 0.63% based on a financial covenant.

As of June 30, 2021, the Corporation had cash and cash equivalents of $6.4 million, a subordinated debt of $31.8 million and credit facilities of $305.8 million, of which approximately $87.2 million was available.

The following table summarizes the impact on the Net debt that occurred in the three-month period ended June 30, 2021 including related ratios:

Movement in Net debt[(1)(2)]

	$326.4 $1.5 $3.9 $4.7 $5.4 $(10.8) $331.1 As at March 31, 2021 Business acquisitions outlays, balance payable and contingent consideration payments Interests payment Share repurchases Dividend payment Remaining net change of revolving facility and cash As at June 30, 2021
(in thousands of Canadian dollars) June 30, 2021 March 31, 2021
Last Twelve Months (LTM) Adjusted EBITDA(2) 112,942 114,268 Synergies and Adjusted EBITDA(2)for the months prior to the business acquisitions which are not already reflected in the results 842 190 COVID-19 mandated store closures required anticipated rollouts and deployments to be deferred 1,369 1,825
Pro Forma Adjusted EBITDA(2) 115,153 116,283
Net debt to Pro Forma Adjusted EBITDA(2) 2.88 2.81

Notes:

(1) In millions of Canadian dollars.

(2) Refer to “Supplemental information on Non-IFRS measures” on page 2 and 6. See page 12 to reconcile with LTM Adjusted EBITDA

First Quarter Report 2022 | Stingray Group Inc. | Management’s Discussion and Analysis

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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.

As of December 2020, the Objectors and SOCAN have entered into a binding memorandum of understanding that will result in a partial refund to the Objectors of past royalties paid to Canadian collective societies and a meaningfully reduced tariff burden for the present and future. As a result, $4.4 million was recognized as a reduction of expenses in Q3 2021.

Further, the Copyright Board has pre-released elements of its decision and the tariff for consultative purposes indicating that the final decision and tariff will be issued within the coming months.

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 its credit agreement, broadcast licence and commitments for copyright royalties. There have been no material changes to these obligations since March 31, 2021.

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. There have been no material changes to the nature or importance of the transactions between related parties since March 31, 2021.

Off-Balance Sheet Arrangements

The Corporation therefore has no off-balance sheet arrangements, except for the operating leases with terms of twelve months or less, leases of low-value assets or leases that are not in scope of IFRS 16, 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:

	July31,2021	June 30,2021
Issued and outstanding shares:
Subordinate voting shares	53,178,697	53,216,497
Subordinate voting shares held in trust through employee share
purchase plan	(15,834)	(14,792)
Variable subordinate voting shares	382,805	377,705
Multiple voting shares	17,941,498	17,941,498
	71,487,166	71,520,908
Outstanding stock options:
Stock options	3,471,085	3,471,085

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, 10% of all multiple voting shares, subordinate voting shares and variable subordinate voting shares issued and outstanding on a non-diluted basis is reserved for issuance. During the first three months of Fiscal 2022, 60,000 options were exercised and 367,831 options were granted to eligible employees, subject to service vesting periods of 4 years.

First Quarter Report 2022 | Stingray Group Inc. | Management’s Discussion and Analysis

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Financial Risk Factors

The Corporation is exposed to a variety of financial risks: credit risk, liquidity risk and market risk (including currency risk and interest risk). The interim consolidated financial statements and management discussion and analysis do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the annual financial statements as at March 31, 2021. The Corporation is not aware of any significant changes to the from those disclosed at that time.

Risk Factors

For a detailed description of risk factors associated with the Corporation, please refer to the “Risk Factors” section of the Corporation’s Annual Information Form dated June 2, 2021. The Corporation is not aware of any significant changes to the Corporation’s risk factors from those disclosed at that time.

Future Accounting Changes

For information on future accounting changes, please refer to the unaudited interim consolidated financial statements.

Evaluation of Disclosure Controls and Procedures

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 Corporation’s management, under the supervision of the CEO and CFO, designed ICFR to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS and based on 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.

During the first quarter ended June 30, 2021, there have been no changes in the Corporation’s internal control over financial reporting 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 August 3, 2021, did not include the controls or procedures of the operations of Calm Radio. 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.

Subsequent Events

Dividend

On August 3, 2021, the Corporation declared a dividend of $0.075 per subordinate voting share, variable subordinate voting share and multiple voting share. The dividend will be payable on or around September 15, 2021 to shareholders on record as of August 31, 2021.

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.

First Quarter Report 2022 | Stingray Group Inc. | Management’s Discussion and Analysis

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