LiveOne, Inc. Q3 FY2020 Earnings Call

Good day and welcome to the LiveXLive Media Third Quarter 2020 Earnings Conference Call and Webcast. Please note this event is being recorded. I would now like to turn the conference over to Emily Greenstein, Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to LiveXLive Media's business update and financial results conference call for the company's third quarter ended December 31, 2019. Joining me on today's call are Rob Ellin, CEO and Chairman; and Mike Zemetra, CFO. I would like to remind you that some of the statements made on today's call are forward-looking and are based on current expectations, forecasts, and assumptions that involve various risks and uncertainties. These statements include, but are not limited to, statements regarding the future performance of the company, including expected future financial results and future growth in the business. Actual results may differ materially from those discussed on this call for a variety of reasons. Please refer to our filings with the SEC for information about factors which could cause our actual results to differ materially from these forward-looking statements, including those described in the company's annual report on Form 10-K for the year ended March 31, 2019, the company's quarterly report on Form 10-Q for the quarter ended December 31, 2019, and subsequent SEC filings. You will find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures discussed today in the company's earnings release, which is posted on our Investor Relations website at ir.livexlive.com. And we encourage you to periodically visit the company's IR website for important content. The following discussion, including responses to your questions, contains time-sensitive information and reflects management's view as of the date of this call, February 7, 2020, and except as required by law, we do not undertake any obligation to update or revise this information after the date of this call. I'd like to highlight to investors that the call is being recorded. We are making it available to investors and the media via webcast, and a replay will be available on our website in the Investor Relations section shortly following the conclusion of the call. Additionally, it is the property of the company and any redistribution, retransmission or rebroadcast of the call in any form without the company's expressed written consent is strictly prohibited. Now let me turn the call over to Rob. Rob?

Good morning, everyone. I appreciate you joining us on today's call. Today is transformational for LiveXLive, and we have a lot of exciting news to share. There is a slide deck on our IR site, which I'll also refer to in my remarks. As you've seen from our release, we have acquired a key asset in the fast-growing EDM space, React Presents. I'll walk you through the strategic rationale of the deal and why it is so exciting. And then Mike Zemetra, our CFO, will go through the numbers associated with the transaction and give you more details in our Q3 fiscal 2020 operating and financial results and debt amendment, which we announced today, along with the other news. Then we will open it up to calls and questions. This is a very exciting day for LiveXLive as we've taken the next step in the evolution of our company. We started by acquiring Slacker and built the subscriber base, which is now over 820,000 monthly subscribers with key partners, including Tesla. We've locked up key assets in the form of livestreaming rights to many of the most important festivals around the world that are building a loyal, large following. Today, we are taking ownership of hundreds of live events and further building the reach and scale of our organization, and we're doing this in very attractive economics. We delivered on our promise to close an acquisition before the end of the fiscal 2020 year on March 31. M&A is a key part of our strategy of enhancing the value of our business, and our acquisition of React brings us to the next evolution of the company, one where we focus on expanding our market footprint, claiming ownership of events, partnering directly with artists, working on improving our financials and adding a great deal of talent to our organization. We are very excited about this transaction, and you should expect more details in the very near future. Turning to slides, Page 4. Let's dive into React here. React is a key asset of our lifestyle portfolio. React represents a club, concert, and festival promotion company, generating almost $15 million in annual revenue for the calendar year 2019 through ticket sales, merchandise, and other revenues. React promotes over 250 live music events a year, including its marquee event, the Spring Awakening Festival in Chicago, which is the largest EDM festival in the Midwest. Turning to Slide 5. The transaction will be nondilutive as we acquire React for $2 million in convertible debt. The effective addition of React Presents to LiveXLive will transform and disrupt the industry with increased efficiencies that we believe will drive greater shareholder value. We are the first to fully combine audio, video, social, and live events into one unique experience. Through the acquisition, we are able to expand into owning and managing our own events, which delivers cost certainty, provides ample opportunity to scale LiveXLive, and fits right into the flywheel of what LiveXLive has already built. Ownership of events significantly grows our audience while adding revenue and unlocking monetization paths, including ticketing, merchandising, and converting ticket buyers into subscribers. One of the most exciting elements of this deal is that we will now have the ability to add a free subscription to LiveXLive with every ticket sale to an event. This allows us to have direct engagement with the artists' super fans and gives us a massive opportunity to turn super fans into paid subscribers. After they try out the amazing content available on LiveXLive, by serving the super fans and reconnecting them with the artists they love, we dramatically expand our audience and create a clear path to upsell paid subscribers. Our live events will continue to feature some of the most high-profile artists, which will allow us to partner with them directly. Our artist relationship team, which has meaningfully expanded, brings in the talent that gives us ultimate leverage in the industry. Similar to an affiliate program, artists will be incentivized to drive fans to our platform, increasing ticket sales through cross-promotion on YouTube, Twitter, and Facebook. We are going to transform the industry and disrupt it on a win-win basis by forging deeper partnerships with the artists and allowing them to participate in a share of the subscription revenue. We are capitalizing on a macro trend where artist partnerships are becoming increasingly central to succeeding in the livestreaming industry. Our engagement with the community allows us to figure out new ways to reach and monetize social audiences together. Artists continue to ask for permission to use our feeds for cross-posting on their own social networks. This ties directly to the strategic collaboration in driving ticket sales and subscriptions, showcasing deeper relationships with the artists, and combining data and sponsorship in an innovative way. This also gives us room to improve our customer acquisition costs by utilizing nontraditional marketing tactics through artist partnerships and ticket sales. We are building, most importantly, an artist-centric platform with direct ties to the entire music industry, curating and creating a brand new revenue stream for the entire industry, and we are now more uniquely positioned than ever to execute on a massive global opportunity to drive significant growth in shareholder value over the long term. In addition to the deal, we reported solid Q3 results. We recorded performance generating $9.7 million in revenues, up 8% year-over-year. Contribution margin increased to $2.1 million, up 50% year-over-year. Paid subscribers have reached 820,000, representing over 28% growth year-over-year. We livestreamed 9 additional events versus 6 last year, driving over 67 million views year-to-date. Additionally, we ended the quarter with $14 million in cash and cash equivalents. We announced today a debt restructuring at attractive terms, shifting short-term debt to long-term. Before turning over to Mike for details, I'll close by saying that today is a transformational day for LiveXLive. We have added $15 million in revenues, expanded our audience reach with the addition of more than 250 programs and events, and continue to fill our flywheel with event ownership and management. We have now increased the number of years that we own our events and the hours of live events we're distributing. Most importantly, we are partnering directly with artists to turn super fans into subscribers, effectively providing brand new revenue streams from managers, fans, labels by converting ticket sales into subscriptions, all this being achieved in compelling economics and attractive monetization paths. Stay tuned for more acquisitions coming imminently, and we're ready for round two. Now I'd like to turn the call over to Mike Zemetra, to go through more details on the deal, our debt amendment, and then I'll close out with the Q&A at the end. Thank you, everyone.

Great. Thank you, Rob. My prepared remarks will include an overview of the React transaction and some key highlights of our Q3 2020 financial results. Turning to Slide 7 in the deck, the transaction overview. As Rob mentioned, we acquired React for $2 million in subordinated convertible debt with a 2-year term, an 8% annual interest rate, and a $4.50 per share conversion price. There's no immediate dilution or cash impact in the period. On a pro forma basis, and assuming we acquired React effective at the beginning of our fiscal year 2020 or April 1, 2019, our revenues would have been $53 million to $55 million, an increase of approximately 40% from our current fiscal March 2020 annual revenue guidance. The transaction is expected to close in this Q4 2020 quarter. Please note that we do not expect the React acquisition to have a significant impact on our current fiscal March 2020 revenue and operating results, largely due to the seasonality of some of the festival events. To echo Rob's comments, this acquisition brings us into the exciting live music event and festival business, where the total addressable market is estimated to be $29 billion annually in the U.S. market alone. Turning to Slide 8. Some quick Q3 highlights. Q3 2020 was another record and exciting quarter. More specifically, for Q3, we reached 820,000 paid subscribers, up 28% year-over-year. We livestreamed 9 events plus the last weekend of Rock in Rio, including some of the most iconic artists in the world, such as J-Lo, Pink, Muse, the Red Hot Chili Peppers, Lady Antebellum, Jason Aldean, and Luke Combs. Year-to-date through today, we've livestreamed 36 events and generated over 60 million livestream views compared to 25 live events and 51 million livestream views in the entire prior fiscal year, March 2019. We signed 2 exciting new partnerships: one with Samsung to livestream 10 music events in VR; and another with ReachTV to showcase our original content across ReachTV's platform of 100 million monthly travelers and airport venues and terminals. Lastly, we are excited to welcome 2 new executives to our team, Garrett English as our Chief Content Officer; and Jackie Stone as our Chief Marketing Officer. We hired Garrett to develop and oversee all content creation, including the launch of LiveZone Weekly, a weekly news program focusing on lifestyle and music and the live music awards. He was the Executive Vice President of Live Event Programming, Specials, and News at MTV, VH1, MTV2, and LOGO, and the executive producer of the MTV Video Music Awards and MTV Movie & TV Awards. Jackie will oversee all marketing efforts across the company's music platform. She was recently the CMO of MiMedia, one of the fastest-growing consumer cloud platforms, and held past executive-level marketing positions with the Spanfeller Media Group, WebMD, Digitas, and AOL. Turning to Slide 9, a quick overview of our Q3 2020 financial results. We once again closed Q3 2020 with strong results, generating $9.7 million in revenue, largely driven by subscription growth. Our adjusted operating loss of $2.1 million was down 19% year-over-year, largely due to our Q3 2020 contribution margin of $2.1 million, which was up 50% year-over-year due to improvements in our average cost per event. In Q3 2020, we lowered our average cost per event to approximately $150,000 as compared to approximately $300,000 per event in Q3 2019. Now I'd like to discuss some of the trends in our operating expenses year-over-year. Excluding noncash stock-based compensation, amortization expense, depreciation and certain nonrecurring operating expenses of $5.8 million in Q3 2020 and $3.2 million in Q3 2019, Q3 2020 and Q3 2019 operating expenses were $4.2 million versus $3.6 million, respectively, or a net increase of $0.6 million year-over-year. The $0.6 million increase was driven by increases in sales and marketing expenses and product development, due to a higher number of events and new product initiatives during the period, coupled with increases in personnel expenses such as the addition of our new president as we continue to upgrade our team. Turning to our balance sheet. We ended Q3 2020 with cash of $14 million, up from ending cash of $13.7 million at March 31, 2019. The year-to-date increase was largely driven by $0.3 million in net proceeds raised from the sale of 5 million shares of our common stock in Q2 2020, offset by net cash outflows from operations of $5.4 million, investing activities of $1.8 million, and repayments of our debentures of $2.1 million. The net cash usage from our operations was largely driven by our adjusted operating loss, offset by net cash savings in our working capital, driven principally by active management of our payables, which included the extension of approximately $10 million of payables with certain music partners to be paid over 2 years, and a settlement of approximately $0.4 million in LiveXLive stock at $4.50 per share. Now I would like to update you on a few additional items. As of December 31, 2019, we had approximately 167,000 warrants outstanding and approximately $2.8 million of potential common stock underlying our secured debentures and unsecured convertible notes. We ended the quarter with approximately 58.2 million common shares outstanding. At December 31, we had a total of approximately $15.8 million in debt outstanding, inclusive of net $1.1 million in deferred debt issuance costs and $0.4 million of fair value-embedded derivatives. Lastly, we amended our credit agreement with our secured debenture holders, whereby we were able to update certain financial covenants through June 2021. Today, we have approximately $10.6 million in principal outstanding, which is due long term in June 2021 and reflected accordingly on our consolidated balance sheet. Turning to Slide 10, financial guidance. We are reiterating our full year 2020 revenue of $38 million to $40 million, an adjusted operating loss of $12 million to $14 million, CapEx in the range of $2 million to $3 million, and finally, we expect to livestream up to 40 live music festivals and events in fiscal 2020. That concludes my prepared remarks. We now would like to open up the line for Q&A.

The first question today comes from Ron Josey of JMP Securities.

I have a few, so I'll just try to go through them quickly. Just got to ask on React Presents, first and foremost, 250 presentations or events. The content calendar improved significantly with it. So I wanted to ask about how you'd plan to integrate React if the acquisition improves the content library. And when you're talking about free LiveXLive subscription, which is a good cross-sell there, just any sense on how many attendees on average there are per event because I think that's pretty interesting. And lastly, you talked about $15 million in revenue. Any insight on contribution margin would help. And then just bigger picture, longer term, I think you've talked about 5 million subs in the next 5 years. I'm sure the goal is multiples of that. Just, can you just help us understand how do you plan to get there as each quarter and as you look to grow the subscription base?

Yes, let me provide an overview. React is a company with over 10 years of history, much like when we acquired Slacker, which had seen significant investments. They have sold millions of tickets, and while we don’t disclose specifics by event, they are expected to sell hundreds of thousands of tickets this year. The plan is for React to operate as a separate subsidiary that aligns well with LiveXLive Presents and our own events, creating opportunities for our events and artists. This enhances the lifetime value of our customers. We’ve mentioned previously that we had 1,500 live events over an average of 3.5 to 4 years, and now we own 250 of these indefinitely. Importantly, this also establishes a direct relationship with artists and their managers by featuring these artists on stage, which allows us to strengthen those relationships and promote subscriptions directly to LiveXLive. One of the most exciting aspects of this acquisition is our ability to stream these events, which opens the door to converting ticket buyers into subscribers. As I mentioned at the start of the call, every ticket buyer will receive a free subscription to LiveXLive. So, for fans of artists like Calvin Harris, they will get access to rich media and all of these EDM events on our platform. Shortly after, we will begin upselling to paid subscriptions. We believe this fits seamlessly into our business model and significantly enhances our revenue with minimal dilution. Regarding our drive towards 10 million subscribers, we have multiple growth avenues. With the appointment of Garrett English as our new head of programming, we plan to launch several linear channels. This means expanding our offerings on various platforms, similar to what we did with Sinclair Media and STIRR. We anticipate adding more channels soon, whether through cable or satellite, as these platforms have millions of monthly users. We also see growing demand from artists who want to livestream their performances on social media, providing us an effective marketing channel. This has helped us reach over 67 million viewers, though only a small percentage convert, while our subscriptions grow significantly. Furthermore, converting ticket buyers into subscribers will continue to drive this progress, and we are confident that over the next five years, we will exceed 10 million subscribers on our network.

That's great. And congrats on the acquisition. Just one real quick follow-up, Rob. You talked about giving free or at least some access to the subscription service for attendees. Is that possible to do for other events as well? Have you thought about that?

Yes, great question. It's one of the most important aspects of our relationships. Our relationships are getting stronger and stronger. Our contracts are getting longer with each of the promoters, right? The biggest promoters in the world, right, of music from Insomniac to iHeart. And we find it really exciting that to offer a consumer the ability to watch these live events from the comfort of their home to their phone to around the world is really exciting. And so building in and giving a free subscription start and then moving towards a paid subscriber, integrating those into ticket sales, we think from our own events as well as from others is a huge opportunity for the company.

Next question today comes from Thomas Forte of D.A. Davidson.

Congrats on the transaction. So the first question I had was, can you give us an update on your advertising efforts? I think you have a new executive running that. And then second, if you look at the industry, there was a lot of really good data on customer adds from Amazon to Apple to Spotify. Does that change your view as far as the opportunity longer-term? And what could the 5 million subscriber number be further out?

Sure. We've always been confident since we went public two years ago, believing in a model that consists of 90% subscription and 10% sponsorship. On the sponsorship side, we brought in Jason Miller, who has extensive experience generating significant sponsorship revenue in music. The partnerships with Insomniac and iHeart provide us with the chance to upsell from live experiences to digital ones, which is incredibly promising. Our requests for proposals have increased by over 650%, showing growing confidence in sponsorship opportunities. We're noticing clear signs that we can effectively sell sponsorships for both live and digital platforms, with digital being especially well-positioned. We're thrilled to have Jason on board, even though he’s only been with us for 45 days. He is assembling a sales team and integrating efforts with iHeart, Insomniac, and others to promote the transition from live to digital sales leveraging their significant resources. This upselling potential is crucial for us as it allows for an efficient sales strategy without needing to create a large internal team. In terms of subscriber growth, Goldman Sachs has once again raised expectations. I believe it's essential for every venture I support to aim high, and this opportunity is unprecedented in terms of total addressable market. Initial reports from Goldman indicate there will be 1.2 billion paying subscribers in music, reflecting a major trend of media rebundling and exceptional subscription growth similar to the historical growth in cable and satellite services. It's a transformative time, and we genuinely feel that every major platform with between 10 million and 1.5 billion users will need to offer live content and music to succeed.

The next question comes from David Bain of Roth Capital.

Great. First, congratulations on the acquisition and what appears to be a favorable purchase price. Could you provide some insight on the overall margins for React? Additionally, any updates on EBITDA profitability and the revenue and EBITDA trajectory over the past 12 to 24 months would be appreciated.

Yes, I'm going to hand it over to Mike for a second, and then I'll jump in this again.

Yes. So in terms of historical margins, I mean, they're sort of smaller double digits. And in terms of operating margin, we're not going to give a whole bunch of color on the historical because there are things in there that aren't really applicable to us. But one thing that Rob mentioned is that we do plan on generating synergies, both from a revenue and operating perspective. So we expect this to be EBITDA-accretive out of the gate.

And just to elaborate, Dave did a great job of explaining the real estate aspect of LiveXLive and our commitment to 1,500 live events locked in for 3 to 4 years. Consider adding 250 more events that we own permanently. Given the typical margins in this sector and the industry's size, we are uniquely positioned as the only company combining both live and digital experiences. Similar to our experience with Slacker, which we acquired while it was restructuring and had incurred $180 million in losses, we've successfully transformed it into a highly profitable entity. We believe this new opportunity aligns perfectly with our capabilities and the talent on our team. I'm proud of what the team has accomplished to make Slacker's operations very profitable, and I believe we can replicate that success here as it integrates well into our overall strategy. As I mentioned, this acquisition is just the beginning for us; we anticipate the next one to be even larger and structured similarly in terms of cost.

Great. Since you brought that up, do you have any data points regarding what the next steps will be in terms of concept or strategy for our acquisition roadmap?

I think it's going to fit exactly in like this: number of live events, number of artists performing on our stages, length of how long you own those, right, add substantial revenues and take a live ticket buyer and turn them into a subscriber, take artists for the first time ever, disrupt the industry and offer an opportunity for artists to participate in the subscription. And you're going to be hearing more and more about that on each one of our calls and artists that are joining the platform, right. For the first time in history, actually participating in that subscription and taking your CPA costs down enormously for when the cost is or trying to just market out there and grab the subscriber. We're not looking for the average-dose subscriber. What we're looking for are those super fans, those passionate fans that are really engaged with the artist.

And is there a way with this acquisition to kind of deepen your relationship with your other festival partners? Or will this just be separate and apart and from that standpoint? And is there any reason to worry about your other festival partners looking at you from a competitive standpoint? Or is that...

Honestly, we are still quite small, similar to when we acquired Slacker, and we continue to partner with iHeart. This approach is consistent across the board. I believe everyone will be excited about this development. It will illustrate how our business operates within the flywheel. Our primary focus is on the digital aspect, although the live component is also significant. We have world-class management overseeing that area. Ultimately, our business revolves around the digital side and leveraging artists to drive subscriptions and engage super fans. I don’t expect any impact from this acquisition other than positive results, highlighting the sustainability and capability of our company to acquire valuable assets with limited resources and generate substantial revenues. This addition will enhance our flywheel and is thrilling for the industry. It will also help create additional revenue streams for everyone involved.

It seems everything is on track for guidance. Is there any chance you could provide some insights or data points on paid subscribers through February? Or is there anything significant in Q4 that we should be aware of from a broader perspective?

We can't give any further guidance on that. What I would say is our partnerships across the board from cash flow have been amazing, to iHeart has just been magical to have the ability that you have cash flow growing so fast and then have iHeart now doing so many live events. As you guys are watching on our network, yes, we just did a 30-day sizzle reel. And literally, the last 30 days, we've had French Montana, Anderson .Paak, Corday, Billie Eilish, Coldplay, BTS. I mean it's really just magical, the amount of live music we are putting on our platform and how strong our partnerships are growing. And I expect to be expanding our relationship with each of those partners, right, and to be expanding the length of time that we have these partnerships. So I'm really excited about where this quarter is going and really where 2020 as a whole is going.

Next question comes from Brian Kinstlinger of Alliance Global Partners.

Congratulations on the acquisition. Can you break down the 250 events by music festival versus maybe concert or local events? And do the larger events drive the majority of their revenue?

It's a great question. I would say it's about 50-50 in terms of revenues in that range. You're going to get a couple of festivals, and the rest of them are live events. The beauty of this is that every one of those ticket buyers is purchasing a ticket to a live event to listen to their favorite artists. We also have the opportunity to take those super fans who are buying a ticket and spending the money to give them a free subscription to start with, but then to really push them into the funnel and encourage them to become a paid subscriber in the near future.

Great. In comparing React to Slacker when you acquired it, can you discuss the revenue figures for 2019? Did they go up or down, and at what percentage?

Yes, there has been very little change over the past couple of years. This has not been a story of significant growth, as it is part of a much larger holding company. The original investment in SFX was over $700 million. These assets are exceptional and have been established for a long time, much like Slacker. This particular asset has been operational for over 10 years and has achieved great success, especially in Chicago, which is one of our key markets in the Midwest. It strengthens our presence there. We are enthusiastic about this addition to our operations as it aligns perfectly with our expansion goals and will generate considerable additional revenue. Moreover, we anticipate that our next acquisition will closely resemble this one in terms of style and structure.

Great. Is there a seasonality to their business? And is the plan to expand outside of Chicago? I know there's some in Michigan. Or is that capital-intensive and not something you need to do right now?

No, they actually have a significant presence in Michigan. However, the opportunity for growth will come with the next acquisition, allowing us to expand into many other cities and states. We are particularly focused on key cities that have a strong music presence. You will see our efforts expand in Nashville, Chicago, Atlanta, New York, Miami, and Austin. We are emphasizing these areas because they provide economies of scale and there are dedicated fans there. We are very enthusiastic about this and will continue to prioritize owning the largest events, whether they are digital or live in pop culture. Establishing a presence of this magnitude in Chicago is a crucial milestone for our company.

You mentioned the 650% increase in advertising RFPs. I think that's been improving steadily. You added Dermot. You added Jason. I guess, I'm curious with the new branding and packaging of your content. Are we 2 or 3 quarters away? Are we sooner? When do you expect to start to see the benefits on the advertising side?

We're going to be careful going forward because, as you know, we’ve missed before on this. We're really a subscription business, with 90% of our revenues coming from subscriptions. Therefore, I want to maintain a conservative approach. We're very optimistic about the future, and we see strong support from our team. With sponsorships, it's important to recognize when the momentum kicks in, as it tends to come in waves. We've seen strong interest from brands like Kia, Samsung, and Dos Equis, which indicates significant growth in sponsorship and live music at Live Nation and iHeart. It feels like something big is on the horizon, but I don’t want to commit to specifics on a quarterly basis. We plan to keep growing our revenues and we have a considerable advantage from acquiring React, which allows us to upsell directly to sponsors. Our sales teams will be integrated across live and digital platforms, providing unique opportunities for sponsors, similar to what we achieved with LiveZone, where Kia made a major impact at a top hip-hop festival. We're excited about our prospects but remain cautious to ensure we under-promise and over-deliver for all our shareholders and analysts moving forward.

The next question comes from Jack Vander Aarde from Maxim Group.

Congrats again on the acquisition. Just a couple of questions from me. Given the $15 million revenue run rate of the acquisition and revisiting the initial guidance that was provided for this year, I was just wondering if you can disclose whether the acquisition was embedded within that original guidance provided? Or maybe it's just coincidental that that bridges the initial guide?

Our guidance remains between $38 million and $40 million and is not related to the acquisition. We are not providing guidance for next year yet, but we will at year-end. When we report on March 31, we will update our guidance to reflect this acquisition, and we also expect to close a larger acquisition soon.

This is Mike. No, it wasn't. So what I said in my prepared remarks is the guidance doesn't exclude any M&A. And the business we acquired does have some seasonality, where a large part of the revenues will come in the summer or the festival months.

Okay. And I apologize. To be more clear, the initial guidance for this year was higher than the $38 million to $40 million. And the $15 million revenue from this acquisition seems to kind of bridge to the initial guidance. So I was wondering if that was embedded 9 months ago for this year or so.

This is Mike. No, it wasn't. So what I said in my prepared remarks is the guidance doesn't exclude any M&A. And the business we acquired does have some seasonality, where a large part of the revenues will come in the summer or the festival months.

Got it. And then, so you guys livestreamed 9 events for the quarter. And the average cost per event was significantly reduced again to about $150,000, if I heard that correctly. Can you talk about the more specific key drivers of what's allowing this continued event cost reduction?

Yes, I want to emphasize that hopefully you all have had a chance to watch the events we offer. We currently have over 1,500 live events, and with the 250 we just acquired, that's a total of 1,750 live events. We can choose the events that have the highest levels of participation by the artist, which means they're actively promoting them on social media and encouraging their fans to tune in. Additionally, we consider the participation from the festival owner or promoter, and sponsorship through advertising and programmatic advertising plays a crucial role as well. In response to Brian's earlier question, if you've been watching our events, you'll notice that we have advertising featured in almost every single one. The programmatic advertising is really starting to gain momentum, even at this early stage. We are able to select the best events for promotion. Our partnership with iHeart is incredibly valuable; they have 271 million listeners. Bob Pittman and John Sykes are brilliant leaders who helped create MTV, and we aspire to be the next-generation MTV. With their support in showcasing more of their events, it's a key aspect of our business model, which allows us to keep costs low and even decreasing. Notably, I've never seen costs for AAA Media fall below $20,000 per hour. For those of you following platforms like Netflix, CBS, and HBO, content costs are skyrocketing. However, music operates differently compared to most content types. Take the Super Bowl as an example; the expenses there are substantial. But artists typically don’t get paid for their performances due to the long shelf life of music, which exceeds that of other content.

Got it. Lastly, I was wondering if you could discuss the Samsung partnership that was announced around December. It seemed like an exciting announcement. I would like to know about its financial contribution, revenue impact, or subscriber growth; what are the plans for the Samsung partnership?

Yes, great question. So because we buy all-digital rights across the board. And this is still the early stages of this industry. We're buying all-digital rights, including VR, AR or if they put a chip in your head, candidly. We're buying the digital rights for typically for 4 years-plus, right, and now that we own them alone even longer. So our deal with Samsung, we can't talk about the economics yet. But what I can tell you is the livestreams and VR, 2 of our events, including Rolling Loud, there was few dollars in sponsorship and all the cost of production in it. But I think that there is a unique opportunity in AR, VR, and 360 as a combination, to continue to grow that. And then the other part of the Samsung deal that we haven't talked about a lot, because it took us a little longer than we expected to but expect to launch any minute now, is we also announced with Samsung to be across their 40 million smart TVs. And so as we expand that relationship with Samsung, from being across and being on the home screen of those TVs and having an app in those TVs to also having a VR experience with them, I expect to continue to grow that relationship with Samsung dramatically.

The next question comes from Jon Hickman of Ladenburg.

Nice acquisition. Can you provide some insight into the motivation for the team at React to sell to you?

I can't speak for anyone else, but this group has done an excellent job of taking an asset out of bankruptcy, which is going to be a significant benefit for the DIP financing that acquired it. They have been selling off many assets and achieving considerable returns. They strongly believe in our mission and are willing to take some risk despite our recent stock decline. However, they have observed the trading activity in our stock and recognized this as an opportunity to join us and participate in what we see as a promising future.

Okay. Just to clarify, the 250 events are recurring. They occur every year, and there's no reason to believe they won't continue in the future.

Yes. I mean, we expect to grow that number. Again, as you know, when a private equity buyer buys and the restructuring is selling off assets, they're not looking to grow these assets substantially, right? So for us, we see an opportunity to grow them. And as I said before, we fully expect the next acquisition imminently, which will be large in this one, to fit in right into the same sweet spot and will expand us into other areas, other parts of the country, right? But we really fit right into that flywheel. So we expect to grow that number, Jon, substantially.

The next question comes from Kevin Dede of H.C. Wainwright.

I wanted to follow up on what Jon was discussing. I know you’ve mentioned something coming up related to genres. Could you provide more details on how you plan to expand genres? You've touched on geography, and I know the React team is focusing on electronic dance. You have strong connections with EDC. Can you elaborate on how you envision expanding genres and leveraging those synergies with EDC going forward?

Yes, in response to your questions about genres, if you've been following our platform, we recently released a 30-day sizzle reel that showcases a diverse range of music. We've featured artists like Billie Eilish, Coldplay, BTS, Madonna, Taylor Swift, French Montana, Corday, and Anderson .Paak, covering every genre. We also streamed the largest African festival and highlighted some major K-pop stars. Recently, J-Lo delivered an incredible performance on our stages during the Super Bowl. We plan to continue broadening our reach across all music genres. Regarding React, it operates on a much smaller scale compared to what Insomniac is achieving with EDC, which is expanding rapidly. We are proud of our partnership with them as they host over 30 festivals this year and more than 1,000 music events. We are excited to support their growth and look forward to participating in one of their biggest events, EDC Mexico, in the coming weeks.

Okay. So I guess you don't really want to discuss how you might take React and broaden the genres that you can channel through that capability? Or is that...

No, I think we're...

Or is that something you plan on speaking to later?

We have hosted eight of our own live music events spanning various genres. LiveXLive Presents will be integrated into the React platform, focusing on our owned events. These events cover a range of styles, from pop culture to hip-hop, including artists from Nas to various pop stars. Our approach is not about the genre but rather the event's costs and profitability, as well as ticket sales and converting those ticket buyers into subscribers. We are making a significant move in the music industry by allowing artists to participate in subscriber income, which could be a game changer. Recently, Corday shared a VOD of our live performance and encouraged his fans to subscribe. Green Day also performed and promoted it on their social media today. Artists are now increasingly looking for ways to livestream through their channels, creating an enormous opportunity for us to boost our traffic. This year, our total marketing spend has been under $3 million, resulting in driving 67 million people to our network.

All right. So can you go and maybe give us a little more insight, Rob, on being able to take that ability that you have with the React to offer a free subscription to a ticket buyer? Is that something that you think you can transport to Insomniac's EDC Festival?

I believe there’s a unique opportunity for the entire industry, especially with the growing importance of data. Currently, as we look to engage super fans to promote an album or song, understanding their habits is crucial. The technology developed by Slacker, which took 17 years and $200 million to build, gives us an advantage. We possess a unique system that includes partnerships with all major record labels and the knowledge of consumer behavior. When it comes to ticket sales, whether through our digital partnerships or long-term agreements, we view all opportunities the same. This allows both festival owners and artists to participate in subscription growth. The cost to acquire music subscribers is high, but we differentiate ourselves by not only providing essential audio content but also offering the best live music experiences from significant pop culture events. The landscape is shifting; instead of breaking new artists at the Grammys, it’s now more effective to debut them at events like Coachella or EDC. We're at the center of this evolution. The number of subscribers and attendees at live music events is enormous, with 500 million expected to attend such events. On the sponsorship front, we are driving significant traffic, with digital efforts reaching up to 30 times the audience of live events, sometimes even 1,000 times. This growth trajectory will continue to increase.

All right. Last question for me, Rob. Can you talk a little bit about what you might offer us going forward? It's going to be really difficult looking at your operations in the future as you add subscribers. But I'm kind of curious about how you'll be able to tell us what sort of conversion rate you're getting from that opportunity that you have, offering free subscriptions to React folks and then seeing that conversion to paid subscribers. Is there any sort of insight that you can give us as you work those 2 businesses and integrate them, that you'll be able to tell us how well you're doing on that conversion?

Yes, we just completed the acquisition in the last 48 hours, so it's challenging to provide exact figures at this moment. This is the first time we're implementing this approach. However, the free subscriber model is very profitable, and we're particularly enthusiastic about programmatic advertising as a long-term strategy. Increasing traffic will naturally lead to higher sponsorship dollars. For the first time, we have sufficient content to consider selling bundles, such as dance music, rock and roll, and hip-hop, similar to how sports merchandise is handled, rather than just selling individual items. I believe converting our ticket buyers into subscribers will significantly boost our free subscriber base. While I can't specify the conversion percentage yet, even a small percentage, like 2%, 3%, or 5%, could greatly enhance our figures, allowing us to exceed our five-year plan targets based on increased attendance, whether digital or live.

The next question comes from Barry Sine of Spartan Capital Securities.

A lot of questions have been asked about this acquisition. I want to approach it from a different angle, which I find quite interesting. You're financing this with a 2-year convertible note that will convert to equity in 2 years at $4.50. That’s significantly higher than where the stock has been recently, suggesting there’s a message in that. Could you discuss the negotiations or conversations that led to issuing a note with such a high conversion price?

Yes, I believe this is a significant overall theme. We have a substantial short in our stock. With tax selling coming into play, our stock has declined. The acquisition would have closed much sooner if our stock price had been more favorable. We’ve positioned the company with stock prices that have ranged from $10 to $1.50, and we are open to participation from others. Our previous conversion with record labels and publishers at $4.50 just six weeks ago demonstrates that we wouldn’t engage in this deal unless it was equitable and reflected the company’s true value rather than its current stock price. Admittedly, we haven’t met our targets yet, and it’s time for us to adopt a more conservative approach. We need to exceed our projections and validate the success of this acquisition. I am incredibly proud of my team, who have been tirelessly working, and their dedication will continue as we finalize the next acquisition. This credit goes to Jerry, Mike, and Dermot, as they have put in tremendous effort. While navigating this acquisition, we also managed to organize nine events this quarter featuring some of the biggest artists globally, including Green Day, who is performing tonight at a major festival for which we are being compensated significantly. Our team is continuously expanding, and we have not emphasized our EBITDA loss, which decreased sharply from $8 million in the first half to $2.1 million last quarter. This acquisition will enhance our revenue, resources, and capabilities through synergies between the companies. I see this as a pivotal moment for our company. Historically, my businesses have focused on acquisition and growth, often undergoing restructuring. For instance, we transformed Slacker from a $20 million annual loss into a highly profitable entity after substantial investments. We believe that this team, which has managed billions in companies, can effectively scale operations prudently. We recognize that our losses must come to an end quickly, and we need to transition toward profitability soon.

Okay, that's great. My other question is on something you haven't talked about a lot. You've teased the 2020 introduction of the LiveXLive live music awards. And I know Garrett came out of MTV, and their video music awards have become a major event. This strikes me as having the potential to be the same thing for live music especially with the artists. The artists are probably really going to be very interested in these award shows and increase the visibility of the brand. Could you talk a little bit more about maybe the time line, what you're looking to do? And how significant this award show will be?

Let me emphasize the importance of Garrett joining the team. He has been with us for less than 90 days and has already streamed over 20 events. Since his arrival, our head director and head producer both stepped down, recognizing that he is one of the most skilled professionals in the industry. Dermot did an excellent job bringing Garrett on board. As a sports fan, I compare our live award shows to major events like the ESPYs. More people watched some of our live music events than the Grammys this year, which is exciting for us and signifies a transformative moment for the industry. When you see artists like Pink performing spectacularly, whether it’s her flying outside the Nokia Center or her trapeze act for us at Rock in Rio in front of 150,000 people, it illustrates the magic of these performances. Collaborations like Anderson .Paak and Corday performing together for the first time are special moments that we want to capture uniquely. I have been working on the Live Music Awards for three years, and having Garrett as the executive producer from the VMAs is a significant boost to our team. This is just the beginning of our original programming. We will be producing a lot of LiveZone content and our own pilots, all tied to these major events with minimal additional costs since we can leverage the artists already performing.

This concludes our question-and-answer session. I would like to turn the conference back over to Rob Ellin for his closing remarks.

Yes, to wrap up, this strategic move for the company positions us to start growing dynamically. We are not done with our acquisitions and plan to add another one soon. We are excited about our growth trajectory and our future plans. Remarkably, this entire network has been built with under $35 million, reaching over 67 million people this year and exceeding 100 million livestreams in the last two years. We're continuously feeding these numbers into the flywheel. If we can maintain our dominance in this space, we have no competitors; the ones that were here before are now gone. We are proud to partner with organizations like Insomniac and iHeart as we expand further. We genuinely believe we can create a new revenue stream for everyone in music. Thank you for joining this call. We look forward to the next call, which I expect will be soon.

The conference has now concluded. Thank you for attending today's presentation, you may now disconnect.