LiveOne, Inc. Q2 FY2022 Earnings Call

Good afternoon, everyone, and welcome to the LiveOne Inc. Fiscal 2022 Q2 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Michael Quartieri, Chief Financial Officer. Sir, please go ahead.

Thank you. Good afternoon, and welcome to LiveOne's business update and financial results conference call for the company's second quarter and 6-month period ended September 30, 2021. Presenting on today's call are Rob Ellin, CEO and Chairman; Dermot McCormack, President; and myself, Mike Quartieri, Executive Vice President and Chief Financial Officer. I'd 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 expected future growth in the business. Actual results may differ materially from those discussed on this call for a variety of reasons. Please refer to the company's filings with the SEC for information about factors, which could cause the company's 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, 2021, quarterly report on Form 10-Q for the quarter ended June 30, 2021, and other 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 its Investor Relations website, and the company encourages you to periodically visit its 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, October 28, 2021. And except as required by law, the company does not undertake any obligation to update or revise this information after the date of this call. I'd like to highlight to investors that this call is being recorded. The company is making it available to investors and media via webcast, and a replay will be available on its 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 or the webcast in any form without the company's expressed written consent is strictly prohibited. Now, let me turn the call over to LiveOne CEO, Rob Ellin.

Thank you, Mike, and good afternoon, everyone, and thank you for joining us today on our fiscal 2022 Second Quarter Business Update and Financial Results Call. We plan to keep our prepared remarks somewhat brief in favor of leaving more time for any Q&A. The LiveOne team has survived and thrived through the COVID-19 Delta variant, which necessitated that we push all of our planned live events into Q3 and Q4. Even without live events in Q2, the LiveOne team delivered a record $60.7 million in revenue for the first 6 months of fiscal 2022, an increase of $35 million or 142% compared to the same period a year ago. Quite often, we have spoken of the unique flywheel business model of associated and complementary businesses and how the components create a synergistic offering to consumers to listen, watch, intend, engage and transact. Let me repeat that word 'transacts.' We are going deeper down the funnel with our customers for further monetization through premium content and pay-per-view and live events, upselling membership packages, including merchandise, NFTs, and integrating consumer products that we will have an ownership position in. Everyone connects. The model when fully optimized creates a unique opportunity to bridge and connect live events with digital offerings. With the return of live music, our business model is poised to truly kick into high gear. We have multiple subsidiaries and multibillion-dollar addressable markets in each music subscription, live events, live streaming, OTT, specialty merchandising, and podcasting. We are thrilled to see the return of live music events, and we expect to report record revenues for each of the next 2 quarters. Although we faced unfortunate and challenging weather conditions, we held our first major live music festival, Autumn Equinox, the Midwest's largest all-electronic music festival on October 2 and 3 in Chicago, and we sold 33,000 tickets. We signed 25,000 members. Currently, we have booked a lineup of over 100 live concerts and festivals featuring over 300 artists performing over the next 6 months. As I touch on shortly going forward, while all ticket purchases, all pay-per-views, all merchandise, and any of our live user pay-per-view events will receive a one-year paid membership that provides for discounts to future in-person and pay-per-view events, discounted merchandise, and NFTs, as well as an enormous amount of created music and podcast content. Our wholly owned subsidiary, PodcastOne, continues to experience robust growth. The entire podcast team has done an outstanding job, both recruiting new entertainment podcasts as well as aggressively pursuing advertising and sponsorship deals. Podcast metrics continue to impress and grow, having added over 2.48 billion podcast downloads in the trailing 12 months ending September 30, and its franchise of exclusive shows has grown to more than 235, with over 50 new podcasts now producing over 300 podcast episodes per week. We continue to grow our paid subscribers with our Slacker radio streaming audio service, now exceeding 1.25 million paid subscribers, which adds over 35,000 subscribers a month. As many of you may know, through a 9-year exclusive partnership with Tesla, a LiveOne Slacker radio subscription is preinstalled as the default radio in every Tesla car sold in North America, and LiveOne is paid directly by Tesla for those subscriptions. The Slacker app is preinstalled now in 85 other automobiles, as well as across major cell carriers like Verizon, Sprint, and T-Mobile, allowing Slacker subscribers to listen in their cars as well as on their mobile devices. We are seeing compelling growth opportunities for Slacker by partnering with other automotive OEMs as a default radio service, especially outside the U.S., along with other white-label B2B partnerships through Android Automotive. Since launching Pay-Per-View, our new subsidiary platform in May of 2020, we have generated over $26 million in pay-per-view related sales and live pay-per-view events. As of October alone, pay-per-view live events and tickets sold more than 25,000 new subscribers and over 1 million live stream views. Coming off the outstanding success of Social Gloves pay-per-view events in June, we look forward to owning and producing our own next hybrid pop culture franchise pay-per-view in the January 2022 quarter called 'Self-Made K'. This event will feature boxing exhibitions, showcasing prominent social media personalities and esports entertainment, all competing for over $1 million in prizes, along with a lineup of renowned music artists and bands. Social Gloves drove over 136,000 pay-per-views and 136,000 members of LiveOne. As many of you hopefully know, in September 2021, we announced our intention to spin out our existing pay-per-view business as a separate public company and plan to distribute a portion of the new company's equity to LiveOne shareholders. We anticipate that spin-out to take place before March 31, 2022. In our last call, I spoke about the significant investment that LiveOne is making in original programming, content, and marketing events. I would now like to introduce the President of LiveOne, Dermot McCormack, to provide more details of those efforts.

Thank you, Rob. As Rob just stated, LiveOne has made a major commitment to invest in and market its original content and programming. Because of our unique flywheel, we are not just creating shows; we are developing unique IP and franchises that can be developed into everything from a documentary to a podcast to an event to a product, creating long-term value for LiveOne and our shareholders. Over the past 2 quarters, we have invested over $20 million in developing, implementing, and marketing our franchises, which drove both revenues, new memberships, and subscribers. Over the past year, we have launched shows and events that we believe have the chance to become valuable franchises going forward, including Self-Made, The Lockdown Awards, The Snubbies, Music Lives and Music Lives On, and Like-by-Like Presents. Not to mention a number of podcasts that have the potential to develop into assets for television, film, music, and documentaries. We continue to grow our immensely successful and first-of-its-kind hybrid festival, Music Lives, which is returning for its third and most ambitious installment yet this November, live from Miami, featuring a unique plan of virtual and physical performances, integrated with a global basketball tournament involving over 30 countries. Our other live music franchises, Music Lives On and Like-by-Like Presents, continue to expand, recently crossing the 70th episode milestone and have proven to be big hits with our advertising partners. The second edition of our LiveOne Awards, the Breakout Edition, is scheduled for this December and will also push the boundaries of our unique and signature hybrid approach. This month, we also announced the acquisition of Gramophone, a New York City-based artist and brand development company, which specializes in representing aspiring artists and providing services in PR, strategic marketing, brand positioning, graphic design, and social media management. The company is known for its innovative work in discovering and breaking international acts like K-Pop sensations BTS and Monsta X, as well as its unique approach to public relations and artist development. This acquisition complements our existing online talent search platform, Self-Made, and further expands our flywheel business model by providing artists with an end-to-end solution to develop and amplify their brand to audiences across LiveOne's platform and beyond. The Gramophone acquisition builds out yet another tier in our creator service spectrum, keeping LiveOne at the leading edge of where the music and entertainment business is going. Additionally, I would like to add that due to the successful integration of our advertising and sales divisions, we are closing more seven-figure advertising deals with major advertisers than at any other time in our history. I would like to now hand it over to our CFO, Mike Quartieri, who will review our Q2 results.

Thanks, Dermot. Let me spend a few minutes to provide a brief overview of our Q2 fiscal '22 results. We ended Q2 with strong results with revenue growing 50% year-over-year to a record $21.9 million. Contribution margin increased 37% to $5.9 million, and our adjusted operating loss was $2.1 million, with record KPIs, including a 34% net increase in paid subscribers year-over-year. Moreover, for the current six-month period ended September 30, revenues increased 142% year-over-year to $60.7 million, while our contribution margin increased 93% to $13.7 million. For Q2 fiscal '22 results, consolidated revenue was $21.9 million, up 50% year-over-year from $14.6 million in the prior year quarter, largely due to growth in advertising, paid subscribers, and our successful acquisition of CPS. The growth in advertising is a result of current improvement in our podcast operations compared to the prior year quarter, which was negatively impacted by the COVID-19 pandemic. We ended Q2 with 1,256,000 paid subscribers, a net increase of 320 as compared to the 936 paid subscribers reported at September 30, 2020. Please note that included in the total paid subscribers are certain subscribers, which are subject to a contractual dispute for which we are not currently recognizing revenue. Fiscal Q2 '22 contribution margin increased 37% year-over-year to $5.9 million. The year-over-year improvement was driven by the addition of CPS and the increase in paid subscribers. Fiscal '22 adjusted operating loss was $2.1 million compared to $1.4 million in the prior year quarter. The consolidated adjusted operating loss includes adjusted operating income from our operations segment of $1.2 million, offset by adjusted operating losses from corporate of $3.2 million. The increase in the adjusted operating loss was driven by additional costs to support the company's growth and M&A activities. For the six months ended September 30, 2021, revenue was a record $60.7 million, up $142 million year-over-year as compared to $25 million in the prior year quarter. The increase in revenue was driven by all aspects of our flywheel, continued growth in paid subscribers, the addition of PodcastOne, which is driving our increase in advertising, and CPS, which represents our merchandising revenue, along with the return of live events, which is driving pay-per-view, ticketing, and events sponsorship revenues. Contribution margin for the 6-month period ended September 30 was $13.7 million, an increase of 93% compared to the prior year period. The increase is driven by the revenue growth previously outlined. Our contribution margin percentage for the quarter was negatively impacted by strategic investments in marketing campaigns to grow our listener base across the entire flywheel and our continued investment in our live event franchises, which we believe will yield attractive returns over the long run. Adjusted operating loss for the six-month period ended September 30 was $3.8 million compared to $1.4 million in the prior year period. The increase in the adjusted operating loss is a result of the strategic investments in content and increased marketing to drive future revenue growth beyond the current year. Turning to the balance sheet, we ended with cash of $16.7 million, including restricted cash of $260,000. Turning to financial guidance for fiscal year 2022, we are reaffirming our revenue guidance of $115 million to $125 million and reducing our estimate for adjusted operating income from our operations segment to between breakeven and $3 million as a result of the impacts of the COVID-19 Delta variant on live events, inclement weather, and our long-term investments in original and exclusive content and franchises, as well as continuing our increased spend on marketing associated with driving new paid memberships. And now, let me hand it back over to Rob.

This is a truly exciting time for LiveOne. We will soon be announcing a major development in our subscription and membership model, one that we believe will be compelling for fans and consumers. Next Thursday after the close, we will be holding a press conference with members of the press, and we welcome existing shareholders and analysts to join us as well. This is a unique time for the company that we have now driven 170,000 members at an average of over $60 per person. This uniquely positions our subscription and membership to where the business is heading going forward. As we open our live events, we're now prepared to really press the envelope and hit that flywheel running. We are reiterating our $2 million share buyback, and we're excited that we previously announced we secured a credit line from the banks, which we hope to increase in the near future at very low interest rates, really positioning the company to exceed 1.3 million subscribers and 170,000 members. Each of our business subsidiaries is now growing substantially. This is an exciting time for the company, and I want to thank everyone for joining. We look forward to any Q&A for today's call. Thank you.

Our first question today comes from Brian Kinstlinger from Alliance Global Partners. Please go ahead with your question.

Hi, thanks for joining and great results. Can you discuss the numbers related to Spring Awakenings? Specifically, I'd like to hear about average ticket price, sponsorship revenue, and other aspects of the platform as well as your monetization strategies for this event that you own.

Yes. We can't go into too much detail, but what I can tell you is the average ticket price is in the range of $100 a ticket. Each one of those ticket buyers becomes a member of LiveXLive and will now be offered opportunities to buy tickets to our next events as well as to our pay-per-views, NFTs, and merchandise. So, it's an exciting time for the company to truly prove that flywheel. Sponsorship was the highest that we've ever had, and we've just surpassed over 100 sponsors for the company. As you know, Brian, 2 years ago before COVID we had just 1 sponsor.

And just to be clear, when they become a member, are you paying for a paid subscription for them for a year? Or is that different than a member?

Well, we're going to get into that next Thursday; we'll be holding a special conference call for the press, as well as for the music industry. You'll get a little more color on that. But with your purchase, you're automatically becoming a subscriber, whether it's for 1 month, 3 months, or a year. You'll hear a lot more of that, but you become a subscriber, which obviously drives more advertising revenues. We will bring them in at the top of the funnel, with the objective being to convert them into long-term paying subscribers and members.

Got it. And to be clear, whereas the first quarter Social Gloves, you didn't own the event, and so your margins were pretty thin. You own this event. You also own Self-Made, which I think is happening still in this quarter. And so the margin profile of those 2 events should be substantially better than the event of Social Gloves. Is that an accurate statement?

No. Social Gloves was extremely profitable, and we will provide more clarity on that very shortly. When you look at these events, when they are owned, we get to test our franchises and bring our franchises to life and control the environment within it. So we're building out those franchises substantially. So we will have a lot more clarity on that. But Brian, it's really exciting to watch these franchises come together. As you know, all of my businesses I've built over the years have been built off of franchises, including we did the movie 300. These franchises have enormous upside value to them, and when we own them, we get to trigger and test them in a much more unique way.

Okay. Lastly, and then I'll get back in the queue. Can you talk about PodcastOne? You're adding a lot of new content; demand for advertising seems to be strengthening. Maybe talk about how that business is performing in this improving environment.

Yes. Kira is doing a spectacular job of taking PodcastOne, which, as you know, previously required hardcoded advertising, that was dramatically off at the time. He has done an amazing job of really turning that business around. We have added, I think it's now 43 new podcasts. Moreover, you're starting to see podcasts that are moving over with substantial traffic. If you watch the news in the last 1.5 weeks, we've announced 2 of them with over 50 million views already. So people are recognizing the brand and the 10-year history of it, and understand that we provide a full 360 play, not only helping them with production but also delivering revenues for them on the sales and marketing side of it. Overall performance from PodcastOne is showing significant improvement, and I couldn't be more excited about where PodcastOne is going and what Kira and the team have done with that franchise.

We have a follow-up question from Brian Kinstlinger from Alliance Global Partners.

Sure! Can you go into Gramophone a little bit and maybe talk about the revenue and EBITDA in the trailing 12 months? Additionally, as part of your flywheel, could you discuss how you can build upon those results?

Yes. We haven't disclosed the revenue on it; this is not a gigantic acquisition. It is a significant strategic move, nonetheless. Eshai, who is the President and Founder of this, has had a history of breaking unique talent, including BTS, the biggest band on Earth today, as well as Monsta X and many others. He has a huge footprint in the K-Pop market. As you continue to watch our pay-per-view events, they are growing rapidly in both revenues and bottom line, and it is exciting to watch what's happening. This brings together our mission of being a talent-focused platform aimed at super fans. These are the ultimate super fans that our ARPUs have been increasing. Our ARPU went from $2.80 last year to $3.41 this year, and our membership is currently over $60 today.

Great. And then, Hertz ordered 100,000 Teslas. I take it, obviously, none of that is in your results right now. And you're having several events that are increasing the members, which hopefully will be converted into paid subscribers. As you look out longer term, maybe a year from now, where do you think this paid subscriber base can get to as the flywheel is starting to build?

Well, I think this is the first of many corporate contracts that we are going to secure, right? That 100,000 is exciting, and we're just starting to see the momentum kick in. As I mentioned, we're going to surpass 1.3 million monthly subscribers any time now. Both our membership and subscription are going to continue to grow at a quick pace. So as you track that growth, we've talked about a 5-year model of reaching 10 million subscribers. We're more confident than ever that we're on track to achieve those goals. This year, we initially projected 30,000 subscribers per month, and now we're estimating over 350,000 subscribers. We may need to raise that number substantially as we start to see new activity. We're observing increased interest from taxis, Ubers, corporate fleets, and rental car companies. You will begin to see those corporate orders. All of the North American side will align with us. We're excited about expanding our relationships with record labels globally, as well as with Tesla on a global scale. This is an exceptional time to be in this space, and we have built a technology that allows us to do this in a white-label format for any core companies around the world. Our team has done a fantastic job, growing from 40 cars to now over 85 cars, and we'll be over 100 very soon.

And ladies and gentlemen, with that, we're going to end today's question-and-answer session. I'd like to turn the floor back over to Rob Ellin for any closing remarks.

To finalize, I want to thank everyone for joining and for my team for fighting through another round of COVID. It's pretty amazing that we hit the $60 million revenue mark. As everyone knows, we only did $6 million last year, which was up from $38 million. So this is growth of almost 100% now, two years in a row. We have reiterated our guidance between $115 million and $125 million. If it weren't for the COVID variants, we would have raised the guidance again. We see telltale signs that while the variants are still present, live events are opening up. Our flywheel is expanding dramatically, and we look forward to the next 2 quarters with record revenues and record growth. It is a really exciting time for us, and I want to thank everyone for their patience. I appreciate my team for thriving through this unique time in the market we have navigated. We lost all our live business; we lost our live partners and once again this quarter. However, I see everything coming back right now, and it's picking up pace. I spoke in the last quarter about the telltale signs that this could be the 'Roaring 20s' coming. If we can continue on this path, we have over 100 live events scheduled for the rest of the year. Our next social gloves event is coming, and every single time a consumer buys a ticket, merchandise, or NFTs, they will become a member of LiveXLive. I'm looking forward to exposing much more of that in our conference call next Thursday. Thank you, everyone, and I appreciate your time.

Ladies and gentlemen, with that, we'll conclude today's conference call. We thank you for attending. You may now disconnect your lines.