LiveOne, Inc. Q2 FY2023 Earnings Call

Good afternoon. Thank you for joining today's LiveOne Inc. Q2 Fiscal 2023 Business Update and Earnings Call. My name is Tamia and I will be your moderator. All lines will be muted during the presentation, and there will be a chance for questions and answers at the end. I am now pleased to turn the conference over to your host Aaron Sullivan, Interim CFO. 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 of the fiscal year ended March 31, 2023. Presenting on today's call are Rob Ellin, CEO and Chairman and myself, Aaron Sullivan, Interim 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 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 more information about factors which could cause the company's actual results to differ materially from these forward-looking statements, including those described in its annual report on Form 10-K for the year ended March 31, 2022, 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 its Investor Relations website at ir.liveone.com, 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 views as of the date of this call, November 10, 2022, 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 the 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, I would like to turn the call over to LiveOne's CEO, Rob Ellin.

Thank you, Aaron, and good afternoon, everyone. I'd like to thank you for joining us for today's fiscal 2023 first quarter business update and financial results. As reported, over the past three quarters, LiveOne’s team has made a strategic decision to execute on a concise and specific number of initiatives. Number one, consolidate and integrate our six previous acquisitions with a focus on reducing costs and overhead while cherry-picking the superstar talent in those divisions with positive EBITDA. Number two, to focus our resources and capital on growing our business that is profitable and to aggressively grow our member subscribers and sponsors. Number three, to substantially improve our balance sheet. Number four, to forego producing or investing any large tentpole events without a sponsor paying for and being profitable. Number five, to buy back a substantial piece of stock in the open market at this giant discount to fair market value. So what have we done to date? Through the consolidation of our prior six acquisitions, we’ve implemented cost and expense reductions that will result in $25 million in cost savings, including $2 million this quarter. These cost savings include substantial headcount reductions, but we selectively retained our strongest managers and employees to focus on generating positive adjusted EBITDA. With respect to our profitable business and growing our members and subscribers, we announced today that our audio division, which is comprised of the streaming music business Slacker as well as our podcast business, delivered six-month revenues of $42 million and an impressive $9.8 million of adjusted EBITDA. We expect the audio division to achieve revenues in excess of $88 million this year and approximately $17 million of EBITDA. We have posted record growth in paid subscription members, having added 181,000 subscribers this quarter and passing a total of 1.8 million members. Including free and sponsored members, we have now reached 2.6 million. We've grown our sponsors from seven pre-COVID to now over 300 last year, and I expect the number to surpass over 500 sponsors on our platform this year. We are greatly expanding our B2B partnerships, which include our nine-year exclusive partnership with Tesla, and the addition of Google Android automotive gives us the opportunity to white label any car within a matter of days. You will see more and more B2B deals on a weekly and biweekly basis over the next six months. We recently launched LiveOne brands, a division featuring celebrity-backed branded products. We are utilizing our community of 55 billion listens, 2.4 billion downloads of our podcast, and 5 billion engagements across our live streaming to attempt to launch specific brands, starting with Jeremih, along with Russell Bevan, the number one winemaker in the country, who has launched the first-ever white wine for Jeremih in the second quarter of this year. We also have new initiatives in publishing NFT with Polygon as our partner. On the balance sheet, we've extinguished $20 million available in just six months without raising any capital and we have paid in advance many of the record labels. We expect the maturity of our $7 million secured facility with East West Bank, which was just extended to 2024. All our senior debt has been extended to 2024 or two years out. Regarding our tentpole and pay-per-view events, we have kept our powder dry in fiscal 2023, but see substantial opportunities to produce and be part of some of the largest live events in fiscal 2024, including pay-per-view for festivals and social media events. This will create the opportunity to complete the financing of our pay-per-view business and our spin-off into its own public company sometime by the end of 2024 fiscal year. The strategic decision to forego live events in fiscal 2023 has resulted in an adjustment to our fiscal 2023 consolidated revenue guidance of between $100 million to $110 million in revenues. More importantly, it moves our EBITDA forecast to $9 million to $11.5 million. This is more than a $20 million positive swing from last year. With respect to PodcastOne, we will file our S-1 by December 15. Approximately 90 days ago, we closed $8 million at a $68 million valuation. All of our shareholders of record will receive a dividend of 5% to 10% of PodcastOne for those who owned the stock as of December 15, and we will list it on a national exchange, either NASDAQ or New York Stock Exchange, in the early parts of next year. I believe we have made enormous progress in a very short amount of time, which positions LiveOne with its shareholders to win big. The LiveOne Board and I believe that shares of LiveOne have been significantly undervalued. We have repurchased 2 million shares of LiveOne common stock in the open market, and we announced today that we'll be expanding that program to repurchase an additional $2 million of stock. This is a substantial open market initiative of buying LiveOne shares by myself and other members of our Board. With that, I would like to hand it back over to Aaron Sullivan, who will review our Q2 fiscal 2023 results and after that I have a few closing remarks. Thank you, Aaron.

Thanks, Rob. I’ll spend just a few minutes to provide an overview of the results for our fiscal ’23 second quarter ended September 30, 2022. Consolidated revenue for the three and six-month periods ended September 30, 2022 was $23.5 million and $46.8 million, respectively. Our audio division posted revenue for the three and six-month periods ended September 30, 2022 of $21.1 million and $42 million, respectively. For the second quarter ended September 30, 2022, revenue was comprised of 53% subscription and 47% from advertising, sponsorship merchandise and ticketing events compared to 45% subscription and 55% advertising sponsorship and ticketing events in the prior year. Consolidated adjusted EBITDA for the three and six months ended September 30, 2022 was a record $4.4 million and $6.4 million, respectively. On a U.S. GAAP basis, LiveOne posted a consolidated net loss of $3.4 million or negative $0.04 per diluted share in Q2 fiscal 2023 and a net loss of $21.1 million or $0.02 per share for the six months ended September 30, 2022. Our audio division's adjusted EBITDA for the three and six-month periods ended September 30 was also a record $6.5 million and $9.8 million, respectively. As of November 9, we had 1.8 million paid subscribers, a net increase of 209,000 compared to June 30, 2022. Total members, including free memberships, were 2.6 million as of November 9. Included in these total members are certain members who are the subject of a contractual dispute for which we are not currently recognizing revenue. Briefly turning to the balance sheet, we ended Q2 with cash of $7.4 million, including restricted cash of $300K. And now, let me hand it back over to Rob.

Thank you, Aaron. I want to highlight for everyone why we have proven as a management team to be resilient. When COVID hit, we lost all of our live partners and the exciting energy surrounding Live, along with the revenues we were driving. Yet, we've grown the business from $38 million to over $100 million. Today, as we enter a very difficult market and a very different environment for buying, we look very carefully at where the opportunities are and where the cash flows are. We are really excited about the growth in our subscription, our sponsorship, and our audience. We have built a massive traffic base of 2.4 billion downloads of our podcast, making us the number 7 podcast network, alongside Barstool and CNN on Podtrac with 55 billion listens across our audio and 5 billion engagements across our music live streaming. As we take that traffic and audience, more and more of them will convert to subscriptions. As our subscriptions grow, I have stated we will pass 2 million paid subscribers and over 3 million subscribers by year-end. I fully expect that within a five-year period, we can achieve 10 million subscribers, which will generate over $1 billion in revenues and over $150 million in EBITDA. As shown by the numbers Aaron shared with you, the expectation for $88 million and $17 million on our audio business alone is staggering and game-changing for the company going forward, especially as we look towards 2024. If we maintain that growth rate, we could see over $25 million of EBITDA based on consistent growth. We're truly excited and energized. The management team is working diligently. We look forward to launching our IPO for PodcastOne and finalizing our financing of our pay-per-view business, all completely non-dilutive to our shareholders. We are also looking forward to buying back stock and plan to buy a substantial amount if the stock maintains at this level. We will show our commitment by buying stock ourselves, alongside other management and board members. I want to thank everyone for your support. Thank you for taking the time to attend this call, and I look forward to our next quarter, which will be our biggest quarter, the third quarter. I look forward to updating everyone at the end of this quarter. Thank you very much for your time and support for the company.

This concludes the LiveOne Inc. Q2 fiscal 2023 business update and earnings call. Thank you for your participation. You may now disconnect your line.