Hello, and welcome to the LiveOne, Inc. Q3 Fiscal 2023 Financial Results and Business Update Webcast. My name is Elliot, and I will be coordinating your call today. I'd now like to hand over to Aaron Sullivan, Interim CFO. The floor is yours. Please go ahead.

Thank you. Good morning, and welcome to LiveOne's business update and financial results conference call for the company's third quarter ended December 31, 2022. 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 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. And the company encourages you to periodically visit its Investor Relations 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 9, 2023. 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 express 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 morning, everyone. I appreciate everyone joining us today for our business update and financial results for the third quarter of fiscal year 2023. We are proud to announce that the consolidation resulting from 18 months of work involving six acquisitions and each of our subsidiaries is now complete. We have reduced our workforce by over 30%, and the top talents in our organization have emerged. We have faced challenges from COVID and significant market downturns, particularly in media and technology, but we have not only survived but thrived. It's time to highlight our team's capability in building billion-dollar companies. I am pleased to report that all our debt has been eliminated, converted into preferred equity at $2.10 this week, and we now hold more than $27.5 million in short-term assets. The company has repurchased 2 million shares of stock and will initiate a buyback of an additional $2 million worth of shares starting early next week. We have transitioned from a story stock to a growth stock and now to a value stock, trading at 60% of revenues and 5x adjusted EBITDA, while our peers trade at 3.3x revenues. Our consolidated Audio Division has achieved record revenues of $64 million and a record adjusted EBITDA of $15 million. When we acquired Slacker Radio and PodcastOne, both were incurring substantial losses. I am proud to announce that these combined operations are projected to exceed $85 million in revenue and over $18 million in adjusted EBITDA, representing a 105% increase compared to last year. We are experiencing growth across all areas. Our membership has surged, adding over 620,000 paid members since December 31, 2021, reflecting a 45% increase, which brings our total membership to 1.96 million, and including free members, we have 2.8 million total members. I have communicated to the market that we expect to reach 10 million members within five years. This is a small segment of the overall Total Addressable Market of the Audio business. All market forecasts indicate a rise to 1.7 billion paying subscribers, increasing from this year's 375 million. This number represents less than 1% of the industry’s TAM. We have achieved unprecedented sponsor numbers on our platform, increasing from 7 pre-COVID to over 300 this year, with expectations to exceed 400 sponsors by March 31. Our B2B partnerships are increasingly promising, particularly the partnership with Tesla, which continues to expand. We anticipate this to be an outstanding year for both Tesla and LiveOne. We have also formed partnerships with Google Android Automotive to offer white-label services for other automobile manufacturers, along with various collaborations across sectors from retailers to service carriers, social media, and cable companies. Any entity with 10 million to 2.5 billion viewers will require a music platform, and we are one of only 12 companies equipped with the necessary technology, partnerships with record labels and publishers, and the ability to deliver subscription sponsorship alongside our media and original programming offerings. We recently launched a new division called LiveOne Brands and announced an exciting partnership between pop culture stars Jeremy and winemaker Russell Beva. We will soon roll out the MVP version of our new consumer product. Regarding PodcastOne, we filed our S-1 on December 27 and anticipate an imminent start to trading. The company has produced record revenues, with over 11 million unique listeners each month and a growing portfolio of over 300 podcasts, increasing from 20 million to 8.7 million for the quarter. The TAM for podcasts has just surpassed $1 billion in revenue and is projected to reach $10 billion in the next five years. Now, I will return the call to Aaron, and I will conclude with some remarks at the end. Thank you.

Thanks, Rob. I'll spend just a few minutes to provide an overview of the results for our fiscal '23 first 9 months and third quarter ended December 31, 2022. Consolidated revenue for the 3- and 9-month periods ended December 31, 2022, was $27.3 million and $74.1 million, respectively. Our Audio Division posted revenue for the 3- and 9-month periods of $22 million and $64 million, respectively. For the third quarter ended December 31, 2022, revenue was comprised of 49% membership and 51% advertising sponsorship merchandising and ticketing events compared to 33% membership and 67% advertising sponsorship and ticketing events in the prior year period. Consolidated adjusted EBITDA for the 3 and 9 months was $3.1 million and $9.4 million, respectively. On a U.S. GAAP basis, LiveOne posted a consolidated net loss of $3.2 million or $0.04 per diluted share in Q3 fiscal '23 and a net loss of $5.3 million or $0.06 for the 9 months ended December 31, 2022. Our Audio Division's adjusted EBITDA for the 3- and 9-month periods was also a record of $5.1 million and $15 million, respectively. As of February 7, we had approximately 1.96 million paid members, a net increase of 620,000 or 45% compared to December 31, 2021. Total members include free memberships or approximately 2.8 million at February 7, 2023. Included in the total members are certain members who are currently subject to a contractual dispute for which we are not currently recognizing revenue. Turning briefly to the balance sheet. We ended Q3 with cash of $8.5 million, including restricted cash of $300,000. And now I will turn it back over to Rob.

Just to wrap it up, everyone, I just want to highlight some of the exciting points that we've hit on in our press release as well as in this conference call. Number one, record numbers across the board; number two, world-class management, world-class board, huge growth in sponsorship as well as membership. LiveOne grows every time Tesla grows. Every day a car hits the road, we grow alongside of them. We're now in 68 of the cars and growing. And we now have a partnership with Android Automotive to be able to white-label for any car company, right, as well as many other industries in a similar fashion. We started our buyback. We bought back $2 million shares. Next week, we will begin buying back additional shares. I've personally been a buyer of stock. This company's stock is extraordinarily undervalued, and I'm extremely excited to see some of the new shareholders that have joined us, have been adding to their positions, and I look forward to a spectacular year for the company. And I want to thank everyone for joining us and be patient with us in a difficult market. We're going to be here for the long term, and we're going to deliver a spectacular year this year. Thank you. Now I'd open it up to any questions.

First question comes from Brian Kinstlinger from Alliance Global.

It’s impressive to see how you have adjusted the business. Can you provide details on the podcast download trends for the December quarter compared to last December? I assume there has been notable growth, although it may be impacted by challenges in the advertising market. Could you share your observations on that as well?

Yes, I believe this year will be particularly challenging for the advertising market. One of the strengths of podcasting is its strong direct response capabilities, supported by substantial metrics. In the digital podcasting sector, we have precise data on performance. We will need to navigate this trend carefully. At the same time, we are expanding our podcast network significantly and are seeing encouraging signs in the industry, not only in terms of total addressable market but also in terms of direction. Our competitors, who are also our partners like Spotify and Apple, have invested heavily, acquiring numerous companies at high valuations. For example, Sirius radio recently purchased a podcast business for 15 times its revenues, while we raised funds for PodcastOne at just under 2 times revenues with a $68 million valuation and are preparing to go public. The trends are looking positive. We ranked fourth on Podtrac for Best Sales Team, and I believe we have the top sales team in the industry, drawing from expertise at iHeart and Sirius. Overall, while our specific business trends are very promising, we will have to contend with broader sponsor and advertising challenges.

Can you share the download trends for the December quarter in 2022 compared to 2021?

I believe you will see that soon as part of our initial announcements related to the IPO. However, I don't think we have reported any of those trends yet.

Okay. From a high level, are they growing? With all the new content you're putting on a growing significantly? Or should we think about it is not growing significantly.

Yes. All of our trends have been significantly up. It's somewhat of a self-fulfilling prophecy, Brian. As you know, revenues are driven by traffic and audience. So our revenues have increased considerably, just as our traffic has also increased. Part of this is due to our deal with Kevin Connolly and his company, through which we added an additional 14 podcasts. Every time we add a podcast, we generate more traffic.

Yes. And then can you update us on the strategy on tentpole events? Do you know of any LiveOne tentpole events that you will have in the next 12 months? And if so, can you tell us roughly when you think those might occur?

Yes. I mean we just announced Music Lives, which is our biggest event we ever did in the history of the company, which reached 135 million live streams and did over 5 billion engagements, right? We just announced a competition that is the All-Stars of all of the LiveOne programming that we've done, right, to launch the All-Stars and Music Lives. There'll be record-breaking number of artists. I think we had over 100 last time, way higher than that this time. It will be a competition with the winter winning at the end of December, but there'll be an event in each of these quarters coming up. And then I fully expect our next social boxing coming shortly. As you know, I announced a partnership with Ben Silverman, where the great producers of television Reality TV, including The Office. We announced a partnership to launch a Reality TV show around social boxing. And as you know, we did well north of $15 million in EBITDA when the last one we did. So we took a little bit of a step back, right, for this year to consolidate, right, the 6 acquisitions internally. We cleaned up the balance sheet dramatically. We're now debt-free, and we now put ourselves in a position of really exciting to be able to move forward this year with multiple tentpole events.

Great. And speaking of the debt conversion and the settlement of SoundExchange, those were both great. Can you tell us what the total shares outstanding are today with everything that's going on?

Yes, we have about 85 million shares outstanding. It has changed recently, of course, due to the quarter. Yes, we have about 85 million shares outstanding. The debt is now convertible to preferred equity at $2.10. With the conversion of $21 million, we expect to have approximately 96 million shares outstanding if fully diluted. For that to happen, the stock price would need to increase significantly. In that case, there would be about 100 million shares outstanding.

Great. Lastly, Aaron, if you could quantify any nonrecurring benefits in the December quarter such as gains in accounts payable? And then if either of you could talk about when you expect to be free cash flow positive. I know I didn't see the 9-month number, but for 6 months, there were some cash uses. So maybe an update there would be great.

Yes. So we haven't publicly put out any cash numbers. We will shortly. But obviously, with that settlement of SoundExchange, which is extraordinarily exciting, right? We've had 5 years where we bought Slacker Radio. We took on $45 million of payables when we acquired it, right? We find we are now down to where we have no substantial payouts left that haven't been settled, which really puts us in a very different position with music labels, music publishers, multiple music partnerships have happened where they've taken equity at $2.10 or higher. Some as high as $4. So it really puts us in a great position. We haven't yet talked about free cash flow, but you can see our cash is up from the last time we announced. And separate from the old payables, right, you can really look at substantial improvement in bottom line and cash flows of the company.

Great. And Aaron, just if you can quantify the nonrecurring?

Yes, there was just over $700,000 of nonrecurring items in the quarter.

We now turn to Jon Hickman from Ladenburg.

Maybe this is a question for Aaron, but operating expenses were $8.5 million this quarter. Could you maybe give us a little guidance about operating expense growth for the next 12 months or so?

Jon, as I mentioned, there was a one-time benefit of about $700,000. You can expect to see that when assessing growth regarding expenses, and I wouldn't anticipate significant growth. There may be some variability in the timing of expenses, particularly on the corporate side due to audit fees occurring in certain quarters. However, I don't expect expenses to be much higher than they currently are. We have been continuously reducing expenses throughout the year, so I anticipate a fairly consistent run rate with the current figures, including the $700,000 added back in.

Okay. In the press release, you mentioned that Slacker was growing about 40% annually. Do you have a figure for that regarding the PodcastOne business?

We don't have a number. As we kind of mentioned earlier, we don't have that download number yet, but expect to see that shortly.

And obviously, Jon, as you know, we're in a quiet period in PodcastOne. We'll be talking a lot more about it as the SEC has approved the comment letters, and we expect to start trading hopefully in the next 15 to 45 days maximum.

Our next question comes from Kevin Dede from H.C. Wainwright.

Rob, you talked about the white-label with Android. Now is that baked in so that any car that runs Android Auto has LiveOne access? Or is it an additional thing that each car owner chooses upon purchase?

Yes, it's somewhat different. The Android Automotive presents us with the chance to white-label a solution. The benefits of Slacker Radio include our advanced AI technology, which people appreciate for its virtual interaction and understanding, backed by our 44 patents that enhance user experience by delivering the next song seamlessly. Additionally, our pricing is significantly lower than our competitors, currently at less than 30%, while they are increasing their prices; for instance, Sirius recently raised theirs by $1 and Spotify also announced a price hike. We will remain priced even lower than that. Furthermore, we are uniquely positioned to offer white-label options like Tesla Radio, Cadillac Radio, and BMW Radio. This presents a major opportunity that extends beyond the audio industry and into various sectors, from watches to gym equipment to retail giants like Walmart and Costco. I have built my businesses through extensive partnerships with B2B partners, and now is our chance to enhance that growth. Despite reducing our workforce by 30%, we are focusing on B2B expansion as we identify unique opportunities to grow with partners that attract a wide audience, ranging from 10 million to 2.5 billion viewers. For Android, this is a fantastic chance to upsell to other car manufacturers, allowing them to brand their radios—like Cadillac Radio or BMW Radio—which is a brilliant marketing strategy that adds a cooler and smarter image.

And then can you give us an update on where you are in the international spectrum and attaining licenses? You can provide service there?

Yes, this is the year to achieve that goal. We've discussed it previously, but due to market conditions and the impact of COVID-19, we haven't been able to raise capital during this time. It has taken us a while to improve our balance sheet, settle our payables, and strengthen our relationships with publishers and record labels. I believe this is our year for significant growth, especially in expanding into international markets. When cycles change, we will see carriers and others reinvigorate their efforts to build deeper connections with their customers, which will require them to own content. I observe early signs that this will grow significantly, and we are actively involved in negotiations to broaden our licenses, either through partnerships or independently in international markets. For instance, Tesla is currently paying over $8 per subscriber to Spotify, which presents a substantial cost-saving opportunity for them. There are significant opportunities for us to expand, primarily in Europe, but we are also exploring discussions in India, Japan, and other countries. Many of our partnerships involve global carriers, and this time, given that we own video content, our potential extends beyond just carriers to include cable, satellite, Kindle, and various streaming platforms, all of which will need audio content on their platforms. I believe we provide something truly unique with the content we offer.

You mentioned around 400 sponsors. You provided a lot of information quickly, so I apologize for not catching everything. Could you summarize your current status with sponsors across different programs and platforms? Specifically, how does the sponsorship with Slacker compare to those with PodcastOne and the LiveOne platform?

Well, okay. So try to simplify it for a second, right? Start with the fact that we bought PodcastOne, right? We had 1 salesperson, right? We now have a 15-person sales team, right? That sales team, led by Sue McNamara and Alex Brough has combined 50 years background of selling for Sirius, iHeart and so on, right? Our sponsorships across the entire platform are growing. So we're growing our sponsors in podcasting. We're growing our sponsors across audio. We've just added podcasting to every Tesla car. And obviously, it's only in the free tier of audio that you're going to get sponsorship, right? Most of that is going to be programmatic. But in podcasting, you get both. You get programmatic as well as direct response as well as great sponsors. And then across our live programs, you've seen so many of them this year from Hyundai to Volkswagen to a huge event we just did with eBay, and you're just going to see those grow. You're going to see more and more of those. And the only events that we're doing now have to have a sponsor behind it, who was paying for it with at least 20% net margins on it.

Okay. So taking a step back, you mentioned in your prepared remarks that there are currently 400 total sponsors across all of your platforms.

By year-end. So we're a March 31 year-end. So we've had over 300 so far, right, part away to closing the year with over 400.

Okay. Can you tell me what the number was for year-end March '22?

We've grown from 7 pre-COVID to about 300 last year to over 400 this year. And next year will be well over 500.

Our next question comes from Calvin Hori from Hori Capital.

Did I miss something? Did you say you settled the SoundExchange lawsuit?

Yes. Yes, we did. We filed it in 8-K. So we settled the SoundExchange lawsuit, paid out over 2 years with a healthy discount on it. What we announced is about $5.4 million of payables moving from short term to long term. So both the same day. It's a $42 million swing in getting all the debt converted at $2.10. We also moved $5.4 million in long term. So a really exciting week for the company and really strengthens our balance sheet dramatically. We also said this morning that our short-term assets went up by $2.5 million, from $25 million we reported about 3 weeks ago to $27.5 million. So it's very likely the next thing you got to see is a credit facility that we'll be able to borrow somewhere between $17 million and $20 million against those short-term assets. And so this is a dramatic improvement for us. And if the stock stays down at these levels, we'll increase that buyback from $2 million to weigh more than that down the line.

Okay. Great. And then one other thing, you mentioned that probably going to spin off Slacker sometime this year. Is there any sort of timing on that as well as a paper view unit?

Yes, I believe something significant will happen very soon. The success of PodcastOne and the recent filing of the PodcastOne S1 means it will soon be trading. We are actively negotiating to find the right partners for this venture. Additionally, Slacker has generated over $10 million in cash flow, which has positively impacted the overall EBITDA of our Audio business, now at $18 million. This indicates that the $10 million cash flow is set to increase considerably. I would anticipate a much higher valuation, as our peers are currently trading at 3.3 times revenue. Our Audio Division generates over $80 million, and we expect that to surpass the $68 million from PodcastOne. If an opportunity doesn't meet that threshold, we would prefer to pass on it, but we are receiving strong interest. On the pay-per-view side, there is significant potential. We haven't fully explored this area yet as we have focused on consolidation and increasing EBITDA, but there is a billion-dollar upside in this division, which is drawing considerable interest from serious parties.

Okay. And then finally, can you clarify how much of PodcastOne will be spun off to existing shareholders?

Yes. So between 5% and 10%. So think in between, thinking about 7.5%. So the public filing says it's going to start trading at a $150 million valuation. So a lot of equity is going to be dividend out to our shareholders in the next few weeks.

So that means it is unclear.

LiveOne will own approximately 93% then. Yes, it's going to be less than that because we sold $8 million at a $68 million valuation. So LiveOne will own about 80%, a little bit higher than 80%. If you take 80% of $150 million, it's a significant amount. Additionally, I just learned from Sue McNamara, my Head of Sales, that our advertiser numbers are actually much higher this year, including programmatic, and we will add hundreds of additional advertisers on top of the 400 direct sales we currently have.

This concludes our Q&A. I now hand back to Rob Ellin, CEO, for any final remarks.

Yes. Just to wrap it up, I just want to thank everyone for their patience. This has been a humbling couple of years. I think we recognize very differently than most, 18 months ago, that the market was going to change and the capital is going to change. I've gone through this before in my career for any of you that have been investors before. And I'm so proud of my team. They've come together. It's been a tough battle, making cuts. My team has come together. And we just have a world-class team, laser-focused on winning for all of our shareholders. And I think we're going to have a dramatic win this year. So thank you, everyone. Thank you for joining.

This call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.