Ladies and gentlemen, thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the LiveOne Inc. Third Quarter Fiscal 2025 Financial Results and Business Update Webcast. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. And I would now like to turn the conference over to Aaron Sullivan, Chief Financial Officer. Mr. Sullivan, you may begin.

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, 2024. Presenting on today's call with me is Rob Ellin, CEO and Chairman of LiveOne. 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 on its annual report on Form 10-K for the year ended March 31, 2024, and subsequent SEC filings. You'll find reconciliations of non-GAAP measures to the most comparable GAAP financial measures discussed today in the company's earnings release, which has been posted on its Investor Relations website. The company encourages you to periodically visit the 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 14, 2025. Except as required by law, the company does not undertake any obligation to update or revise this information after the date of the 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, transmission or rebroadcast of this 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. Good morning, everyone, and thank you for joining. This has been an extraordinarily challenging and exciting quarter for the company. Thanks to the unwavering dedication and relentless drive of the LiveOne team, we've achieved record revenues of $95 million in the first nine months and over $29 million for the quarter, underscoring our ability to navigate extraordinary challenges and turn them into the biggest opportunity in the history of the company. Our audio business, Slacker Radio and PodcastOne, I'm pleased to report, put up $90 million in revenues for the first time in the history of the company, accompanied by $14.1 million of adjusted EBITDA for the nine months. This outstanding performance demonstrates our ability to pivot, survive, and thrive. We've made significant strides to diversify the business and our partnerships, especially in the B2B partnerships with five deals signed in the last 90 days, adding over $44 million in revenues, including $25 million with a Fortune 500 media conglomerate and $16.5 million with Amazon. We expect to close at least two more partnerships by year-end. Our pipeline is robust with over 70 B2B partnerships in various stages of development with companies worth $1 billion to $1 trillion. Now, for the challenge and the opportunity of a lifetime. Our partnership with Tesla changed dramatically from being a white-label partner in Tesla cars with a guaranteed $3 a month from Tesla as long as the car owner signed up and paid $9.99 for connectivity. We have now renewed our contract for the 12th straight year with Tesla, providing for the first time ever beachfront property with our logo, with our branding right in the front of every single Tesla car. With the help and support of Tesla and using AI marketing and multiple strategies the company has used over the years to convert car owners into true subscribers, both free and paid, we will have data and information on each of our subscribers for the first time ever. This is a multi-billion dollar opportunity. For anyone that's been an investor or part of my companies over the years, I will shoot for the moon. This is now that unique moonshot. You are going to struggle and take some hits in revenues for a period of time. But as you look at the future of this, all you have to believe is that you can get over $3 a month. You have this beachfront real estate, and now the rents have been going up for 12 years, but we weren't able to raise our rents at all. These numbers have exceeded any expectations of management, analysts, and most of all, Tesla themselves. Since December, we've signed over a staggering 800,000 plus new users, that's 40% of the entire pool of the 2 million Tesla cars in North America. This collaboration has been nothing short of transformative. We believe the partnership provides a proof-of-concept that can help us with the success of signing those B2B partners. Imagine partners with 10 million to 1 billion plus eyeballs. I've been talking about a flywheel for the last seven years. As you see us sign those massive B2B deals, this proof gives weight to that. Think about whether a Facebook, an Amazon or Walmart, a Microsoft, or Amex comes on board. If we can convert 40%, even if we can convert 1% or 2% of those users, we have a multi-billion dollar opportunity. As we move forward, we're pivoting our business model, leveraging our partnerships, and delivering our music platform to large user bases in B2B deals. In addition to our continued growth, I'm pleased to reiterate that LiveOne has committed $12 million through a stock buyback program. We currently have $6.2 million remaining on that buyback program, showing the confidence we have in the future of our company and providing proof that management believes in our company. Our cash position increased by $4 million to almost $11 million after paying off $3 million to East West Bank and acquiring 900,000 shares of our subsidiary, PodcastOne. I couldn't be more excited about where podcasting is going. The presidency was won with the help of podcasting. Fox just bought the Red Podcast Network for over 15 times revenues. Conan O'Brien's network sold for over 15 times revenues to Sirius. You're seeing deals that the Kelce Brothers sold for $150 million, SmartLess for $125 million. We have one of the biggest networks in podcasting. I'm excited to share that the PodcastOne subsidiary has achieved record revenues and traffic for the quarter. We've expanded our network to become the eighth largest in the industry, have secured a major partnership with Amazon, a three-year deal worth $16.5 million, and have just guided to $51 million in revenues for the year with positive EBITDA for the first time. This means the fourth quarter has to be substantial EBITDA, and we fully expect that number to continue going forward for the year. These achievements demonstrate our commitment to delivering high-quality content and innovative solutions to our audience and advertising partners. We're excited about the future of LiveOne and PodcastOne, and we look forward to continued growth. To further accelerate our growth, we are working with multiple bankers, including JPMorgan, to explore all M&A opportunities that can enhance our business and unlock additional value. This aligns with our strategic goals of expanding our market presence and strengthening our offerings. I want to thank our employees, our partners, and our shareholders for their continued trust and support, and I look forward to the following quarter. Thank you, everyone, and I'll open it up to Q&A.

Thank you. We will now begin the question-and-answer session. Your first question comes from the line of Brian Kinstlinger with Alliance Global Partners. Your line is open.

Thank you. On your website, Slacker Radio is currently priced at $3.33 per month, which totals $39.99 for the year. Should we consider this as the forecasted average revenue per user moving forward? This is the most common question I receive from investors, as they are eager to understand the projected ARPU.

Yeah. I think it's a great question, and I think that dynamic is challenging to answer exactly. But we did say recently that we'll be raising our prices. As this change with Tesla has happened, we've found a lot of people want to buy a year-long subscription, which is exceptional for us. What we've found is that pricing elasticity, there's an opportunity to raise prices substantially. As you’re aware and have seen with Spotify, they've raised their prices significantly. They just announced another price increase. So I think this is the opportunity now that the company is collecting real data and has an understanding of not just having a VIN number of a car but actually having Brian Kinstlinger and Rob Ellin, and the names and data and emails and credit cards and so on. This will be the time that we're really going to find out how far we can expand those. But if you look at the industry, we're in the top 10 in the industry. Yeah. We're the lowest by far in terms of pricing, and I think there's a huge opportunity to increase our prices over the next 12 months.

Okay. And if I were to buy a Tesla today, do I get free service to attract me for some period of time? Just curious how a new Tesla plays out now.

Yeah. It's a great question. You have the opportunity, right? And remember, this all just happened as of December 4. On December 4, we renewed our contract and changed it dramatically, right? That contract went from a guaranteed $3 a month, right? Now we have the opportunity to upsell that customer with the help of Tesla. You have the opportunity of getting a subscription, right, that is monthly or for a year, or you have the opportunity now, as of 30 days ago, to be able to turn that service back on. You look in your car, every single Tesla car on the left-hand side, you'll see our logo for the first time ever. You click on that button. And if you choose it, you could either select ad-supported or you can have a subscription with no ads.

I'm curious about the car purchase process. When I buy my car, I receive free Sirius radio for a month, and then it ends. Will it start playing right away, and will I have a certain amount of time to choose between the ad-supported option or purchasing a subscription?

Yeah. Great question. We launched the free ad-supported service just 30 days ago, and through our shock and excitement, we've signed over 450,000 free ad-supported subscribers. We had such success for 12 years with Tesla in usage and the time people spend, that we didn't want to take the risk that they switched and didn't sign up for a subscription because it's a little clunky and complicated. What I have to do is that you need to get a barcode, right? You have to sign up. You got to put your information in. You got to put a credit card in. This gives them an easy way to get those consumers back into the funnel, we give them... And when you turn on the music, you'll get your five favorite songs you've listened to, whether you've been a subscriber for a year or for 12 years, right? You'll get your five favorite songs and then our DJs will invite you to a special offer to sign up for a subscription. I can't answer you that we're learning every day and figuring out what that next offering is going to be. Some of it will be free forever, some will be discounted offers, and we'll come up with strategies and what works best. The fact that we've signed this many subscribers is very substantial. You've rarely seen a model where you can sign 40% of the total allocated pool of cars. We signed 800,000 out of 2 million. The more amazing part is they're using it for an average of 36 minutes, three times a day, right? It shows proof of how much people love our service and how loyal they are to our service. I think that's going to continue, and it will be a telltale sign that I can't imagine we're not going to deliver way more than $3 a month, whether it's ad-supported or its subscribers down the line.

Okay. Last question I've got related to PodcastOne. You've added a number of new shows and new talent. We've talked about this for quarters. Your costs are going up twice as fast as revenue over the last 12 months to 18 months. I would have expected that eventually, the gross margin would stabilize and start to increase as shows added six months to nine months ago start to drive revenue to offset that new content. Maybe talk about what's delaying the revenue streams? And given these dynamics, has anything at all changed on your onboarding strategy?

Not at all. Currently, when signing these deals, there is some upfront money involved. Advertisers typically pay within 90 to 120 days. Onboarding takes time, and some agreements have upfront payments, while clients may not transition to our network for four or five months due to existing contracts. It's a tough environment where we need to be aggressive to bring people into the funnel and secure their signatures. Once they are signed, we will begin to see the new revenue streams we've discussed impact our margins. If you examine Audioboom, a public company, their margins are currently even lower than ours. At this moment, it's a competitive situation; we need to attract talent and bring in as many individuals as possible who align with the dynamics of our network.

And just a follow-up on that. How do you think about that? How do you think of the time when it takes to start to see the trend reverse? I mean, you've seen your margins get cut significantly. When do we get back to 10%? Are we over a year out? Are we 18 months out? Just maybe talk about that.

I think it's happening right now. I've been talking about it for the last two quarters. Brian, you and I have watched in so many industries, right? You have the first wave; you watched $17 billion worth of acquisition in some of the wildest deals. Wondery was across the street and sold for $350 million, while they were doing the same revenues we're doing today. I'm sorry they were doing the same revenues we were doing when I bought the company. They sold for like 30 times revenues. You've watched Amazon, Apple, Sirius, Spotify, and iHeart buy everybody out there, and then there were those left with little networks that are out there, right? Now you're starting to see that second round of acquisitions. When you see Conan O'Brien sell for 15 times revenues, you’re starting to see where some of this is desperation. The reality is that podcasting has become huge, and it’s evident as major names start rolling back in. The pricing is going to come back in a much better form in the next six to nine months.

Great. Thanks so much, Rob.

Thanks, Brian.

Your next question comes from the line of Sean McGowan with Roth Capital Partners. Your line is open.

Good morning, Rob. Good morning, Aaron. How are you?

Good, Sean. How are you doing?

Good. A couple of questions back on the Tesla situation. So with the ad-supported subscribers, are you yet monetizing any of that advertising? Are you up and running with that?

We are just touching on this all. It just happened, right? We launched the paid service on December 4. To our surprise and delight, we've signed an amazing amount of subscribers. We said we needed to take a little bit of risk here, which will definitely affect some of the paid subscribers because if you can get it free day one, you may not sign for those. We knew we'd take a little bit of risk in it. I couldn't have imagined we would sign 450,000 and continue to add like 5,000 to 8,000 a day of ad-supported subscribers. We signed this partnership with DAX, the biggest programmatic advertising company in the world, and we are just at the beginning of it. Advertising takes 90 to 120 days minimum to really kick in. If you listen today in a Tesla car, you'll start to see ads appearing. There are still some technology issues that just need to be sorted for this, and I'm hoping Tesla will relaunch and notify all the car owners again that they have this opportunity for both paid and free. As they do this, we will be building more traffic and understanding of that audience and its usage, allowing us to lock in more advertisers. I fully expect in six to nine months, we won't just be at $3 a month on the ad-supported side - I can't imagine we won't be much higher than $3 a month on the paid side. Spotify recently stated that 60% of ad-supported subscribers convert to long-term subscribers within 24 months. While I’re not expecting that percentage, if we can get 20% to 30% of them to convert to long-term subscribers, we will be rebuilding a strong base of guaranteed revenues and advertising that will skyrocket for the second half of the year.

Okay. Believe it or not, what I was kind of getting at with the question is this might sound a little surprising: why isn't the gross margin actually lower? Because aren't you paying the record labels for the music that these listeners are listening to and not really getting revenue for it? How are those costs recorded, and why isn't that actually more out of whack?

To be clear, you're not even seeing that yet because we are only 30 days in. Yes, there is some element where every day you add another ad-supported user until you drive those revenues; you're absolutely going to have some cost, but it's not a giant cost. You're going to have some cost before that advertising can come in and pays for it. You're just not seeing that impacting the last quarter.

Okay. So you wouldn't expect to see that margin pressure in that interim period? Like, I was bracing myself for actually a worse gross margin performance in Slacker because you're paying out the record companies, but not getting the revenue yet for these new subscribers. So are you just not paying very much to the record labels at this time?

No, it's not that. Just to clarify: the ad-supported service only launched 30 days ago. So you only have 30 days of it, right?

Okay. In the quarter, yeah, all right.

Yeah. You're not really getting that in the last quarter.

Okay. Last question is how close are we to seeing revenue from sources other than Slacker and podcast? You talked a lot about that, and I know you made a lot of progress. So the press releases about coffee, but like how close are we to that being needle-moving?

I don't know about needle-moving, but it's exciting. Our publishing business grew another 100% or so. We just got a #1 song with SZA that will be a big payday for us. You don't have to get to giant revenues to have huge value. In publishing, as you know, these businesses can sell for 12 times to 25 times EBITDA numbers. So we see really exciting developments in our publishing business and with Splitmind and Drumify. Our product business, we just launched our coffee a couple of days ago. We sold out within the first day. I would say this is our year for transformative moves. Is it going to move revenues up $10 million or $20 million? No. But is it going to be on a trajectory? Do we have these capabilities over the next two to three years? Absolutely.

Okay. Thank you.

And on our television side, we've also sold our second show. We sold 'Varnum Town' to a major streaming platform, making that three that are sold now. If you really hit these television shows, from my experience, I had the movie '300' and 'Spiderwick Chronicles'. The royalty fees from those were tens of millions of dollars and just pure profit with no risk. We have no risk in these deals, and if these television shows hit, it will be an extraordinary bottom line increase for us.

I can't wait to see Varnum Town. I can't wait. It will be good. All right. Thank you.

Me too.

With no further questions at this time, I will turn the call back to Mr. Robert Ellin for closing remarks.

So thank you, everyone. Thank you for joining. Again, this is a transformative time for the company, a complicated time, but an exciting time. As I've said a few times on this call, I never in my wildest dreams—and Aaron never in his wildest dreams—nor anyone in our management team, our Slacker Radio team, could have imagined this. Nobody has ever seen a 40% conversion. This is a testament to how much our product resonates. We’ve survived COVID and came out bigger and stronger than ever. We will do the same. I can confidently tell you that if you're looking out 12 months, this is the first time the company has the opportunity to become a multibillion-dollar company. These B2B deals are happening, and we're landing them. We've announced five thus far. Every one of my companies has built itself on the back of B2B deals. I say this humbly; I've never had a stock that didn't go to $25 or better. Some have gone to $100 or better. We never know when they take off, but this is a different market. We have a lot of work to do, but I can confidently say this is the first time we can see a multibillion-dollar company within the next 24 to 36 months, if we stay focused, keep executing, and fight through the difficult times. Thank you for joining, and we’ll continue to fight here, and you’ll see us in the market buying back stock very shortly. Thank you.

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.