LiveOne, Inc. (NASDAQ:LVO) Q4 2023 Earnings Call Transcript

LiveOne, Inc. (NASDAQ:LVO) Q4 2023 Earnings Call Transcript June 27, 2023

LiveOne, Inc. misses on earnings expectations. Reported EPS is $-0.06 EPS, expectations were $-0.03.

Operator: Good morning, and welcome to the LiveOne, Inc. Fourth Quarter Fiscal 2023 Financial Results and Business Conference Call. My name is Carla, and I will be operating this call. [Operator Instructions] I will now hand over to your host, Aaron Sullivan, Interim CFO, to begin. Please go ahead.

Aaron Sullivan: Thank you. Good morning, and welcome to LiveOne’s business update and financial results conference call for the company’s fourth quarter ended March 31, 2023. Presenting on today’s call are Rob Ellin, CEO and Chairman; Kit Gray, President of PodcastOne; Bradley Konkol, Head of Slacker; John Semmelhack, President of CPS; Josh Hallbauer, Head of Music; 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’ll 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. The company encourages you to periodically visited 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, June 27, 2023.

And 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 CEO, Rob Ellin.

Rob Ellin: Thank you, Aaron, and good morning, everyone. I’d like to thank everyone for joining us today. After five years and a tremendous amount of hard work and many obstacles, including consolidation of eight acquisitions into our core business, proudly my team has delivered on a magnificent year and even a bigger start to this year. We are raising our guidance for fiscal 2024. LiveOne early projections increased to $122 million to $130 million in revenue, with $12 million to $16 million of adjusted EBITDA, and our Audio Division, which includes Slacker and PodcastOne, to $100 million to $110 million, and adjusted EBITDA between $18 million and $21 million, with over $12 million of operating cash flow. As a creative-first platform, we have built a flywheel that off the same piece of content, we can deliver so many different revenue streams.

LiveXLive, Slacker, PodcastOne, Pay-Per-View One, CPS, Splitmind, Drumify, Kast Media and Fantasy Guru, all substantial creative platforms with big communities. The combination provides the most robust offering in music and pop culture at the lowest cost and the highest margins. Proving the superiority quality of our tech team, our 45 patents combined with a unique original programming, Slacker Radio was handpicked by Elon Musk and the Tesla team as the white label music service branded Tesla radio. Every Tesla car sold in North America comes with a paid membership to LiveOne. These memberships are paid directly by Tesla at an average of seven years. We proudly just extended for our 10 straight year. The combination of Tesla, Verizon, T-Mobile, Sprint made an exciting B2B partnerships in an army of over 3,000 artists, podcasters, social media stars engaging across the LiveOne platform and utilizing their social media to alert fans to listen, watch and engage on LiveOne has driven our revenues and our membership at record pace.

I indicated to the Street last year that we’ll pass 10 million members within five years and over $1 billion in revenues. Exploding out of the gate this year, we have over 350,000 new paid members since January 1, adding over 60,000 per month. We passed 3.1 million total members and 2.2 million paid members. Expecting to pass 4 million total members this year and over 3 million paid in average ARPU of $3.00. To better understand and appreciate these metrics, Goldman Sachs just came out with the report the industry growth will hit 1.7 billion paying subscribers to music by 2027. LiveOne would only need 1% — less than 1% of that expected total addressable market to reach our goal. In 2018, we acquired Slacker Radio, which at the time had $20 million in revenues, losing over $10 million a year and 400,000 total members.

We’ve increased our membership eightfold in just five years. At this pace, 10 million members is extremely achievable goal. LiveOne reported today 2023 fiscal results revenues of $99 million and $10.9 million adjusted EBITDA. That is a $24.4 million improvement in adjusted EBITDA compared to 2022. Our Audio Division, comprised of award-winning streaming music platform, Slacker Radio, and PodcastOne, one of the largest remaining podcast networks, reported record revenues of $86.8 million and a record adjusted EBITDA of $18.2 million, an increase of 289% from $6.3 million last year. With the strongest balance sheet in the history of the company, we can now focus our capital and energy on both internal growth as well as external and utilize the balance sheet to buy back substantial amount of stock.

We believe our stock remains undervalued, and in such we have undertaken three separate initiatives to unlock substantial shareholder value. First, on an ongoing share buyback, we repurchased 2.9 million shares, leaving an additional $2.3 million remaining to acquire additional shares. The second exciting initiative is the spin-off of our PodcastOne business. We’ve just received approval on our registration statement, as declared effective by the SEC, and we increased our dividend to our shareholders from 12% to 19%. LiveOne parent company will own over 74% of PodcastOne. Independent valuations have come out between $230 million and $275 million, which would value that division over $2.60 alone. The spin out will allow PodcastOne to utilize its stock as currency for both acquisitions and capital formations.

We’ve already announced two planned all-stock acquisitions by PodcastOne: the first is a network called Kast Media; the second is Fantasy Guru. The combined acquisitions are expected to increase PodcastOne’s revenues by $12.5 million and over $2 million of adjusted EBITDA. PodcastOne was acquired very similar to Slacker three years ago with $20 million in revenues and is now estimating that this quarter alone will be over $10.5 million. We’ve increased our guidance to $40 million to $45 million this year before acquisitions. Our third initiative is our proposed merger of Slacker Radio with Nasdaq-listed SPAC, ticker [ROTC] (ph), at a minimum of $160 million valuation or another $2.00 a share. If you combine these two prices, it’s over $5.00 a share.

With that, I’d say, this is the most exciting time in the history of the company. We continue to grow and expect our biggest year ever. Now, I’d like to hand it over to my President Kit Gray over at PodcastOne. Thank you, everyone.

Kit Gray: Good morning, everyone. Thank you for the time. I appreciate it, and looking forward to updating you on an action-packed Q4 with PodcastOne. It was an exciting year for us and especially in that quarter with a lot of growth. We launched a bunch of new shows, we acquired some existing shows, and we’ve started some new seasons of some already hit programs in the quarter. Those included: A&E’s I Survived second season; our smash new hit, I’ve Had It, which is a top five downloaded show in our network; When Reality Hits is a Vanderpump Special, and the highlight of that so far is 375,000 downloads two weeks ago in one of their hit new episodes. We also launched a couple other shows called On Brand, and we are launching [indiscernible] in mid-July.

So those are all in production. As well as a second season of Bad Bad Things, which was a hit-scripted show with Barbara Schroeder crafting and telling that story. And we look forward to launching a scripted period called [indiscernible] later on this year, which we’re really excited about. So the network is growing in terms of content, downloads and expanding. We also — a critical part of our business is finding our core shows to extensions, and we had great success there, not losing any programs and signing multiyear extensions with the likes of The LadyGang Network, Adam Carolla, Dr. Drew, Court Junkie, Jordan Harbinger Show, Kaitlyn Bristowe and more. So it’s put us in a great position to have a great year this year, which is very exciting.

Recently, one of our shows just won a Webby Award and that is with Kail Lowry and her network of programs, but Barely Famous, Coffee Convos and others was recognized in the Webby Award recently in New York City. So the program in place has been really exciting and continues to grow. As we go into the new year, we’ve got some fun things and some acquisitions. And as Rob noted, we are working hard acquiring assets of Kast Media, which is an exciting operation with some great personalities and great shows that we’re looking forward to bringing on the network and expanding and growing together, as well as the Fantasy Guru network, which is a little bit different for our model, but we’re really excited about that as it’s bringing in 24,000 subscribers that pay monthly fees to get their fantasy information.

So, we’re really excited about that. And looking at everything else, this is an exciting time for us just in the industry because what we’re noticing is the podcasting world is very much coming to us. So, a lot of these bigger networks are scaling back some of their initial investments are ending, and it’s giving us great opportunities to continue to grow, and we’re really looking forward to that as we go into the next year. Thank you very much for your time today, and we’re excited about the future of PodcastOne. Thank you.

Rob Ellin: Brad, jump in here.

Bradley Konkol: Yes. Thanks, Rob, and good morning to everyone. It’s really an exciting time at Slacker Radio, it really is. To reiterate some of the metrics Rob shared, we’ve continued to have tremendous increases in our membership KPIs, particularly as it relates to paid memberships where we’ve had record growth with 612,000 new members over the last year, which is a 39% year-over-year increase. So like I said, it’s an extremely exciting time and not just because of the record growth, but also because of how we’re integrating with LiveOne, flywheel of products, how our roadmap is currently aligned, and what we’re strategically poised to do. For example, as part of — one part of LiveOne’s Audio Division, Slacker’s alignment with PodcastOne has never been stronger.

We just launched over 60 additional PodcastOne podcasts through the LiveOne Slacker Radio app on Tesla. And we also aired our first podcast pay-per-view livestream with Adam Carolla & Friends. On pay-per-view front for just a moment, those of you that love combat sports and ice hockey will also be streaming Ice Wars 3 in July. So all that said, most important to our future success at Slacker Radio is our laser focus on strategic business-to-business partnerships to drive both paid memberships and ad-supported revenue. As such, we recently announced a multiyear deal with OTT Studio, in which many of Slacker’s expertly curated stations will be playable in OTT Studio’s soon to launch music [Max] (ph) application on Roku, Fire TV and Vizio. We also recently announced a joint strategic partnership with Legible, an e-book, audio book, entertainment and media company.

And we’ll soon be bringing on a new Head of Business Development to leverage additional partnership opportunities across fitness, consumer electronics and telcos. So, in summary, just really fantastic record growth, amazing collaboration with PodcastOne and across all of LiveOne’s flywheel businesses and a very strong and exciting business-to-business partnership pipeline on the horizon. With that, back to you, Rob.

Rob Ellin: Yes, I’m going to hand it off to Josh Hallbauer. Josh is running our publishing and music business and is brilliantly executing, including two acquisitions just completed with a big play in AI. So Josh, please take over from here.

John Semmelhack: Thanks, Rob, and good morning, everyone. I wanted to talk about the fact that we just launched Version 2.0 of our Drumify platform, which we acquired about six months ago. It’s a very, very important tool for creators in a $9 billion publishing industry. Since the acquisition, we’ve implemented different AI technologies that have helped creators put together songs ranging from artists like Drake to Chloe Bailey to NBA YoungBoy, the list goes on. Most importantly to us internally being a creator-first platform is we are scouring everywhere we can to find these royalties that these creators are owed. They might seem like small when you look at them individually, but they add up to large sums of potential revenue.

We’re proud to say that we’re the premier platform being Drumify that is making sure that artists are retaining their rights when they’re using a platform like this, unlike any others. When we’re looking at the publishing industry as a whole, all we’ve seen over the last five years is significant growth. And even if we have a small percentage of that, this can be $100 million to $150 million company, we believe, in the next two years. Thanks, Rob.

Rob Ellin: Excellent. And with that, John, at CPS, our merch business, which is really being positioned this year with substantial cost savings and really focus on owning our own products. John, take over from here, please.

Josh Hallbauer: Thanks, Rob. Good morning, everyone. Custom personalization solutions, as you know, sell personalized gifts through the Internet and primarily through wholesalers. Overall, we’re expecting our revenues to be flat for fiscal year 2023-’24. Continued softness is expected for the mid-market retail environment. Sales are expected to expand for significant number of wholesalers that we do have through improved Christmas programs that we’ve already locked in. Some of these partners that we’ve locked in programs that are expanded include Walmart and Zales, Lillian Vernon, Signals and Colony Brands. So, we’re doing quite a bit to grow wherever we can. Offsetting that is — from a negative standpoint is that several wholesale clients in the past 12 months have gone bankrupt or were sold due to financial difficulties, so those programs will no longer be in existence.

So what we’re trying to do is to expand where we can to offset these sales loss and also to be adding new clients. And we’re doing some of that. JCPenney is expected to go live in Q2 and Chewy, which is PetSmart, is expecting to expand from a limited test program to a Q2 rollout. So there’s some substantial growth potential for both of those clients. On operational expense side that Rob alluded to, we’re expected to improve by over $900,000 in the current fiscal year. We’re reducing our fixed costs by over $600,000 primarily through two means: one is the office payroll consolidation; and then we’ve done quite a bit in going back and renegotiating contracts, especially our IT contracts wherever possible. So that’s what led us to the $600,000 savings.

Then on top of that, warehouse productivity is expected to improve by over $200,000 due to personalization capability improvements that we’ve made through improved programs, better equipment, better training programs and so on, and also an improved scheduling system for the employees. So in total, we’re looking at improvements primarily due to expense control and setting the table for when the environment — the mid-market environment that we’re in — that we’re currently improves that we want to be ready to go. Thank you, and back to Rob.

Rob Ellin: Great. So wrapping up, I want to thank everyone for attending today, and thanks for your patience. We will be continuing our buyback very shortly as we see a fantastic opportunity as our balance sheet has gotten stronger and stronger. The company is — really the flywheel is now hit almost on every avenue. Our sponsorships have grown in three years from seven sponsors to this year, it will be well over 600 before the acquisition of Kast Media, probably takes us over 700 sponsors. So our sponsorship, our advertising, our subscription were all growing simultaneously, and for the first time, we can really start to see the future of where we’re going. And as you break that $100 million mark, the team comes together in such a unique way and that you found the best of our team and really everybody is laser-focused and I couldn’t be more proud of this team.

They are laser-focused on bottom-line. We have over $200 million NOL. I expect next year, we’re going to be able to enjoy that NOL as we start focusing on next level of earnings. So I want to thank everyone for attending and thank you for spending the time with us today, and open it up for any questions. I’m sorry, Aaron, you got to go. Aaron’s next.

Aaron Sullivan: Thanks, Rob. I’ll spend just a few minutes providing a very brief overview of our results for the full year fiscal ’23 and the fourth quarter ended March 31, ’23. Consolidated revenue for the three and 12 months period ended March 31, ’23 was $25.5 million and $99.6 million, respectively. Our Audio Division posted revenue for the three and 12 months of $22.9 million and $86.8 million, respectively. For the fourth quarter ended March 31, ’23, revenue consists of 55% membership and 45% advertising, sponsorship, merchandising and ticketing events, compared to 50% membership and 50% advertising, sponsorship and ticketing events in the prior year period. Consolidated adjusted EBITDA for the three and 12 months was $1.5 million and a record $10.9 million, respectively.

On a U.S. GAAP basis, LiveOne posted a consolidated net loss of $4.8 million or $0.06 per diluted share in Q4 fiscal ’23, and a net loss of $10 million or $0.12 a share for the 12 months ended March 31, ’23. Our Audio Division’s adjusted EBITDA for the three and 12 months was $4.5 million and a record $18.2 million, respectively. And as of June 26, we had approximately 2.2 million paid members, a net increase of [292,000] (ph) or 15% compared to December 31, ’22. Total members include free members were approximately 3.1 million as of June 26, ’23. Note that included in the total members are certain members who are not currently subject — sorry, included in the total members are certain members who are currently subject to a contractual dispute for which we are not currently recognizing revenue.

Briefly turning to the balance sheet. We ended Q4 with cash of $8.7 million, including restricted cash of $300,000. Rob, I’ll turn it back to you.

Rob Ellin: Yes. Thank you, everyone. I’ll open it up for questions now, and we look forward to any thoughts you have.

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Q&A Session

Operator: [Operator Instructions] Our first question is from Brian Kinstlinger from Alliance Global Partners. Your line is now open. Please go ahead.

Brian Kinstlinger: Great. Thanks so much. I got a handful of questions. First, for your fiscal ’24 revenue guidance, does that include Kast and Fantasy Guru? And if so, what are the assumptions on the timing of the closing? And then, can you close these acquisitions before the spin-off? Or does this spin-off have to happen for them to close?

Rob Ellin: Yes. So, off the bat, that does not include the acquisitions. We expect to close these very quickly, and it does not affect the spin-off when the spin-off happens or not.

Brian Kinstlinger: Great. And then how do you determine the actual shares on Fantasy Guru? There was a range. And then, how should we think about any shares issued for Kast? Can you help with a range of valuation for Kast?

Rob Ellin: Yes. I mean, again, without giving — going too far because we haven’t publicly disclosed it, right, the valuations of the company were valued at $200 million plus, right? We’re acquiring these companies extremely accretive, very similar to the fashion that we’ve acquired Slacker Radio and PodcastOne. And there’ll be a lot more details to come shortly, Brian, but they’re going to be very much in line with the type of deals that we did in that sort of 1 times revenue range for those companies. So these are going to be extremely accretive to both revenues and EBITDA.

Brian Kinstlinger: But they’re both for PodcastOne shares and not LiveOne shares. Is that right?

Rob Ellin: Correct.

Brian Kinstlinger: Great. And then, the $10.5 million of PodcastOne revenue that you’ve discussed or targeted for the first quarter, can you quantify how much was aided by the Adam Carolla pay-per-view event on June 4? And then, separately, just generally maybe talk about the trends you’re seeing in podcasting in terms of download growth versus potentially the pressure, if at all, on CPMs.

Rob Ellin: Kit, you want to take that?

Kit Gray: Yes, sure. The Adam Carolla event was successful. Not a huge percentage of our total revenue of that $10.9 million to be like a significant number, but it was a successful, profitable endeavor that his fans really enjoyed and loved. We had separate levels of engagement whether you could just watch online and then there were meet and greets and merch, which really just expands Adam’s connection to his fan base. So a lot of positives out of that experience. The podcast and the industry continues to explode. Numbers of — really what we’re seeing are the people that listen to podcasts are now — I believe, Edison Research came out with their — they’re up to 10 hours a week, which is a tremendous amount of time. I think that has a lot to do with people going back to the offices and commuting a lot for work and meetings, and they’re just consuming more and more podcasts.

So we have no fear on the growth in podcast and downloads. CPMs absolutely are taking a bit of a hit. If not, we’re seeing companies pull back a little bit and need some help to get more conversions, more sales. So, we’re working with those agencies and the clients direct to get them through some of these harder times to come back to where we used to be. It’s still significant. On average, we’re seeing $25, $35 CPMs for the most part. Some of our higher rated shows are still seeing tremendous CPM. So we’re really happy with where the advertising and the growth of the podcast consumption is right now.