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. [Operator Instructions] 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'd like to thank everyone for joining us today for our fiscal year 2023 third quarter business update and financial results. The consolidation -- we are proud to say the consolidation, 18 months of work of 6 acquisitions and each of our subsidiaries, is complete. We have cut over 30% of our staff, and the stars of our organization have risen to the top. We've been humbled by COVID, COVID variances; epic market crashes, especially in media and technology, but we have survived and we have thrived. It's time to showcase our team's expertise at building billion-dollar companies. I can proudly tell you that all of our debt is now gone, converted into preferred equity at $2.10 this week, and we now have over $27.5 million in short-term assets. The company has repurchased 2 million shares of stock, and starting early next week, will start to buy back $2 million worth of additional shares. We've gone from a story stock to a growth stock to now a value stock, trading at 60% of revenues and 5x adjusted EBITDA while our peers trade at 3.3x revenues. As we've consolidated our Audio Division, delivered record revenues of $64 million and a record adjusted EBITDA of $15 million. When we acquired Slacker Radio and acquired PodcastOne, they were both losing substantial amounts of money. I can proudly tell you now, those combined businesses will do well over $85 million and over $18 million of adjusted EBITDA, an increase of 105% compared to adjusted EBITDA of last year. We're growing in every area. Our membership has exploded, adding over 620,000 paid members since December 31, '21, and a 45% increase, taking our total membership to 1.96 million and a total -- our total members, including free, of…

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.

[Operator Instructions] First question comes from Brian Kinstlinger from Alliance Global.

And it's great to see the job you've done in rightsizing the business. Can you quantify podcast download trends in December -- in the December quarter versus last December? And then I assume there, there is significant growth which is being offset by challenges in the advertising market. So maybe if you could quantify what you're seeing there as well.

Yes. I mean I think it's going to be a very difficult year of advertising market. Part of the beauty of podcasting is that you have a huge direct response, and you actually have material numbers backing, right, because in the digital side of it in podcasting, you know exactly what the numbers are. So I think we're going to have to fight that trend. But at the same time, we're adding so many podcasts to our network. And we see just telltale really exciting signs that are happening in the industry, not just the TAM but also directionally, right? The competitors who are also partners of ours like Spotify and Apple and so on have really -- they've spent a lot of money acquiring a tremendous amount of companies at massive valuations. As you probably saw, our Sirius radio just brought out podcast business at 15x revenues. We just raised our money in PodcastOne literally at less than 2x revenues at a $68 million valuation. We're about to go public with it. We see the trends look great. We were ranked #4 on Podtrac as Best Sales Team. I think we have the best sales team in the entire industry. They come out of iHeart and Sirius and they've had that expertise. And I just see just terrific trends for our business specifically, but we will have to fight overall sponsor and advertising trends.

And can you possibly -- if you're able to share the December quarter download trends in 2022 versus 2023 -- sorry, 2022 versus 2021 in the December quarter?

I think you'll see that shortly as part of our first announcements that come out in the IPO. But I don't think -- and Aaron, correct me if I'm wrong, I don't think that we've 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 substantially up. It's kind of a self-fulfilling prophecy, Brian. As you know, revenues are driven based on traffic and audience, right? So our revenues have gone up substantially at the same time so as our traffic gone up substantially. And some of that is -- and fair to some of that is we added when we did our deal with Kevin Connolly and his company, we added an extra 14 podcasts. Every time we add podcast, you're adding additional 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 the 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, right, 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 year's 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, so we have about $85 million...

[indiscernible] quarter, of course, but it's changed, right?

Yes. We have about $85 million shares outstanding, right, in that range, right? And then you'll have -- the debt is now convertible -- is now preferred equity at $2.10. So of that $21 million converted, right, you're going to have about $96 million shares outstanding. So I say fully diluted, if that all was done, right? Obviously, the stock has to be extremely higher than this. You'd have 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 sound exchange, 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, so -- yes. So on recurring, there was just over about $700,000 of nonrecurring item 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, so there'll be a -- as I just noted, there was a onetime benefit in there of about $700,000. So you can expect to see that when you're trying to come back in, right? in terms of growth, in the expenses, I wouldn't expect substantial growth. Now you're going to see a little bit of kind of variability in terms of when expenses hit, and that's mainly around the corporate side where we have audit fees will kind of hit in certain quarters. But I wouldn't expect it to be substantially higher than where we're at. We've -- we're going to see the benefits of full year of cost saves going forward, right? We've continued to reduce expenses kind of throughout the year. So I would expect a pretty consistent run rate to what we have right now, adding the $700,000 back in.

Okay. And then -- so you -- in the press release, you said that Slacker was growing about 40% on an annual basis. Do you have a number for that for 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 -- we just got back 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. So no, it's a little bit different than that. So the Android Automotive is the opportunity for us to white -- give a white-label solution. Now what are the advantages of Slacker Radio? Number one is our AI and our technology, right? And people just love the virtual behavior and the understanding of our AI and those 44 patents we have to be able to deliver your next song -- your next music, your next song, right? Number two is our pricing, right? We're less than 30% right of our competitors. And now they're all raising prices, right? Sirius just announced they're raising the price by $1. Spotify announced they're raising the price. So we're going to be even lower than that one, right? And number three is we're the only ones that I know of that are willing to white-label and give you Tesla radio, give you Cadillac radio, give you BMW radio. So there's a huge opportunity, and this is not just for the audio industry. It's for anything from watches, to gym equipment, to Walmart to Costco. As you know, I've built all my businesses off the back of massive partnerships with B2B partners. This is our opportunity now to really expand that business. And while we made all these cuts and cut 30% of our staff, we are adding in B2B because we're seeing unique opportunities to really grow the business with partners who have 10 million to 2.5 billion eyeballs. And for Android, it's just a great opportunity for them to sell -- to upsell to other car companies for them to be able to do what Elon did, which is just smarter than everybody else, to brand their radio, Cadillac Radio, a BMW radio is just brilliant. It's just a great marketing strategy. It makes it look cooler and smarter.

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

Say that one more time?

Yes, Rob, I'm sorry. Just I'm curious about where you are in obtaining the licenses you need to offer service internationally.

Yes. So great question. This is the year to pull that off. And I know we've talked about it before, but with market conditions in COVID really not raising capital throughout this process. It just took us time to clean up the balance sheet, clean up the payables, right, settle with the publishers and the record labels and really strengthen that position. I think this is our year to do that. I think it's a massive opportunity to expand overseas. And if you remember when I used to talk about digital turbine, every time I always repeat it. When the cycles change, right, you're going to see the carriers and others fight back, and they're going to start the battle to have a deeper and stronger relationship with their customers, right? And that means they got to have to own content. I see telltale signs that's going to grow dramatically. And we are in very active negotiations, discussions to expand our licenses in either a partnership and maybe with some who already has them or ourselves overseas. And obviously, Tesla would be number one, right? They're paying over $8 per sub to Spotify right now. It would be a huge cost savings for them. But I think there are -- every carrier car company, there's huge opportunities for expand, first and foremost, in Europe before anywhere else. But we are in discussion in India, Japan and many other countries. And as you know, almost every one of my company is -- have had partnerships with global carriers. And this time, because it's already owned video, it's way more than just carriers, right? It can be cable. It can be satellite. It can be Kindle. It could be any of the streaming platforms, I believe they all have to have audio on their platforms. And I think we offer them something so unique with the content we have.

You mentioned, I think, what, 400 sponsors? It was -- you just offered a lot of data really quickly, and I can't hear that fast, so I apologize, but could you just review where you are with sponsors on which programs and which platforms rather and where you think that goes? I mean, with the sponsorship that you have with Slacker, the sponsors that you have with PodcastOne versus 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? Those -- 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 has 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 -- all right. And just taking a step back, you offered in your prepared remarks, what -- I think it was, what, 400 total sponsors currently now across all of your platforms?

By year-end. So I'm -- 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. And then where were you -- I know you offered a data point for year-end March '22. What was that number?

Year-end March '22 for a number of sponsors?

Yes, I think you had a number of that, yes.

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 like 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 mean, I think you're going to see something happen pretty imminently. The success of PodcastOne and the fact that now the PodcastOne S1 is filed, right, and shortly be up and trading. We're aggressively and actively in negotiations for who will be the right partners to come in there. And obviously, Slacker, we've said, throws off over $10 million of cash. We just increased the EBITDA of the overall Audio business, right? I think we said $18 million today, right? So obviously, that $10 million of cash flow is going up substantially. So you'll see a much -- I would expect a much, much higher valuation like our peers are trading at 3.3x revenues, right. Our Audio Division does $80 million right, over $80 million, right? You're going to see financially higher than the $68 million that we did in PodcastOne, right? Otherwise, we'll pass, right? It's not -- if it's not a multiple of that. We would pass on it, but we're seeing a lot of aggressive active interest in it. And on the pay-per-view side, it's really interesting because we haven't really pressed the envelope on this year as we've spent most of the time, right, consolidating, right, taking EBITDA up dramatically, that pay-per-view business has $1 billion of upside. And we're seeing a lot of really smart, really serious interest around that division and that upside. And you probably know, I started independent entertainment 30 years ago and took that to like went over $1 billion but traded at almost $0.5 billion for an extended period of time. That's 30 years ago. I'm really, really excited about where we're going with pay-per-view. And we're doing an event. I think Aaron Windsor, Emblem3. We just shot at the other night. Wednesday pay-per-view....

That was Tuesday, not Wednesday.

Right. So we're doing pay per views. But this time, A lot of those are coming from. They'll come from the record labels, they come from publishers, they'll come for managers who are bringing it in. They're bringing it in with the sponsor with it. So it's really exciting and really energetic around it. And as you know, we've streamed over 3,000 artists, right? We've had about 5 billion engagements. The plan was always pre-COVID to launch pay-per-view for music festivals, big artists, right? We've done a lot of K-pop, as you probably read about the whole works. Now is the time to really step on the gas on that. We're going to be very cautious and very careful about, right, and really focus those on ones they're backed by a sponsor or they're backed and paid for directly from us. So we did pre pay and they paid us $75,000 upfront with 30% margins on it to stream it and then with the upside of the pay-per-view as well.

Okay. And then finally, can you just clarify how much of PodcastOne will be spun off to shareholders -- 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 $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 [indiscernible].

[indiscernible] Shareholders. What's that?

LiveOne will own 93% then?

Yes, it's a little -- it's going to be less than that because remember, we sold $8 million at a $68 million valuation. So LiveOne's going to own about 80%. Yes, a little bit higher than 80% of it. And if you take 80% of $150 million, it's a big number. And guys, just to add to it, I just got to know from Sue McNamara, my Head of Sales telling me, our advertiser actually way higher than that this year including programmatic, we would add hundreds of additional advertisers is right on top of the 400 that -- of direct sales that we 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, right? This has been a humbling a 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.