LiveOne, Inc. (LVO) Earnings Call Transcript & Summary

Okay. Good morning, everyone. I'm Craig Rosoff. I lead the consumer entertainment practice here at JPMorgan. Next up, we're excited to be joined by Rob Ellin, Chairman and CEO of LiveXLive. Just before we get started, I'd like to remind everyone that's joining us virtually, you can submit questions online by clicking on the blue ask a question button, which should be underneath the video player on the screen.

Hello?

Rob, thanks for joining us today.

Hi, guys.

Hey, Rob. How are you?

I'm good, except I lost you guys. I went silent for a minute.

All good. All good. I just introduced you, and thanks for joining us at the conference here today.

Thanks, Craig, and pleasure. Apologize, I don't know what happened. It got cut off for a minute.

No, all good. So Rob, maybe just to jump in, it'd be really helpful, I think, for some of the folks in the audience that are a little bit less familiar with the business. If you could just give us a brief overview of what is LiveXLive? And what are you building?

Sure. So we took the playbook from ESPN to apply it to music to create the next-generation MTV and fill that white paper that's been missing for 25 years to be the authentic in voice and music of audio and video. And what we've done is we've now with multiple acquisitions as well as internal growth, we built the first subscription platform that is fully immersive to social experience that you can attend, you can listen, you can watch, you can engage, transact. What do I mean by that? It means you can message, chat, buy an NFT, buy a hat, buy a T-shirt simultaneously with your experience of watching. And really excitingly for under $5 a month now, you have over 30 million songs that you can curate from your cardio at home. You have over 120 live music events. You have over 300 podcasts, and we've had billions and billions of people listen and watch this.

That's really amazing. Over -- it's -- as you operate in the middle of a live event space over the last 15 months, obviously, a lot of live events businesses have been hit particularly hard by COVID. But over that same time, you've got over 1,800 artists on your platform. I was wondering if you could give us a bit of insight into how the pandemic generally impacted your business, both positive and negative. And when you think we get back to some sense of normal?

Yes. So we have a live business, where we do 40 to 50 shows a month, including a couple of tent-pole events like Spring Awakening, we just finally announced after -- it's going to be almost 18 months late. So it was -- it had a dramatic effect, day 1. And what you got to do like all CEOs, you got to pivot and you got to bring your team together to do something special. So what we did is, we took the digital experience that the company is built on, and we streamed 1,800 artists from every genre music from The Rolling Stones to BTS, the Taylor Swift, the Justin Bieber to Wiz Khalifa, right? So all genres of music. And it was pretty amazing. We had over 5 billion engagements. What do I mean by that? Not only did kids watch a LiveXLive video, but they reposted across their own platform. The second thing is, we had to diversify our business, right? And we had to get stronger. And that was always the plan, and we do that both internally and externally, right? So we diversified the business from being 90% subscription to 45% subscription and 55% sponsorship, pay-per-view and merchandise, right? And with that, we acquired PodcastOne, brought in a new partner, Norman Pattiz, one of the icons and the legends in radio and help build the podcasting business. And then we acquired CPS, which is a specialty merch business, giving us that next leg of the flywheel that while you're listening to a podcast or while you're watching, you have the ability now to buy merchandise that we own in conjunction with those -- with that talent.

Sounds great. And you announced this morning on the back of some of those positive outcomes from COVID and how you've adapted. But I think you raised guidance for the second time so far this year, with surpassing 1.1 million subscribers on the platform now. I think your revenue guidance is now $107 million to $115 million for fiscal '22 and $5 million to $10 million of adjusted operating income. Any perspective, I guess, into what's causing or driving that strong performance as we get into the end of the year for '21 and beginning of '22 for you?

This is one of those things that's the first time ever, if you guys know my career and my background, always when you break that $100 million market, somehow, a lot of chips fall to the bottom line and your bottom line starts to really grow. But we're really hitting it on all gears, right? Podcast. We have 5 TAMs within 1 company. This is the first time in my career, including at Digital Turbine, which is trading at $8.5 billion now. Starting with Podcast, we've announced 36 new podcasts in less than a year since we acquired it. We've now passed over $9 million in pay-per-view that we just started this year, right? And same thing on live streaming. We have more live streaming and more talent. So the more talent we have on our platform, the more they hit their social media, right, the more revenues we drive. And so all of our TAMs are kicking in right now and then we got to launch our first 2 live events. We announced Social Gloves, first ever platform war between YouTube and TikTok. The combined talent has over 250 million followers. And for any of you that follow Jake Paul or Logan Paul. Jake Paul just signed with Showtime, $10 million. Social media stars are making an impact everywhere. We have 7 boxers from YouTube. 7 from TikTok Battling in the middle of the Hard Rock Stadium with an amazing music lineup of Migos breaking their album, DJ Khaled and G Polo, Trippie Redd. So an amazing line-up of music and social media and really all the pop culture coming together. So we're starting to see that opening trade. We're starting to see how -- if we have live events, those consumers can attend the live events, buy a ticket, they can buy merchandise at the event. They can buy a digital ticket, a pay per view. They can buy digital merchandise, and we just saw some... [Technical Difficulty]

I think Rob might have cut out a bit there, so let's just give him a second to come back on.

Guys, I'm sorry about that.

It's all good. It wouldn't be a virtual conference without some virtual hiccups. So all good.

Okay. Okay. So hopefully that's working now, guys. I apologize. So all of our revenue streams are kicking in the high gear, and we're really excited about the live events and stay tuned, we're going to -- when you think about our TAM, we just announced Spring Awakening, our biggest franchise within -- in our company, right? It typically does $6 million to $10 million in revenues, all of our live events are coming back, and we're going to start to announce those. Hopefully, imminently, we'll continue to announce them. And hopefully, there's going to be 1 every 2 months or every month as each city and state reopens back up. That's a lot of revenues to come back into the system. So we're really excited to see both live come back as well as the ancillary revenues that can come from those live events.

That's great. And so it's interesting, as you talk through this, I want to dive in on a couple of the events you mentioned, just starting with Spring Awakening for a second. I think it's surprising to most folks, when you think about a live streaming platform. And then obviously, a lot of the events you're talking about are in-person live music festivals. How important are music festivals and in-person live events to your platform?

Extremely important. So -- and those live events, historically, I built this business right, in partnership with iHeart, Live Nation and AEG, right, in streaming, the biggest music festivals in the world. So going back to that ESPN model, think about the Super Bowl and music. 1 million people attend Rock in Rio. Imagine they average $150, right, ticket sale. Could you sell 1 million tickets? We had 80 million people watch Rock in Rio last year. Could you imagine that a tiny percentage of them paid 10% -- or $15 per ticket, how many more revenues come through and how that funnels through to the talent. So what we wanted to do is create a brand-new revenue stream, just like ESPN did for sports for artists, which flows through the managers, the agents, the publishers, the record label. So we're really excited to see live back and all the ancillary revenues that come with it.

That's great. And so the other event that you talked about, and you tossed out a lot of names that I'm sure people are less familiar with, as you talk about some of the social media stars that are out there. But Social Gloves, obviously, a big event coming up here in just the next few weeks. How should we think about that in terms of how repeatable and scalable those types of events are going forward?

Yes. I think all you have to look at is Jake Paul, who's a big social media star. I put him on stage, the first time ever, about 4 years ago. Jake Paul fought now 3 fights. He drove over $50 million of revenues, and he's got like 50 million followers. These kids have 270 million followers. If just a very small percentage of them convert to a ticket sale, to a merch purchase, to an NFT purchase or to a pay-per-view purchase, right, it jumps right into our flywheel and then every credit card that comes in pumps the top of the funnel can be a subscriber for us. So I think this is very scalable. When I see Showtime sign Jake Paul to fight. And then you see his brother Logan Paul fighting a Mayweather, who is the goat in boxing, not only is he undefeated, but on top of it, he's driven more pay-per-view revenues in any history, and he's fighting a social media star, it tells you where the world is going. Kids want this. It's great for boxing. It's great for social media, and it's a combination of all the pop culture coming together.

Got it. And I think if we sat here 3, 4 months ago, it would have been hard to envision having a meaningful outdoor event or event period. Curious what you're expecting in terms of -- to the extent you're able to say sort of what you're expecting in terms of financial impact for the business? Or just more generally, how do you think about creating a framework to build upon the events like Social Gloves going forward?

Yes. Just keep thinking about TAM, right? The more people buy tickets, right, the more subscribers you get because every time the beauty of our model is -- and I think we're the only one in the world that's really set up for this. You buy a ticket to an event, you immediately become a free subscriber. It's a lot easier for credit card to convert someone into a paid subscription. I think we're about to enter the roaring twenties. I really think that live events and the ticket sales are skyrocketing. If you listen to Live Nation, right, they talk about it. Like 2.5x the revenues where they were in 2019 when they launched a festival event. And I think that's going to be -- I think you're going to see that for a couple of years. You're going to see that phenomenon that people are having a real thirst to get out to attend those live events. But they've also woken up to how big digital is and what people didn't realize the music is, like in sports 30 years ago, there was always the concern in sports that if you put it on television, people wouldn't go to the events. And what happened, hundreds of billions of dollars have been made, more teams, more players, right, more leagues. And the same thing is going to happen in music. And I think you see telltale signs. You're going to see massive growth there across the board in music.

That's really interesting, and you sort of went to where I was headed next, which as you think about live streaming, you could argue that it's benefited to a certain extent from a lack of live, in-person events, at least from awareness over the last year or so. As the live in-person events come back, does live streaming and in-person live, do they find a balance? Do they need to find a balance? Can they coexist? How do you think about that?

Again, and I hate to repeat myself, just like ESPN, sports has become synonymous, right, with it. And I think the same thing is going to happen in music, right? Everyone's first choice would be to attend the live event. That doesn't mean they can afford to, right? COVID was the only reason that people couldn't attend. A lot of these events are sold out. A lot of them, you have to travel around the globe, you need to spend the money on hotels and cars and food and so on. It's a very expensive experience. So the opportunity to see it digitally is great. And just think about Billboard and the AMAs. And today, even if you think about MTV, they're still -- the biggest moneymaker in the whole company is the VMAs, it makes over $75 million a year. The first to watch these live events, I prefer to see Bruce Springsteen singing from Brazil than see him in New Jersey, right? I think that this is an opportunity for super fans to really experience their favorite talent around the globe.

Just shifting gears a little bit. So it seems like as live streaming has become more well known, you exist at what seems to be the center of an increasingly competitive ecosystem. And a lot of the other folks around are well-capitalized players. What do you think really differentiates LiveXLive from some of the other players in the market today?

I think to start with partners, with almost all of them, right? We have this amazing partnership with iHeart that we just extended for 3 more years, right, that all of their live events are across LiveXLive. There's nobody smarter than Bob Pittman and John Sykes who built MTV, right? And they realize if you don't maintain your independence, we maintained ourselves in independent network. So with Switzerland. So we'd like to see everybody put their content across -- because I think it's so important to the consumer, right, and especially super fans have that effective voice that have host and anchors. But the biggest thing that separates us is curation, right? We have the best producers, directors, right, who have directed these, who direct the VMAs and produced some of the biggest music events for 25 years. We really take that curation very seriously. We have had over 1,700 hosts on our platform. So that's the critical component is we're always going to be around the original programming, right? Does that makes sense?

Yes. Yes, for sure. And a lot of those, let's call them, legacy live events businesses have done fairly well, making a business for themselves putting on the same act 5, 10, 15x in a row, filling a stadium. Does that strategy work for live streaming? And what about as pay-per-view becomes a bigger and bigger piece of the business?

I don't think so. Candidly, I think you need unique experiences. If you've had an opportunity for anyone who's been on the LiveXLive network, right, COVID yet really show improved, right, you could do something unique, right? So we had Kygo perform from Lake Geneva. Did I lose you guys?

No, you're here. I think your video closed up, but we can hear you still.

Craig, are we frozen?

Now, you're back.

Okay. Okay. I don't know why it keeps happening. So we had Kygo from a lake in Geneva, right? We literally had fireworks on July 4. And then we took you to Jimmy Buffett in Malibu, right, who performed the song with Kygo. And then we took you out Al Walker and then we took you to OneRepublic inside of a club. I think the curation, right, what superfans are looking for is an experience to have a closer relationship to that talent. They want to hear them play music, but they also want to take you through all the pop cultures. So we want to take artists to Brazil. We want to take them to the best in art, fashion, music, culinary and take their fans with them. So they're experiencing almost like an Anthony [indiscernible] experience with that talent. And you got to do curations, right, unique curations of artists that have never performed together. Even though they put music together, they usually don't perform in the states together. So I think it's going to be very important not to repeat yourself, right? Just stab original programming fully curated at all times.

Got it. And you mentioned earlier some of the recent acquisitions you made, including PodcastOne and CPS. You also just recently announced a planned acquisition of Modern Drummer. I think all in all, you're somewhere near 5 acquisitions that you've announced or finished over the last 3 to 4 years. Curious if you can give us an update in terms of how the integration of all those different businesses is going.

I mean literally to perfection, right? Mike Q, who joined me as CFO, has been a huge addition to the team. We've integrated all of it into one subscription, right? So you now can subscribe and you get 30 million songs, 300 podcasts, 120 live events, 1,800 artists, right, and the ability to transact while that's happening. So it's really been very fluid. The only one we haven't yet been able to test until now is React, which is our acquisition we did from the old SFX bankruptcy, which they paid $170 million for that. We bought it for $2 million. That's $16 million to $20 million of revenues without any growth that comes back in this year. And we've always thought that we'd only announce one of our live music events. I hope to start in the next few weeks that the rest of the country is going to open up. Miami and Texas have opened. It looks like New York is starting to open. Governors Ball is going to happen. Lollapalooza is going to happen in Chicago. And I think this is going to be an exciting time for us to announce many live events, and we're going to have to look at those numbers again as we typically do 40 to 50 live events per month. And there's no reason you can't see us grow it with the talent team we put together now.

Got it. And in addition to those acquisitions, you've also announced a number of new initiatives and divisions around original content, music publishing, NFTs. How do you see all of those pieces fitting together?

It's just you're charging under $5 a month to provide those superfans with all of this content, right? So what are we doing is we're just feeding you more content. The beauty of our model is the more original programming, right, the more profitable it is because -- and this is Craig -- this is why you and I came together on this is, I think, is because our cost per content is [indiscernible] gobbled up by Amazon, right? You just watch the rebundling of media happening every day, right, with the AT&T deal with Discovery. Well, our cost per content is under $20,000 an hour. And here's the most amazing part of our business model. We spend no money marketing. We spent $2.5 million in total marketing. And the reason is we're a talent-first platform. The talent hits this social media. It tells their fans to come to LiveXLive, and listen, watch and engage and attend our events. So we're really excited about it. The more original program we can, the better our margins become, as you can see on a quarterly-quarterly basis.

Got it. And there's obviously been a lot of noise around NFTs and stories around NFTs recently. Do you think NFTs are a meaningful business opportunity longer term or just sort of the word of the day for most folks?

No, it's just -- it's real. Blockchain is very real. The blockchain is not going to go away, right? It's going to keep going. It's an amazing technology. And NFTs are just like collective items, they're baseball cards, they're art, right? So I think that NFTs is going to have a real role, we box that in and bundle it with our merchandise, and we count them together. But really excitingly, we just partnered with Cybertino on a 2-year deal. They paid us over $3 million on day 1, right? And I think that number can grow dramatically in that if you truly have unique items that are collectors' items, the tricky part in NFT is going to be, who's going to be the trusted source, right? And I think LiveXLive has become a trusted source specifically in music, social media and podcasting, has really become a trusted source in that, we deliver AAA unique content.

Got it. And just as I continue on here, just a short pause to remind folks, if you want to ask a question, please do feel free to submit via the ask a question button under your video player. So with the pace of acquisitions we've seen recently, should we expect that you're going to continue to be acquisitive? And if so, how do you think about the criteria or capabilities that you're still looking to add to the ecosystem?

I mean I think my history and my team's history is to both buy and build. If we can continue to find acquisitions that are accretive, we just bought CPS for $9 million. We added over $20 million in revenues, $1 million-plus in EBITDA, right, before the cost savings and $5.5 million of working capital. So we basically paid $3.5 million of the assets. Same thing with Slacker. We bought it -- losing $23 million a year, right? We've now taken it to extremely profitable. I think each one of these, if they can be accretive and they fit within the flywheel, you're going to certainly see a sixth acquisition very shortly.

Got it. So historically, and you mentioned Tesla earlier. But historically, Tesla has been a pretty meaningful percentage of your overall subscriber and revenue base. And you've clearly done a great job diversifying your revenue base over the last year. Curious if you can give us some perspective on how your relationship is with Tesla today and how important they are to the future state of your platform?

Yes. So the good news is the relationship is amazing. So with Tesla, they become a way less percentage of our business, even though they're growing substantially. So they were 55% plus of our revenues and now going to be in like the 20% to 25%, right, between acquisitions and internal growth. But the great part with Tesla is, and we had an amazing call yesterday. Their tech team really wants to start highlighting in this. There's a new sheriff in town who really is in love with what Slacker is doing. And I think there's an opportunity to expand it globally. I think it's an opportunity to put video on the cars. If you're a believer in self-driving cars, they just put a Netflix and a Disney channel. I think there's more opportunities there. And I think that the opportunity that Elon has personally blessed connectivity and the budget for connectivity through the year. That's the first time we've seen that in the 3 years that I've owned the company. So really exciting, really, really dynamic opportunity to expand that partnership and grow.

That's great. And you mentioned international expansion as it relates to Tesla, and you previously talked about international being a more meaningful part of the business. Can you give us a sense of timing around how we should think about when international starts to represent a more meaningful part of the business overall, whether with or without Tesla?

Yes. So start with international. It's already growing because our pay-per-view, our video side, right, we're doing a lot of pay-per-view globally, right? Cybertino is from overseas. Our NFT is growing, right? So the next thing we need is we had to clean up our balance sheet, right? So we just -- we did in September Universal Music converted $10 million of royalties and became an equity partner, and it took $10 million equity in the company, right, which was a great sign. It also cleaned up our balance sheet dramatically. As we cleaned up the balance sheet and we cleaned up those payables with record labels and the publishers, it's now time to count on and expand globally those audio licenses. So the video is already going. The pay-per-view is already going. Podcasting is already going. Now it's time to expand that audio. And certainly, Tesla would be the first spot to really do that. But we fully expect this year to be moving our licenses globally.

Got it. And just as you think about expanding globally, how do you think about the various pieces and the rollout? I mean, is it Slacker that you start with? Is it the LiveXLive platform broadly? Is it React Presents? What's the leading edge of the international expansion from your perspective?

Well, I mentioned the beauty of our flywheel. The first shot is, right, is to go for the moonshot and have all 5 pieces, right, integrated internationally, right? But in the interim, like I said, our pay-per-view is already taking off overseas. We do a tremendous amount of following. So we get big audiences from Japan and Korea and China, right? We've streamed the biggest event in Brazil and biggest events in China and EDC and the biggest events in Budapest, biggest events in Switzerland. So we're going to do all of it. We're going to shoot for the moon and go for all 5 pieces. And we have 5 TAMs within 1 company. Each of them have multibillion-dollar upsides. I've never had that whether it's Digital Turbine, whether it's Ione.com, any of my companies that help [indiscernible] opportunity to have 5 TAMs within 1 company. So we're going to go for all of it, right? Because we love the offering of under $5 a month to get all you can eat. But in the interim, we'll look at every way as you just saw -- we just announced expanding our Podcasting across Amazon, right? Fully expect there'll be further. There's rumors Facebook is now moving into audio. Our pay-per-view, we just announced Facebook for the first time ever moving into pay-per-view with LiveXLive. It's nice to reach that 2.3 billion people.

And so now you've crossed over from an expectation perspective, at least the $100 million mark for '22 with the raised guidance. How should we think about profitability in the business longer term? How does profitability scale? And how you think about margins evolving?

Well, I think you could see -- we took the guidance up now twice. We took to $90 million to $100 million, then to $100 million to $110 million. We now took it to $107 million to $115 million. And the business is just uniquely scalable now, right? The flywheels kicked into place, more live music, more attendance, more merch sales, right, more audio, right? More subscribers, Tesla and 77 of the cars and expansion overseas. More pay-per-views, more live stream. And then our AVOD channels are becoming really mature, right, is that maturation of our AVOD channel, there is no music channel that is an authentic voice across AVOD or SVOD, and who knows next could be cable and satellite, stay tuned.

Great. Look, and we've talked a fair bit about all of the different growth opportunities that are available as you continue to scale the business. Actually, I imagine, at times it probably becomes challenging to prioritize and choose which ones to tackle first. Can you give us any insight into how you go about prioritizing the various opportunities ahead of you? And how do you make sure your team is all focused on working together to deliver that same end result.

Well, I think this is a team of adults, right? My partner, Dermot McCormack, is President, who runs the day-to-day operations. He has always run multibillion-dollar businesses. He just came off of selling AOL for $4.5 billion for Tim Armstrong. Before that, he ran Viacom's all their digital businesses, MTV, VH1. So he's probably one of the global experts in it. Mike Bebel who runs the audio side of the business, is the foremost expert in audio, he ran Napster and PressPlay in Universal Digital. And we keep expanding. And I think you see a theme here of diversification. We have now built an amazing group of female executives at this company, who are just doing an exceptional job for us. So we're going to keep growing our management team. This is a world-class team that has built tens of billions of dollars of media and technology companies and exited, right? Norman Pattiz, as you know, built Westwood One, one of the icons in radio. Our Board is -- on who's who. We just added Kris Wright to the Board. He runs all celebrity sneakers, a $7 billion division of Nike. So we're going to keep adding world-class talent and keep growing. And I'm really proud to tell you that we survived COVID. We grew from 7 people the first year. Last year, we were about 100. Today, we're about 300 strong.

Great. And I see we're coming up on the last couple of minutes here for the session. So I'd love to just close out with a bigger picture question, if I can, which is the music and artists ecosystem is evolving really rapidly, right? The number of ways that artists are finding ways to monetize their content and their exposure and their own following. How do you see the ecosystem changing over the next 3 to 5 years? And where do you ultimately think LiveXLive fits within that future state ecosystem?

Yes. I think we're the only company that is fully integrated, full 360 play that produces direct, curates, sponsors right across all audio, video and podcasting. Did I lose you, Craig?

You're back. It was a little choppy, but you're back.

Yes, I don't know why we keep losing it. So I think we're the only company that is fully 360 integrated across audio, live streaming, podcasting, right? We built an ecosystem that we can do all of the above. And you're starting to see each piece of that flywheel kick in. We're producing shows, we're curating shows, and we're delivering all kinds of revenues from that event. The more talent we put on, the more they hit their social media, the more we're going to generate all these different revenue streams executing and keep going through. And it's really a very simple model, right? We just got to keep putting on more and more events, our podcasting businesses, we've added over 37 podcasts. So I couldn't be more proud of the team and more excited about where we're going.

That's great. Well, Rob, I think we've got about 30 seconds left here or so. So I'll close it out. And just thank you very much for coming. Appreciate your time today and look forward to seeing the continued progress of the business. So thank you very much.