Q1 2023 Loop Media Inc Earnings Call

Good afternoon, everyone and thank you for participating in today's conference call to discuss Luke Media's financial results for the fiscal quarter 2023 ended December 31st 2022.

Joining us today are Loeb CEO , Mr. John <unk>, Chairman and the company's CFO , Mr. Neil Watanabe Bye.

By now everyone should have access to the fiscal first quarter 2020 earnings press release, which the company issued earlier today at approximately four O five P M Eastern time.

The release is available in the Investor Relations section of hoops website at Www Dot loop car T V.

In addition, this call will also be available for webcast replay on the company's website. Following management remarks, we'll open the call for your questions.

Certain comments made on this conference call and webcast are considered forward looking statements under the private Securities Litigation Reform Act of 1995.

These forward looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward looking statements.

These forward looking statements are also subject to other risks and uncertainties.

Described from time to time in the Companys filings with U S. D C.

Not place undue reliance on any forward looking statements, which are being made only as of the date of this call except as required by law. The company undertakes no obligation to revise or publicly release the results of any revision to any forward looking statements.

The company's presentation also includes certain non-GAAP financial measures, including adjusted EBITDA as supplemental measures of performance of our business.

All non-GAAP measures have been reconciled to the most recent to the most directly comparable GAAP measures in accordance with SEC rules, you'll find reconciliation charts and other important information in the earnings press release and form 8-K furnished to the SEC.

I would now like to turn the call over to loop CEO , Mr. John Newman.

Yeah.

Thank you and good afternoon, everyone. The momentum from last fiscal year has carried into our first quarter with revenue up nearly five times year over year quarterly active units up 47% in just three months and continued material improvements to our bottom line.

Our ability to lean into marketing and convert those dollars into consistent meaningful growth of our loop player footprint is a testament to our execution and deep expertise in the digital out of home advertising business.

As this is the only the second earnings conference call I want to briefly touch on our business model for those new to the lube story, albeit in less detail than we went through last quarter.

Loop is a media Mar Tech company that focuses on digital out of home video streaming by Curating, optimizing and monetizing content across a network of screen. The venues of all sizes, we allow business to stream and control. This content with a goal of increasing customer engagement and length of stay at their venues.

This goal was accomplished through the use of our proprietary loop player filled with our extensive library of licensed music and entertainment short form content, which includes more than 100 music video channels and more than 50 non music channels.

During the quarter, we expanded our loop player distribution to new markets throughout the country and now have a presence in all of the top 25 U S Metro areas as of December 31, our quarterly active units grew 47% from September 30th two nearly 27000 units, representing a quick and efficient.

Return on our marketing investment.

In fact, our marketing costs were up only $1.1 million a year over year, while revenue increased by nearly $12 million for the same comparable period.

Our new customers added during the quarter include a diverse set of businesses, including restaurants bars, Jim College campuses office buildings and various types of retail establishments.

It's more a loop players are distributed into the market. It validates our thesis that there is strong demand for a free AD supported streaming service and that our go to market strategy with a new player is working.

More Americans now watching streaming TV over cable TV, largely because they can select specific content whenever they want to watch it as well as better economics.

Over traditional streaming content of longer for TV series and movies doesn't work in public biddings. So the demand for a product like loop that offers a gauging vibe enhancing short form content makes business is eager to try our service.

We are an all in one solution offering all that they need in terms of appropriate content and digital signage for free which is truly disruptive to the traditional pay TV model and additional digital signage charges that go away with loop.

The ability to customize our content quickly is another draw for businesses. We recently launched a variety of new content offerings, including channels that include Major League sports highlights African safaris, and even star escapes and Cosmos. This wide range of content, maybe less the target such large demographic of customers.

If you're a pet store in Italian restaurant, the tire changing location or just about any type of retail you can think of we could match content that enhances the customer experience, that's encouraging repeats and more frequent visits.

During the quarter, we renewed contracts with all three major music labels, Universal Sony and Warner Solidifying our music content offerings for years to come at.

It is important to note that these contracts include certain recoupable advances that are paid upfront. So we will not see a further cash outflow for this content licensing like we have in our fiscal Q1.

Our footprint in the digital out of home market is increasing because business locations have only recently had suitable streaming options made available for them while consumers at home started transitioning nearly 10 years ago as mentioned on our last conference call per external reports the digital out of home market is projected to reach over 33.

Billion dollars by 2026, we are positioning look to be at the video forefront as we increased market share.

Housing related to the political election cycle in November which contributed to our outperformance and offset the challenging second task of our fiscal Q1.

Despite those macro challenges, we continued to expect to generate meaningful revenue growth in fiscal 2023 ahead of industry trends and believe that no business truly grows the sequential linear fashion.

Turning to our sales channels I'm happy to report that our affiliate program performed exceptionally well during the quarter meaningfully contributing to our 40 per 747 per cent growth in quarterly active units.

Our focus and investment in this program throughout fiscal 22 is beginning to pay off and is validating that our strategy is working although it took time for the program to gain momentum and ramp it is now fully operational and delivering results.

Another very important strategic step that we took as a company is the development of our direct sales efforts, which is starting to ramp this fiscal quarter.

It's another natural evolution of our business, where we focused on initial AD revenue via programmatic demand, while we simultaneously grew or Luke footprint to a large enough position, where we could start to generate interest for direct deals.

We are pleased to say that we are at this stage of growth and look forward to more of an impact from direct sales in the quarters ahead <unk>.

Looking ahead, we believe the digital out of home retail media market will continue to gain an increasing share of advertising spin as several industry forecasts predict with our strong pipeline of partners and expanding distribution network and our commitment to efficient new customer acquisition. We believe loop is well positioned to <unk>.

<unk> another year of significant revenue growth in 2023.

As mentioned, our last conference call with over 32 million small and medium size businesses that we could target. The 27000, new players. We currently have in circulation barely scratches the surface with that I will turn the call over to kneel to take you through our financial results Neil.

Thank you John and good afternoon, everyone. As we review our financial results and want to remind everyone that are comparisons and variances commentary refer to the prior year quarter unless otherwise specified.

As reported in our earnings press release revenues for the fiscal first quarter increased 395 per cent to $14.8 million compared to $3 million in the year ago quarter. The sharp increase was driven by significantly more loot players deployed into the market as well as the benefit from our partner platform business, which was launched in May of 2022.

Two.

Go into labor deeper on our lute player penetration.

December 31st 2022, we had approximately 26900 quarterly active units or loop players in the market compared to 18200 active players on September 30th 2022, 47 per cent increase in just three months.

The player growth was driven primarily by your marketing efforts and inquiries focus on our affiliate program. It is important to note that the quarterly active units does not include any partner platform screens, which is an initiative. We launched in May of 2022 with one of our partners on 17000 screens, we're in the process.

Finalizing an additional approximately 13500 screens for a total of approximately 30500 screens across our partner platform business.

Gross profit and the fiscal first quarter increased significantly to 5.7 million compared to 1.6 million in the year ago period gross margin rate was 38.4% compared to 51.8% for the year ago period. The increase in gross profit dollars was driven by greater revenue, while the decline in gross margin.

Right was primarily driven by revenue mix How's the year ago period did not include the launch of our partner platform business, which carries a lower gross margin, but higher operating margin when.

When compared to the prior quarter gross margin percentages was relatively flat.

Total SG&A expenses and the fiscal first quarter were $8 million compared to $4.4 million for the year ago period, the inquiries and SG&A was primarily due to greater marketing customer acquisition and retention stone as well as higher public company costs related tore up listening to the NYSE American.

As a percentage of revenue SG&A was reduced significantly to 53.4% versus 145.5 per cent for the prior year quarter. We expect to continue to improve our operating leverage does we significantly increased revenues, while maintaining our expenses with moderate increases.

Net loss in the fiscal first quarter of 2023 was $5.3 million or a loss of nine cents per share compared to a net loss of $4.3 million or a loss of 10 cents per share for the comparable period in fiscal 2022.

A jested EBITDA and the fiscal first quarter improved to a loss of 1.6 million compared to a loss of 2.5 million for the same period and fiscal 2022.

Turning to our balance sheet cash and cash equivalents was 7.8 million on December 31st 2022, compared to $14.1 million on September 30th 2022. The decrease was primarily driven by greater marketing span and nonrecurring expenses, including costs related to our upload to the N Y C American exchange and payments release.

Eddie to music licensing fees is John highlighting earlier.

As of December 31st 2022, we had $9.2 million total debt compared to $7.1 million on December 31st 2021.

We continue to instead of tremendous growth both year over year and quarter over quarter, our commitment to marketing and the expansion of our loot players distribution will be the primary drivers for unwin growth driving profitability in fiscal 2023 and beyond.

Despite the current market softness John alluded to earlier, we plan to continue increasing penetration of our loop players and efficiently growing quarterly active units to be poised for growth and improve profitability when digital advertising, it's been picks back up in the months ahead.

I'd like to thank everybody for listening today, we look forward to providing further updates on our next conference call.

This concludes our prepared remarks, we will now open it up for questions operator back to Ya.

We will now begin the question and answer session.

To ask a question you May press start in one your chest telephone if.

If you're using a speaker phone please pick up your handset before pressing the keys too.

Try your question. Please press Star then too.

At this time, we will <unk> roster.

Our first question will come from Darren as Tahiti with Roth Capital Partners you May not go ahead.

Hey, guys. Thanks for taking my questions are nice job on the quarter, especially if the Bottomline improvement give you see.

If I may 1st you just talking about the overall macro environment, maybe where you're seeing.

Areas of weakness and perhaps strength.

Sure a darren.

So I think it's something we touched on last time I think overall as we know seasonality is important. So Q1 calendar is always the worst of the year. So in terms of cyclical advertising spin.

Yeah, everybody plans around that I think that.

Overall, we still are in an area, where we're excited about the growth with C. T V and digital out of home, but if you look at all the reports in the industry trends clearly advertising is has had an impact can take at a depth for our first quarter, we had a great part where where the election did extremely well then go towards the second half.

<unk> and the holiday span gift off a little bit but other than that it just seems to be continuing as a lot of the reports of projecting.

Overall, and then again, we're excited kind of where the fiscal year is gonna go.

Great can you.

Neil has done on the part of the program can you speak to your pipeline beyond your existing partner to one you kind of <unk> and and how Tractions looking there maybe for calendar twenty-three.

For the partner network.

Correct.

Is that what you're talking yeah. So just for those that are familiar we have two components to the business that we touched on the loop player, which is our proprietary hardware. That's one where we saw the tremendous growth and we had a large focus for that for those quarter for the partner network, It's where we use other people's hardware, where we launched partner last summer and then we saw.

Hearted rolling of testing into this next partner that we're planning to watch and we have multiple discussions going on in that phase that we plan to roll out over the year. So it's continued area of growth for S. Darren that we're focused on that we see continuing to grow and it's just <unk>.

<unk> certain testing that we don't want to make sure is right because it says the other hardware. It's just gotta be a great fit before we kind of go wide. So I think you'll start to see some of that coming down the pipe.

And during this is pretty normal you know when we entered the corner network. You know May you know it was a test type environment and then quickly converted to a full rollout we have multiple partners that were in that the testing stage now and we're certainly anticipating you know that to be rolled out in you know months to follow here.

Great humor for me so.

On the cost of goods and gross margin.

<unk> has been pretty steady around 38 per cent of the last two quarters I know mixed influences the gross margin, but just from a modeling perspective, how should we kinda think about gross margins going forward.

And you're right there and I think as we talked about the partner network. You know carries a lower gross margin rate percentage, but it has no in essence expenses. So the flow through the profitability is certainly very close to you know what the players are but you know our plans are to lean into.

<unk> <unk> the Lou players because we know that that's you know kind of our our brand and also you know the area you.

Future profitability and margin expansion that being said, we're growing the partner network as well from a mix perspective, I think you know your modeling percentage is is that you have you know are still kind of in line with what we're expecting and that's only need more toward you know the.

Blue players versus Department network as far as a mix as a percentage.

Hey, Neil and Darren let me out a little more perspective to that I think this is where growth is important and as you start to grow our footprints and getting to level that we are you know.

We certainly have little more influence in terms of the type of deals that we do and lots of times. Those those deals will have better margins as you start to grow and and I'm sure you're aware of that but it's worth pointing out and we're starting that stage, where we think that'll have a positive impact.

So so could I get that feeling that with John So your comment and I guess, maybe give it another question but.

I I saw the cast usage and a quarter can.

Can you quantify the outcome licenses and maybe this is in the queue. I saw you put that that I've got to it yet, but as you think about content cause you know your your business is ranch.

Very rapidly ever 12 to 18 month period like do you have the ability to negotiate better.

Content licensing deals going forward, even in real time, given how fast you ground or do you still two small anatidae to have that kind of leverage.

Now, we do and thanks for clarifying question, that's what I was trying to get out earlier. So let me point out a couple of things there and it's it's basically for the music side.

We mentioned that there is an upfront and then you can recoup that back so really that's the only type of content that we we have that type of relationship deal the others or more of a rabbit to your type of arrangement and as we grow the pipeline clearly there's more leverage in terms of that chair. So I think that's on on both of those fries.

Is going to be beneficial for us in quarters to come in.

Vast meant that we made on the music side to redo everything initially and that's going to get pay off for us as we start to roll through the quarters and then all the other content is just pure Rev share that just I would believe gets better as we scale.

Great is there a quantifiable amount on that front license.

No not really I mean, we don't we don't disclose that part of the contract.

Of the upfront is actually critical on a percentage basis like if you execute it on all your K P. I.

A majority.

How 'bout all [laughter].

I can say that fair enough that that's a good answer I won't I won't need it [laughter].

I'll I'll I'll pass it on cash off accent I get some some one time last quarter, what the uplifting and whatnot, but.

8 million sort of cash out back again, how do we think about that as the business scale send another way like where.

How fast to that 8 million scale, and where they're kind of the biggest areas of investment or is that a pretty lockdown number that is kinda marginal growth with with new revenue.

[noise] no. Thank Erin as you mentioned in our first quarter. We did have some nonrecurring expenses related to <unk> and some contract renewals relative to the content announce that amount was about $3 million of of the increase quarter over quarter and as we.

Go forward that continues to leverage and will be reduced as far as that cash for an amount that is from normal recurring so from your perspective I think you know we have some one time in nature incremental costs in to one of those you know start reducing.

Significantly as we start pacing down the rest of the quarters. So I think the.

The recurring Opex, you'll see clearly reducing each quarter was would pay salon throughout 2023.

God. This last one for me the the 8700 U Q a used in the quarter I think John you're stuck a little bit in terms of mix, but I'm just kind of curious what vertical maybe you're over indexing, perhaps where you're you're seeing more momentum interaction and perhaps worse in other areas where you can.

Like you could make more traction.

So that's why we called out some of those in the in the script you know if you look at the various we're really seeing it across the board.

So we're seeing it in bars and restaurants, all types of retail take of any type of retail whether it's a tattoo parlor auto dear tire change et cetera, we've had a nice bumping and gyms.

And we've added more college campuses and we're excited about which is a focus area for us and but the key thing that I wanted to call out really are those top 25 markets.

Because those are just obviously appealing for advertisers and as that footprint rose. We are very excited about what that can mean, so that has been really where that delivery has been and that's where our focus is going to continue to be C store grocery retail medical you name it.

Right I appreciate you taking my questions give us we could work.

<unk>.

This concludes our question and answer session I would like to turn the conference back over to Johnny I'm in for any closing remarks.

I would like to thank everyone for joining the call today as well as our team who could <unk>.

<unk>.

<unk> in the back I commit this as well as our team it continues to commit themselves, bringing this business to its next phase of growth. We're excited about where business is heading and I look forward to providing further updates on our next call take care and thank you for joining us.

The conference is now completed thank you for attending today's presentation you may not disconnect.