LPTV - Loop Media Inc. (LPTV) Q2 2023 Earnings Call Transcript

2023-08-12 12:44:01 ET

Loop Media, Inc. (LPTV)

Q2 2023 Results Conference Call

August 08, 2023 05:00 PM ET

Company Participants

Jon Niermann - CEO

Neil Watanabe - CFO

Presentation

Operator

Hello. My name is Christa, and I will be the conference operator today. At this time, I would like to welcome everyone to the Loop Media [Technical Difficulty] 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise and after the speakers' remarks there will be a question-and-answer session. [Operator Instructions]

Thank you. I will now turn the call over to Jon Niermann, Loop CEO; and Neil Watanabe, CFO. You may begin.

Jon Niermann

Thank you, and good afternoon, everyone. In May, we provided a forecast of our Q3 results. Today, we can announce that we surpassed those forecasts across the board. In an effort to avoid redundancy during this call, our CFO Neil will take you through our financial results. From my part of the call, I would like to set the table on the challenges we faced and what we believe the road ahead looks like.

As previously disclosed in our public filings, we experienced headwinds in the digital programmatic ads market beginning in the second half of our fiscal Q1 that ended in December 31, '22, and that has continued through our fiscal Q3 ending in June. Thus, the challenging past couple of quarters has adversely impacted our prior exponential growth. I would like to be clear that we believe the slowing of growth will prove to be a temporary moment in time for us as we look ahead for more positive outcomes in future periods.

Like many companies that rely on the advertising market, we continue to see industry and macro headwinds into the overall digital ad spend. As we preannounced in May, we knew that Q3 would be a challenging quarter in which we would see our revenue and our bottom line negatively impacted.

While there indeed was and still is, albeit to a lessening extent, a macro component that negatively impacted our business over the prior few quarters, it has become more clear that we needed to further engage with our advertising partners to continue our dialogue with them over how they view the Company's platform.

Historically, out-of-home advertising has meant static or digital signage not linked to premium content. Thus, many brands don't value that reach like they do traditional broadcast, cable or now streaming consumer television where advertisers know they get premium content and target consumers.

Loop is just another type of streaming television and another CTV platform, but we reach consumers away from their homes rather than in their homes. Our company has premium content made by and distributed by some of the top media companies in the world, including Disney, Universal, Sony, Warner Brothers, and top brands like TikTok, GoPro, Billboard, World Surf League, collegiate conferences like the ACC and many others.

What we think sets us apart from most other streaming platforms is that we deliver short-form content, which plays well in public venues as opposed to traditional consumer streaming services that generally provide longer-form content. We prioritize music video content because we believe music videos are the ideal content for venues looking to entertain and engage their customers.

We don't believe that customers in and out of home locations are interested in watching a TV series or movie in a bar, restaurant, retail store or similar locations. Instead, the Company delivers short-form videos that we believe will avoid where those venue owners are no longer at the mercy of just playing cable TV like they have for decades. Fortunately, we've been able to attack this challenge head on. Like the streaming pioneers before us that created new categories for both content providers and advertisers, we must work with others to do the same.

Today, we are pleased to announce that Microsoft Advertising, which owns Xandr, has created a new inventory category for supply-side partnerships called CTV Out of Home. This first-of-its-kind SSP distinction will provide an additional distribution category to advertisers and demand-side partners from which they can access and purchase Loop Media advertising impressions just like they would on other consumer CTV platforms.

On other DSP and SSP platforms, Loop Media is often categorized as DOOH or Digital Out of Home; CTV, Connected TV; Streaming or other. This new category expands Loop Media's potential reach in the marketplace for all potential DOOH advertising buyers, including those advertisers looking to distribute ads on CTV Out of Home service platforms. We believe this bodes well for future revenue growth as other advertising partners start to adopt this new category, making us much more clear that our platform is indeed a premium place where advertising to brands can reach desirable audiences going forward.

Loop is excited to work with other key partners to lead significant industry evolution like this. We often ask people to think about how they watch TV in their homes around 2007. The answer is about 98% of homes at that time were still watching network TV or linear program channels delivered through cable and satellite. Streaming services like Netflix and Roku were nascent, and no one had heard of Hulu, Pluto or others. Fast forward to where we are today in our homes, the majority of the population in streaming instead of using cable and satellite.

However, businesses are still effectively stuck in 2007 with about 98% of them using cable and satellite or even terrestrial television because they've never had a streaming service that they believed was appropriate or licensed for their use, until now with Loop. The Company is looking to fill what we believe is a void in the media video space for out-of-home locations by delivering free ad-supported content in those locations, and providing customizable and contextual streaming TV that is suitable for them.

As we look to move the Company in its financial performance back to historical levels, we have focused our business and operations on diversifying our revenue sources and reducing the impact of general advertising market downturns like we have recently experienced. We have sought to bolster the Company's direct ad sales efforts and focus on key advertising geographies and venue types. We believe our recent growth in distribution and the extended reach of our platform has set us up for future revenue growth.

While we have made much progress addressing the revenue opportunities and foundation for the Company, we have had to focus our efforts on increased efficiency and cost cutting in recent periods as well, while still maintaining our dedication to the continued growth of our business. As a result, we have made cuts and adjustments across several aspects of our business.

We completed a plan to reduce our overall SG&A cost from fiscal Q2 to fiscal Q3 by approximately 20%, including labor and various other operating cost. Part of this reduction included eliminating some nonrevenue-generating headcounts while continuing to invest in expansion of our revenue and ad sales team.

I want to emphasize that we've always taken pride in Loop being a very lean organization, especially compared to other tech and media companies. We have never thought that huge additions and number of employees was a positive sign that a company was growing widely. In fact, we've seen that in press over the past year, the huge layoffs from a number of top tech and media companies as a result.

Loop had only 73 full-time employees at the end of Q3 as we've always looked for our team to be empowered to do more than they thought they could. That model has served us well. We take way more pride in the retention of our employees, most of whom have been with us for multiple years and still many from the beginning of our operations. We know that we have a terrific team in place, a proven team that delivered fantastic growth in the prior fiscal year and they, along with some excellent new additions to our sales team, will be the core group that will deliver us terrific growth again.

In other areas, to help our push toward delivering results to our shareholders in the near term, we also renegotiated or signed content licenses to reduce average content costs and found ways to strengthen our license margins. To that end, we saw an uplift in margin towards the end of the quarter, and will continue to work towards further improvements.

As many of you know, we distribute our content and advertising inventory to digital screens located in out-of-home locations, primarily through our owned and operated streaming platform of Loop Players referred to as our O&O network, and through screens on digital platforms owned and operated by third parties referred to as our Partner Platform.

Even in tough markets like we have been facing in recent periods, we believe in our long-term business model providing free streaming TV to businesses through our free-to-the-user Loop Player, and we believe that model should make the distribution growth in our O&O Platform more resilient than a pure subscription-based business model or one that requires an end user to provide a credit card or other payment information.

Our distribution footprint increased substantially towards the end of Q3 with the addition of 12,000 Partner Platform screens, bringing our total Loop Player/Partner screens to over 70,000. In addition, our monthly video impressions viewed are estimated to be over $2 billion. 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 the additional digital signage charges that go away with Loop.

Looking ahead, we believe the digital out-of-home retail market will continue to gain an increasing share of advertising spend as several industry forecast predicts. With our strong pipeline of partners and expanding distribution network and our commitment to efficient new customer acquisition, we believe the Company is well positioned to deliver revenue growth as the advertising market improves.

With that, I will turn the call over to Neil to take you through our financial results. Neil?

Neil Watanabe

Thank you, Jon, and good afternoon, everyone. As we review our financial results, I wanted to remind everyone that all comparisons and variance commentary refers to the prior year's quarter, unless otherwise specified.

In the fiscal third quarter, revenues decreased approximately 47% to $5.7 million compared to $10.8 million at the year-ago period. The decrease was primarily driven by a reduction in ad placements as well as general slowdown in the overall digital advertising spend due to the macro environment.

Gross profit in the fiscal third quarter of 2023 was $1.8 million compared to $3.8 million for the same period in fiscal 2022. The reason for the reduction in gross margin dollars is due to reduced sales versus the prior year quarter as well as a decline of the gross margin percentage primarily due to mix and challenges in our ability to leverage some of our fixed costs relative to streaming of our content.

Gross margin rate was 31.8% compared to 35% in the prior year quarter. The decrease was primarily driven by revenue mix as the year-ago period only included the lower margin impact of our Partner Platform business for a portion of the quarter, which launched in May of 2022 versus a full quarter impact this year. The Partner Platform business carries a lower gross margin, but has lower investments and acquisition and marketing expenses requirements, resulting in similar operating margins to our O&O Platform.

Total sales, general and administrative, SG&A, expenses in the fiscal third quarter, excluding stock-based compensation, depreciation and amortization, were $6.3 million compared to $5.9 million for the same period in fiscal 2022 and lower than the $7.8 million for our previous second quarter. The quarter-over-quarter decrease of 20% was primarily due to a decrease in marketing spend, payroll-related and various other operating expenses which were targeted for efficiency. We anticipate we will continue to gain efficiencies in SG&A, which will be reflected in Q4 and into fiscal year 2024.

Net loss in the fiscal third quarter of 2023 was $7.9 million or $0.14 loss per share compared to a net loss of $5.7 million or $0.11 loss per share for the same period in fiscal 2022. Adjusted EBITDA in the fiscal third quarter was a loss of $3.7 million compared to a loss of $1.9 million for the same period in fiscal 2022.

Turning to our balance sheet. Cash and cash equivalents were $6.4 million on June 30, 2023, compared to $4.7 million on March 31, 2023. The increase was primarily driven by $8.3 million in equity offerings as previously disclosed in our public filings and our continuation of managing our cash through improving the days of our outstanding accounts receivable, negotiating improved vendor payment terms and overall good expense controls. As of June 30, 2023, we had $10.1 million of total debt compared to $9.1 million as of March 31, 2023.

We continue to exhibit incremental Loop Player growth both year-over-year and quarter-over-quarter. In addition, we added 12,000 screens to our Partner Platform business at the end of the third quarter, which increased our total screens in this business to 36,000, a 50% increase over the previous quarter. Our commitment to target marketing and expansion of our Loop Player distribution will be the primary drivers for growth and driving profitability in the future.

Despite the current ad marketing softness that Jon alluded to earlier, we plan to continue increasing penetration of our Loop Players and efficiently growing quarterly active units to be poised for increased revenue growth when digital advertising spend increases. We are focused on increasing our revenues, gross margins and leveraging our expenses in line with revenues as we plan to continue to reduce the adjusted EBITDA loss on a quarterly basis.

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

Jon Niermann

I would like to thank everyone.

Question-and-Answer Session

Operator

Jon Niermann

Okay. I would like to thank everyone for joining the call today. We are excited about where the business is heading. And I look forward to providing further updates on our next call. Thank you, everybody.

Operator

This concludes today's conference call. You may now disconnect.

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