Loop Media - Q2 2024

Executive Summary

• Q2 FY2024 revenue fell 26% YoY to $4.00M and declined sharply QoQ from $10.17M, as one of the largest ad demand partners changed its algorithms/terms, reducing ad call frequency and fill rates; gross margin compressed to 10.4% and net loss was $(7.6)M ($(0.11) per share).
• Cost actions accelerated: SG&A (ex-SBC/D&A) was $5.74M in Q2, with additional initiatives announced (headcount reductions, salary cuts, Loop Rewards elimination, vendor/contract restructuring) expected to reduce payroll by ~$2M annually and ~$750k in vendor costs beginning FY2025.
• Distribution KPIs were mixed: O&O QAUs decreased to 32,658 (down 3% QoQ; flat YoY), while Partner Screens doubled YoY to ~50,000, reflecting a shift toward partner distribution despite lower gross margin mix.
• Management is repositioning growth: restoring demand partner integrations under new rules, focusing on targeted distribution and higher-CPM geographies/venues, and evaluating new subscription tiers to diversify revenue; no explicit numerical guidance issued.
• Estimates context: S&P Global Wall Street consensus for EPS/revenue was unavailable at time of analysis; as such, no beat/miss versus consensus is presented (S&P Global data unavailable).

What Went Well and What Went Wrong

• What Went Well

  • SG&A progress and broader cost program: Q2 SG&A (ex-SBC/D&A) decreased to $5.7M YoY; post-quarter measures (headcount/salary cuts, Loop Rewards elimination) are expected to materially reduce cost run-rate and improve margins over time.
  • Adjusted EBITDA improved YoY to $(4.5)M from $(5.6)M, reflecting cost discipline despite revenue pressure.
  • Partner Screens scaled to ~50,000 (up ~108% YoY), broadening reach and diversifying distribution beyond the O&O footprint.
  • Management tone and focus: New CEO emphasized revenue growth levers, expense leverage, and profitability, signaling sharper execution priorities. “I have focused my attention on those areas of the business where we can look to increase revenues, leverage the Company’s fixed and variable expenses and improve profitability” – CEO Justis Kao.

• What Went Wrong

  • Revenue and gross margin pressure: Q2 revenue fell 26% YoY to $4.00M as a top demand partner reduced ad call frequency/fill, and fewer partners viewed Loop as CTV (higher CPM) versus DOOH; gross margin fell to 10.4% (vs 29.4% YoY) on lower revenue and fixed/minimum content costs.
  • Sequential step-down: From Q1’s $10.17M and 35.6% gross margin to Q2’s $4.00M and 10.4%, underscoring seasonal ad softness (Jan–Mar) compounded by demand partner changes.
  • O&O QAUs attrition: QAUs decreased to 32,658 (down 1,125 QoQ), reflecting targeted distribution shift and natural attrition, which may delay near-term ad revenue scale until footprint rebuilds in higher-value venues/geographies.

Transcript

Operator (participant)

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Loop Media's financial results for the 2024 fiscal second quarter ended March 31st, 2024. Joining us today are Loop's Interim CEO, Justis Kao, former CEO and co-founder, Mr. Jon Nierman, and the company's CFO, Mr. Neil Watanabe. By now, everyone should have access to the 2024 fiscal second quarter earnings press release, which the company issued earlier today at approximately 4:05 P.M. Eastern Time. The release is available in the investor relations section of Loop's website at www.loop.tv. In addition, this call will also be available for webcast replay on the company's website. Following management remarks, there will not be a Q&A session. 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 that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements, which are being made only as of this 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 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 Mr. Jon Nierman.

Jon Niermann (Former CEO)

Thank you, and good afternoon, everyone. On March 18th, we announced significant changes to our organization that we believe will provide the framework to making the company more competitive in the CTV for business, digital out-of-home industry. The chairman of the board and members of the management team determined that executing operational changes is prudent to accelerate the company's potential path to breakeven and operating profitability. As part of those changes, after co-founding the company and serving as its CEO for the first 10 years, I have stepped down as CEO to focus my time and attention on revenue generation and other outward-facing areas. I'm excited to hand the CEO reins over to the next generation of leadership for Loop, Justis Kao. Justis has been an invaluable and well-respected member of our team from the beginning.

Along with other organizational changes affecting several parts of our company, we also announced the departure of our Chief Revenue Officer and our Chief Operating Officer, both of whom have since exited the company. The timing was right for changes at this level. We were very fortunate to have a team of talented and experienced executives who helped us grow from $2 million in revenue to over $30 million in a fairly short period of time. But different people are often required for different phases of a company's evolution. As we move into the next phase of our evolution, we believe it is time for the leadership and operation changes mentioned above and in our public filings. I believe we have great potential and that executing these changes is prudent to accelerate the company's potential path to breakeven and operating profitability.

We continue to believe that we are still at the beginning of the growth curve in the streaming for business, CTV for out-of-home venues market, and Loop Media is helping to lead the way. Pioneering requires patience and the ability to navigate inevitable obstacles like we have had to endure over the past year or more. I have and will stay engaged in the company as part of the leadership team and a member of the board of directors. However, my responsibility will change to a focus on driving the revenue of our company, as well as the expansion of our distribution footprint. These are the most critical areas to address and stay focused on where the board believes I can be of most value to the company, and I'm pleased with the initial progress we've made trying to address certain immediate needs over the past month.

I'm also pleased to have a trusted colleague now at the helm of the company, along with an incredible team that makes up the Loop Media family. With that said, I would like to publicly hand over the earnings call to our new CEO, Justis Kao. Take it away, Justis.

Justis Kao (Interim CEO)

Thank you, Jon. I'm very excited to have the opportunity to work with the entire Loop team in our ongoing efforts to try and create shareholder value. Since my appointment, I focused my attention on those areas of the business where we can look to increase revenues, leverage our fixed and variable expenses, and improve profitability. Certain of the changes that Jon referred to a short while ago, and that are outlined in our 10-Q periodic report for the period ended March 31st, 2024, should move us further along that path. I'm looking forward to sharing with you in the future more of the actions that will be taken to try and achieve our objectives. With that, I will turn the call over to Neil to take you through our financial results. Neil?

Neil Watanabe (CFO)

Thank you, Justis, and good afternoon, everyone. As we review our financial results, I want to remind everyone that all comparisons and variances commentary refer to the prior year's fiscal second quarter, unless otherwise specified. As of March 31st, 2024, we had approximately 83,000 active Loop Players on partner screens across the Loop Platform, which included 32,658 QAUs across our O&O platform, versus 32,734 QAUs for the prior year quarter and 33,783 QAUs at the end of our last quarter, ended in December thirty-first, twenty twenty-three. This represented a decrease of 0.23% to the prior year quarter and a decrease of 3% to our prior quarter.

Our partner screens count represented at the end of the second quarter was approximately 50,000 across our partner platform, an increase of approximately 26,000 partner screens, or 108% increase over the year-ago second quarter, and an increase of approximately 7,000 partner screens, or a 16% increase over our last quarter ending December 31st, 2023. Our QAU footprint for the second quarter of fiscal 2024 was reduced from the prior period as a result of natural attrition of Loop Players that were not immediately replaced as we continued to transition to a more targeted distribution model, pivoting our focus to certain designated advertising markets and geographies, as well as more desirable out-of-home locations and venues, including convenience stores, restaurants, bars, and other retail establishments.

We believe this targeted distribution plan will, over time, allow us to grow our QAUs quarter-on-quarter and provide a more robust distribution platform for our advertising partners. Many of the more desirable markets and geographies generally experience greater competition, resulting in slower distribution growth in those markets as compared to the less desirable markets. As such, we expect the primary drivers of revenue growth going forward to be a combination of increased QAUs, as well as higher CPMs and advertising impression fill rates associated with more desirable advertising markets and geographies. Shifting to revenue, our revenue for the three months ending March 31st, 2024, was $4 million, a decrease of $1.4 million, or approximately 26%, from $5.4 million for the three months ended March 31st, 2023.

This decrease was primarily driven by a challenging ad market environment in the second quarter of fiscal year 2024, due to one of the largest ad demand participants changing their terms of business with ad publishers, which resulted in a material negative impact on our ad demand partner revenue. During the latter part of the second quarter of fiscal year 2024, we worked with our demand partners and successfully integrated those changes and restored demand from this ad demand participant, although their new algorithms do not allow the same historical frequency of ad calls and ad fills. As a result, we do not expect to experience the same levels of absolute revenue previously recognized by this ad demand participant, unless and until we significantly increase our distribution footprint.

Finally, our decrease in revenue for the three months ended March 31st, 2024, from the three-month ending March 31st, 2023, was also a result of the reduction in ad demand partners in the second quarter of fiscal year 2024 that view our Loop platform as a CTV platform on which CTV ad budgets can be spent, as compared to the number of ad partners that viewed us as a CTV platform in the second quarter of fiscal year 2023. CTV advertising budgets are generally significantly higher, and thus, CTV ad demand is generally associated with higher fill rates and CPMs as compared to DOOH ad budgets and demand.

Our gross profit margin for the three months ending March 31st, 2024, was $400,000, a decrease of $1.2 million, or 78%, from $1.6 million for the three months ended March 31st, 2023. Our gross profit margin as a percentage of total revenues for the three months ended March 31st, 2024, was approximately 10.4%, compared to 29.4% for the three months ended March 31st, 2023. The percentage decrease was primarily driven by decreased revenue. Based on our decrease in revenue, certain of our content license agreements provide for minimum license fees to be incurred. These minimum fees become an added component of cost of goods sold and reduce gross profit margins, which negatively affect our gross margin percentages.

Our sales, general, and administrative expenses for the three months ended March 31st, 2024, were $5.7 million, a decrease of $2.1 million, or 27%, from $7.8 million for the three months ended March 31st, 2023. The decrease in sales, general, and administrative expenses was primarily due to reduction in marketing costs, professional and administrative fees, headcount, sales commissions, and stock compensation. Our net loss in the 2024 fiscal second quarter was a loss of $7.6 million, or $0.11 loss per share, compared to a net loss of $9.8 million, or a loss of $0.17 per share, for the same period in fiscal 2023.

Adjusted EBITDA in the 2024 fiscal second quarter was a loss of $4.5 million, compared to a loss of $5.6 million for the same period in fiscal 2023. Turning to our balance sheet, cash and cash equivalents was $2.2 million on March 31st, 2024, compared to $3.8 million on December 31st, 2023. As of March 31st, 2024, we had a total net debt of $6 million, compared to $7.1 million as of December 31st, 2023. 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. Operator, back to you.

Operator (participant)

As indicated at the beginning of the call, there will be no questions following management's remarks. Back to Justis Kao for closing remarks.

Justis Kao (Interim CEO)

I would like to thank everyone for joining the call today and look forward to providing further updates on our next call.

Operator (participant)

This concludes today's conference call. Thank you for joining. You may now disconnect.