Loop Media - Q3 2024

Executive Summary

• Revenue declined to $4.35M in Q3 2024 from $5.73M YoY as ad demand partner algorithm changes reduced fill rates; gross margin improved sequentially to 20.9% from 10.4% in Q2 but remained below 31.8% YoY.
• Adjusted EBITDA loss narrowed to $(2.25)M from $(4.55)M in Q2 and $(3.68)M YoY; SG&A fell to $4.12M as cost-cutting drove a $1.6M sequential reduction and management targets maintaining SG&A under ~$4M per quarter.
• Distribution was mixed: O&O QAUs fell to 30,486 (−7% q/q; −13% y/y), while Partner Screens rose to ~51,000 (+2% q/q; +38% y/y), totaling ~81,000 active players/screens; management is pivoting to targeted geographies and launching a live channels subscription (NFL RedZone/NFL Network) to support revenue growth.
• No explicit revenue/EPS guidance was issued; operating focus is on cost structure, content license renegotiations, and SG&A discipline; Wall Street consensus via S&P Global was unavailable for this quarter due to platform limits, so beats/misses vs estimates cannot be determined (Values retrieved from S&P Global)*.

What Went Well and What Went Wrong

What Went Well

• SG&A expense reduced to $4.12M (−28% q/q; −35% y/y) through headcount cuts, vendor renegotiations, and marketing reductions; management aims to keep SG&A near $4M per quarter into FY2025.
• Adjusted EBITDA loss improved to $(2.25)M from $(4.55)M in Q2 and $(3.68)M YoY, lowering the revenue threshold for breakeven; “we have reduced our cash burn from operations significantly”.
• Strategic content expansion: immediate ability to offer 40 live channels under subscription for venues (including NFL RedZone & NFL Network), positioned as a near-term revenue catalyst into the sports season.

What Went Wrong

• Revenue fell to $4.35M (−23–24% YoY), primarily due to a major ad demand participant changing algorithms and terms, reducing ad call frequency/fill rates; management does not expect prior absolute revenue levels without a significantly larger footprint.
• Gross margin compressed YoY to 20.9% from 31.8% as fixed/content license fees became larger as a percentage of lower revenue; certain licenses are on non-revenue metrics, further pressuring COGS.
• O&O QAUs declined to 30,486 (−7% q/q; −13% y/y) as natural attrition and targeted distribution reduced placements; total active players/screens fell to ~81,000 from ~83,000 in Q2.

Transcript

Operator (participant)

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Loop Media's financial results for 2024 fiscal third quarter ended June 30, 2024. Joining us today are Loop's Interim CEO, Justis Kao, and the company's CFO, Mr. Neil Watanabe. By now, everyone should have access to the 2024 fiscal third 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 webcasts 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 subjected 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 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 businesses. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with the SEC rules.

You'll find the 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. Justis Kao. Sir?

Justis Kao (Interim CEO)

Thank you, and welcome everyone to our Q3 earnings call. I'm pleased to report that in the third quarter of our fiscal year, we have focused our attention on those areas of the business where we can look to increase revenues, leverage our fixed and variable expenses, and improve profitability. Notably, we've reduced our total operating expenses this quarter by an additional $1.6 million from last quarter. Areas that contributed to efficiencies on the cost side were, one, further reductions and restructuring of our labor force, two, restructuring our agreements with vendors and partners, and three, better operational efficiencies resulting from our ongoing review and restructuring of third-party vendors and services with a view of eliminating $750,000 of ongoing yearly costs and expenses beginning the first quarter of fiscal year 2025.

Additionally, we continue to work on cost-cutting measures to help streamline our operations with the goal of further reducing SG&A expenses to under $4 million and maintaining that level per quarter for the remainder of fiscal year 2024 and through fiscal year 2025. Our QAU footprint for the third quarter of fiscal 2024 was reduced from the prior periods as a result of natural attrition of Loop Players that were not immediately replaced, as we continued to revamp our distribution strategy and investments surrounding new Loop Players. Previously, we transitioned 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.

This more targeted distribution plan helped us to understand where we could actually achieve the greatest revenue opportunities in terms of geographies as well as venue types, and that those opportunities were not necessarily in the larger, desirable advertising markets, which generally experience greater competition, resulting in slower distribution growth in those markets as compared to the potential for growth in smaller markets. As such, our growth has been flat in recent periods. We believe this will change as we increase our distribution efforts with our extensive affiliate network beginning in the first quarter of fiscal 2024, with the goal of growing our QAUs quarter on quarter, providing a more robust distribution platform for our advertising partners going forward. 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 wanted to remind everyone that all comparisons and variances commentary refer to the prior year's fiscal third quarter, unless otherwise specified. Our revenue for the three months ended June 30, 2024, was $4.4 million, a decrease of $1.3 million, or approximately 24%, from the $5.7 million for the three months ended June 30, 2023. This decrease was primarily driven by a challenging ad market environment in the second and third quarter of fiscal 2024 due to one of the largest ad demand participants changing their terms of business with ad publishers, including us, which resulted in a material negative impact on our ad demand partner revenue....

During the latter part of the second quarter and through the third quarter of fiscal year 2024, we worked with our demand partners and successfully integrated those changes and restored demand from those ad demand participants. Although their new algorithms do not allow for the same historical frequency of ad demand and ad fills. As a result, we do not expect to experience the same level of absolute revenue previously recognized by this ad demand participant, unless and until we significantly increase our distribution footprint, which we are working toward. Finally, our decrease in revenue for the three months ended June 30, 2024, from the three months ended June 30, 2023, were also a result of reduction in ad demand, ad demand partners in the second quarter of fiscal year 2024.

That view our Loop network 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, in general, is associated with higher fill rates and CPMs as compared to DOOH ad budgets and demand. As we increase the number of demand partners and continue to educate them as to our platform opportunities in providing advertising to a targeted customer base, we anticipate that this will increase our ad revenues over time.

Our gross profit margin for the three months ended June thirtieth, 2024, was $910,000, a decrease of $913,000, or 50%, from $1.8 million for the three months ended June thirtieth, 2023. Our gross profit margin as a percentage of total revenue for the three months ended June thirtieth, 2024, was approximately 20.9%, as compared to 31.8% for the three months ended June thirtieth, 2023. The percentage decrease was primarily driven by decreased revenue. Based on our decrease in revenues, certain of our content license agreements provide for fees to be paid on less advantageous non-revenue metric. These fees become an added component of cost of goods sold and reduce gross profit margins, which negatively affect our gross margin percentage.

In addition, our fixed fee content license agreements may reduce our gross profit margins as the fixed fees paid are at a greater percentage of lower revenues than they would be on higher revenues. Our sales, general and administrative expenses for the three months ended June 30th, 2024, were $4.1 million, a decrease of $2.2 million, or 35%, from the $6.3 million for the three months ended June 30th, 2023. The decrease in sales, general and administrative expenses was primarily due to the further reduction in headcount, marketing costs, and professional and administrative fees.

As a result of the cost-cutting measures that we have undertaken in fiscal year 2024, we have realized a quarter-on-quarter reduction of in our SG&A expenses of $1.6 million, or 28%, from $5.7 million in the second quarter, ended March 31, 2024, to $4.1 million in the third quarter, ended June 30, 2024. We do not expect to achieve similar reductions in future periods and are focused on sustaining proportionately low SG&A costs going forward. Through our continuing cost-cutting initiatives, we aim to maintain our SG&A expenses, excluding stock compensation and depreciation, at a $4 million level for the remainder of 2024 and into 2025.

Net loss in the 2024 fiscal third quarter was a loss of $5.5 million, or a loss of $0.07 per share, compared to a net loss of $7.9 million, or a loss of $0.14 per share, for the same period in fiscal 2023. Adjusted EBITDA in the 2024 fiscal third quarter was a $2.2 million loss, compared to a $3.7 million loss for the same period in fiscal 2023. We have improved our adjusted EBITDA year-over-year for Q3 over the prior year quarter, as well as over the prior Q2. Based on our current cost structure, we have reduced our cash burn from operations significantly and reduced the level of revenue that is required to become flat or breakeven.

Turning to our balance sheet, cash and cash equivalents were $1.5 million on June 30, 2024, compared to $2.2 million on March 31, 2024. As of June 30, 2024, we had a total net debt of $6.2 million, compared to $6 million as of March 31, 2024. As of June 30, 2024, we had approximately 81,000 active Loop Players and partner screens across the Loop platform, which includes 30,486 QAUs across our O&O platform, versus 34,898 QAUs for the prior year quarter, and 32,685 QAUs at the end of our last quarter, ended in March 31, 2024.

This represents a decrease of 13% over the third quarter of fiscal 2023, and a decrease of 7% from our second quarter of fiscal 2024. At the end of our third quarter of fiscal 2024, we had approximately 51,000 partner screens across our partner platforms, an increase of approximately 14,000 partner screens or 38%, over the third quarter of fiscal 2023, and an increase of approximately 1,000 partner screens, or approximately 2%, over our last quarter, ended in March 31, 2024. 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)

Thank you. 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)

Thank you. We are pleased to announce that Loop Media will immediately be able to offer a subscription that includes 40 live channels just in time for the 2024-2025 sports season, including the NFL RedZone and the NFL Network. With the NFL season about to start, it's the perfect time to launch this subscription opportunity for venues, in addition to all of our other fantastic content available to fit specific themes of our venue partners. With these and the other distribution initiatives in process, we believe that we will achieve sustainable revenue growth in the coming quarters. I would like to thank everyone for joining the call today. We are excited about where the business is heading and look forward to providing further updates on our next call.