Loop Media, Inc.

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Loop Media's financial results for the fiscal quarter 2023 ended December 31st, 2022. Joining us today are Loop CEO, Mr. John Nierman, and the company CFO, Mr. Neil Watanabe. By now, everyone should have access to the fiscal first quarter 2023 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, 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 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 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 8K furnished to the SEC. I would now like to turn the call over to Lube's CEO, Mr. John Nierman.

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 continuing material improvements to our bottom lines. 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 second earnings conference call, I want to briefly touch on our business model for those new to the Loop story, albeit in less detail than we went through last quarter. Loop is a media and MarTech company that focuses on digital out-of-home video streaming by curating, optimizing, and monetizing content across a network of streams and 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 is 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 percent from September 30th to nearly 27,000 units, representing a quick and efficient return on our marketing investment. In fact, our marketing costs were up only $1.1 million 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, gyms, college campuses, office buildings, and various types of retail establishments. As more 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 the loop player is working. More Americans are 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. However, traditional streaming content of longer-form TV series and movies doesn't work in public venues. So the demand for a product like Loop that offers engaging, vibe-enhancing short-form content makes businesses 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 starscapes and cosmos. This wide range of content enables us to target such large demographic of customers. If you're a pet store, an Italian restaurant, a tire-changing location, or just about any type of retail you can think of, We can match content that enhances the customer experience, thus encouraging repeat 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. It is important to note that these contracts include certain recoupable advances that are paid up front, 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 by 2026. We are positioning Loop to be at the video forefront as we increase market share. I want to note that while there is positive momentum in our retail media and CTV ad spinning vertical, we realize that we are not immune to the challenges presented by the broader macro environment. We are seeing headwinds and overall digital ad spin that started to emerge in the second half of this reporting quarter that has continued into calendar 2023. During the quarter, we also benefited from unusually strong seasonal advertising related to the political election cycle in November, which contributed to our outperformance and offset the challenging second half of our fiscal Q1. Despite those macro challenges, we continue to expect to generate meaningful revenue growth in fiscal 2023 ahead of industry trends and believe that no business truly grows in a 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 47% 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 our loop 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. 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, an expanding distribution network, and our commitment to efficient new customer acquisition, We believe Loop is well-positioned to deliver another year of significant revenue growth in 2023. As mentioned in our last conference call, with over 32 million small to medium-sized businesses that we could target, the 27,000 Loop players we currently have in circulation barely scratches the surface. With that, I will turn the call over to Neil to take you through our financial results. Neil?

Thank you, John, and good afternoon, everyone. As we review our financial results, I want to remind everyone that our 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% to $14.8 million compared to $3 million in the year-ago quarter. The sharp increase was driven by significantly more loop players deployed into the market as well as a benefit from our partner platform business, which was launched in May of 2022. Going a layer deeper on our loot player penetration, as of December 31st, 2022, we had approximately 26,900 quarterly active units or loot players in the market compared to 18,200 active players on September 30th, 2022, a 47% increase in just three months. The player growth was driven primarily by our marketing efforts and increased 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 17,000 screens. We're in the process of finalizing an additional approximately 13,500 screens for a total of approximately 30,500 screens across our partner platform business. Gross profit in 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 rate was primarily driven by revenue mix, as 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 compared to the prior quarter, gross margin percentages was relatively flat. Total SG&A expenses in the fiscal first quarter were $8 million compared to $4.4 million for the year-ago period. The increase in SG&A was primarily due to greater marketing, customer acquisition and retention spend, as well as higher public company costs related to our uplisting to the NYSE American. As a percentage of revenue, SG&A was reduced significantly to 53.4% versus 145.5% for the prior year quarter. We expect to continue to improve our operating leverage as we significantly increase 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 $0.09 per share, compared to a net loss of $4.3 million, or a loss of $0.10 per share, for the comparable period in fiscal 2022. Adjusted EBITDA in the fiscal first quarter improved to a loss of $1.6 million compared to a loss of $2.5 million for the same period in fiscal 2022. Turning to our balance sheet, cash and cash equivalents was $7.8 million on December 31, 2022, compared to $14.1 million on September 30, 2022. The decrease was primarily driven by greater marketing spend and non-recurring expenses, including costs related to our uplist to the NYSE American Exchange and payments related to music licensing fees, as John highlighted earlier. As of December 31st, 2022, we had $9.2 million of total debt compared to $7.1 million on December 31st, 2021. We continue to exhibit 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 our ongoing growth and driving profitability in fiscal 2023 and beyond. Despite the current market softness that 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 has been picked 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 you.