LiveOne Inc (LVO) 2019 Q4 法說會逐字稿

Good day, and welcome to the LiveXLive Media Fourth Quarter and Fiscal 2019 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Whitney Kukulka, Investor Relations. Please go ahead.

Good morning, and welcome to LiveXLive Media's financial results and business update conference call for the fourth quarter and fiscal year 2019 ended March 31, 2019.

Joining me on today's call are Rob Ellin, CEO and Chairman; and Mike Zemetra, CFO.

I would like to remind you that some of the statements made on today's call are forward-looking and based on current expectation, forecasts and assumptions that involve risks and uncertainties. These statements include, but are not limited to, statements regarding the future performance of LiveXLive, including expected financial results for the full fiscal year 2020 and future growth in the business. Actual results may differ materially from those discussed in this call for a variety of reasons. Please refer to our filings with the SEC for information about factors, which could cause our actual results to differ materially from these forward-looking statements, including those described in the company's annual report on Form 10-K for the year ended March 31, 2018, and subsequent SEC filings.

Importantly, this conference call contains time-sensitive information that is accurate only as of the date of this call, June 13, 2019.

You will find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures discussed today in the company's earnings release, which is posted on our Investor Relations website at ir.livexlive.com. And we encourage you to periodically visit the company's IR website for important content.

The following discussion, including responses to your questions, reflects management's view as of today, June 13, 2019, only. And expect as required by law -- and except as required by law, we do not undertake any obligation to update or revise this information after the date of this call.

Now let me turn the call over to Rob. Rob?

Great. Thank you so much. So welcome everyone, Rob Ellin. Thanks for joining the call. And I couldn't be prouder of the remarkable progress that LiveXLive has made in its first full year as a public company. Our vision was to create a social live music platform and to give global audiences the best seat in the house for major festivals and music content every day of the year. We have evolved into one of the authentic voices in live music.

We've delivered record financial performance this year, generating $33.7 million in revenues, up over 350% year-over-year. In Q4, we posted $9.2 million in revenues, up 30% year-over-year.

Metrics are growing at a rapid pace with monthly active users surpassing 1.4 million. In 2019, that number was 1.1 million as well as our paid subscribers, which are approximately -- were approximately 680,000 at year-end, representing over 50% year-over-year growth.

Additionally, we delivered 51 million livestreams across 24 festivals and live events compared to 7 events in 2018. Our livestreams have generated over 400 hours of live content and featured more than 400 of the biggest artists in the world, including iconic performances from Taylor Swift, The Chainsmokers, Katy Perry, Post Malone, Travis Scott, Red Hot Chili Peppers and many more. We cross over all genres of music and now include more than 250 pieces of original programming on our network as well.

We continue to enhance our management team and Board, adding valuable members and unique -- with unique capabilities and expertise in original programming distribution, artist relationships and technologies as well as deep Wall Street and M&A experience. Some of these additions include David Schulhof, the Chief Development Officer as well as Tad Ro, Head of Product. David expertise extends from finance to music driven film, television content, music publishing rights management and just recently he sold his last company for almost $100 million. Tad, a Webby Award winning innovator has developed and launched digital products across mobile web and over-the-top platforms and connected devices for companies, including Verizon, Virgin Mobile, Spin Media and was a driving force in envisioning our next-generation app, which we launched last month.

We also added our largest investor, Ramin Arani as well as Patrick Wachsberger to our Board of Directors last year. Ramin, a 26-year old -- 26-year veteran of Fidelity, previously led the Puritan Fund at Fidelity over $27 billion, he was also again our lead investor in our IPO. Patrick oversaw all aspects of Lionsgate feature film production, acquisition and worldwide distribution as the Chairman of the Motion Picture Group at Lionsgate. During his tenure, the stock went from $7.25 to almost $45 a share. And the company's feature film slate generated over $10 billion in box office.

Key to our success and evolution in 2019 of securing and developing compelling original content and expanding our distribution and sponsorship.

First content and then original programming.

LiveXLive's playbook is to remain independent and partner with the biggest and best live music programmers in the world. We dramatically expanded our partnership with AEG as well as Live Nation, Insomniac, the dance leader -- the thought leader in dance music globally with over 30 festivals and 1,000 live music events, a unique partnership for LiveXLive.

We successfully launched LiveZone, our Sportscenter of music. We increased our traffic by over 75% per day and has significantly expanded our original programming slate. LiveZone help bring pop culture together, including artists, athletes, fashion, esports, press, art and culinary in the center of the biggest hip-hop festival, Rolling Loud.

LiveZone mixes music, news, commentary, festival updates and artist interviews to provide context to our premier events. The original festival-based content has given a leg up on our offering on effective voice to music news, and gives fans a guided and cultural experience distinct to each event, enhancing consumer experience with over 300 pieces of original content, including artist interviews, lifestyle segments and original shows and pilots on the LiveXLive platform.

As an artist-centric platform, it was critical to bring ambassadors in each genre of music starting with our partnership with the iconic hip-hop star, Nas and his brand Mass Appeal.

Sponsorships. LiveXLive continues to expand distribution around the globe, adding to the exclusive partnerships across all Teslas, we are now in 85 other automobiles as well as across all -- almost all major carriers including Verizon, Sprint and T-Mobile.

We have launched apps across Roku, Apple TV, Amazon Fire, partnering with YouTube, Facebook, Twitch, Twitter, Townsquare Media and Dailymotion as well as we introduced LiveXLive's global streaming app across 40 million Samsung TVs.

On the sponsored side, we're just touching the surface of bringing bands, brands and fans together, adding 2 Fortune 500 companies Kia and Samsung as key sponsor partners. We introduced Kia to deliver a branded experience. And with Samsung, we delivered our first 360 VR experience across an entire festival at Rolling Loud.

In short, fiscal 2019 was a year of building the foundation, widening our competitive moat, subscriber -- driving subscriber growth and showing early results in sponsorship revenue. The momentum from 2019 sets us up for significant growth heading into 2020.

I'm now going to turn to 2020. We came out of the gates flying. The live music industry is growing, a $50 billion industry. Goldman Sachs estimates that there will be 1.2 billion paying subscribers of music services by 2030 as well as by 2023, the global over-the-top paid subscribers will also exceed over 1.2 billion. LiveXLive platform is in the eye of the storm, at the intersection of the live, streaming and over the top.

The launch of our new app. As promised, we launched early. We efficiently launched the next-generation, subscription-based social live music platform across audio and video. We have combined the best of Slacker Radio with the best pop culture events around the world. The new platform provides brands, bands and fans one-touch access to live events, audio streams, original content, a library of podcasts, video on demand and the ability to have fully immersive experience to message, chat, buy a hat, buy a T-shirt and social sharing.

The new app enhances the audio and video experience through features like multi-view perspective of the stage and vertical edge-to-edge video, support of both livestreams and video-on-demand playback and a music service that most importantly uniquely personalizes for each user.

We now have over 400 curated channels, and we'll stream over 50 live music events this year. Projecting 50 live music events plus exclusive original programming, we are way ahead of schedule of becoming a 24/7 365 music channel.

Competition. There is no one else doing what we are doing in any meaningful way or with any scale. There is a wide open lane for us, and we have barely scratched the surface of what we can accomplish.

Metrics. The first 2 months of 2020, LiveXLive came out of the box swinging. We passed almost 720,000 subscribers. We're now getting close to 1.5 million MAUs, livestreamed 7 events and hit 20 million livestreams. 85 artists, 125 hours of content. That run rate drastically outpaces our full year 2019 events and livestream views, almost doubling all of our metrics across the board.

Management. In 2020, we continue to expand our management and our Board. In the first quarter, we added Ken Solomon to our Board of Directors. During his career, he built the nation's largest and furthest reaching digital distribution network with 18 major broadcast groups and covering 93% of U.S. television household. He served as President of Universal Studios Television, and has more than 20 years of experience in cable, new media, TV production, distribution, advertising. He is also a pioneer in the licensing and original series across multiple network platforms with Law & Order, SVU, NBC and USA networks, and now runs the Tennis Channel.

Additionally, we've just added Steve Baltin, joined as Editorial Director this quarter. Steve is central to the development of LiveXLive programming. And as a talent consultant, he will be further our original content program slate significantly. Steve has written about music for publications, including Rolling Stone, Forbes, Billboard and Vice. He also hosted TV series and interviewed 100 of the biggest artists in the world.

Content and original programming. We again have maintained our independence through 2020, now partnering with iHeart and SGE. iHeart is the #1 audio company with a 0.25 billion monthly listeners and a greater reach than any other media company in the United States.

SGE has created and produced 50 multi-genre lifestyle music festivals. Most exciting is, they are often in partnership or curated by the artists. This has extended our festival footprint with exclusive livestreaming rights to a minimum of 17 iHeart and 11 SGE, including iHeart and SGE events, Wango Tango, iHeartCountry, the SGE events of Mad Decent and Block Party, Camp Anarchy, featuring world-class artists like Taylor Swift, Billie Eilish, the Jonas Brothers, Halsey, 5 Seconds to Summer (sic) [5 Seconds of Summer].

We've also launched LiveXLive Presents, our sixth event, our exclusive private branded events featuring top music talent, which have included album releases and mini festivals make us a true partner with the artists and the labels. We have featured artists such as Nas, Charli XCX, Dave East, Chromeo and Gryffin.

As mentioned earlier, we launched LiveZone in 2019. In 2020, we launched LiveZone's live newsroom and broadcast. We continue to broaden our line with over 50 host and anchors. The aggregation of the most exclusive pop culture music events in major cities and the ability to launch channels with Insomniac and iHeart and SGE as well as a full slate of original content have created a unique opportunity for sponsors and advertisers to reach millennials.

Our next big initiative will be to launch LiveXLive's 30 On 30 (sic) [30 For 30], a slate of documentaries to give fans an up close and personal look at their favorite artists.

2020 distribution and sponsorship. Advancing strategic partnerships and sponsorships remains a key priority of the company. Right out of the gate, we partnered with Tencent Video to livestream EDC Las Vegas throughout China. Tencent has more than 89 million subscribers and nearly 900 million monthly active users, which significantly expanded our global reach through the leading video platform in China and represents a massive long-term opportunity.

Another exciting venture for the company is our recent cross promotion with Taylor Swift on our own Facebook page. This alone drove 250,000 viewers and 24,000 consecutive views. And there is a larger and grandiose opportunity to continue to do that with artists across their own social media.

Continuing on distribution partners. We have now partnered with Sinclair, their assets over at STIRR, the largest owner of local television stations. So we now have the ability to distribute across local radio as well as local television. And as you watch with Sinclair, they've just bought the YES Network and the Dodgers network as well as the -- all the spot -- the FOX local stations.

Sponsorship. We're feeling the momentum heading in the right direction and seeing over 500% increase in RFPs. Providing confidence to expand our sales team, we went from one salesman in the third quarter last year, we now have 4, and we shortly will have 10-plus salespeople by year-end. Our key brand sponsorship expanded with the addition of Perfectamundo, hitting over 12 million livestreams at EDC as well as Dos Equis debuted officially at EDC Mexico where we exceeded 3 million livestreams.

Our neutral and independent position in the industry has allowed us to partner with labels, promoters, publishers, managers, and most importantly, the biggest artists in the world creating an incremental revenue stream across the entire music industry.

In conclusion, music is the universal language. Bands, brands and fans join together to unify around live music. We have aggregated very similar to ESPN 30 years ago, instead of largest sporting events, the biggest music events in the world, we now are partners with the 2 largest promoters of music, Live Nation and AEG. We have the digital rights to the largest festival in Switzerland, Brazil, Budapest. We have the largest dance music festivals. We have the largest hip-hop festivals. And we continue to grow that and partner with all the remaining thought leaders in live music.

We reiterate our guidance, the 5-year guidance that we believe -- humbly believe we will hit 10 million paying subscribers, a very small percentage of that 1.2 billion total subscribers. We will have a 24/7, 365 live music channel around the globe. In 2020, our guidance will be between $50 million and $65 million in revenues. We expect to exceed over 1 million paying subscribers, 2 million MAUs. We expect to stream 600 to 800 of the biggest artists in the world. We expect to stream 800-plus hours of live programming. We expect to -- based on its trajectory today of 20 million for the first 2 months to hit over 100 million livestreams. Imagine the flywheel explodes with just a small conversion of 1% of that viewership converting to subscription and imagine a CPA, CPM coming from the sponsors and advertisers across that 100-million-plus viewers.

With that, I am going to hand it off to Mike Z, our CFO. And I'll join back in at the end for questions. Mike?

Great, and thank you Rob. We ended our fiscal 2019 with strong results. With $33.7 million in revenue, adjusted operating loss of $12.6 million and record KPIs in fiscal 2019, including over 50% net paid subscribers growth year-over-year, and livestreaming 24 events to over 50 million viewers during the year.

Moreover, we had another record quarter in Q4 2019, including Q4 revenue of $9.2 million, adjusted operating loss of $1.9 million and contribution margins of $2.2 million.

Given this is our fiscal 2019 earnings call, the first portion of my prepared remarks will provide commentary on our fiscal 2019 performance with the latter part on Q4 2019 financial results as compared to Q4 2018. More specifically on fiscal 2019. Fiscal 2019 consolidated revenue was $33.7 million, up over 350% year-over-year from $7.2 million in fiscal 2018 due in part to the timing of our acquisition of Slacker and 52% growth in our paid subscribers year-over-year. And to a lesser extent from growth in our advertising and licensing services.

As a reminder, Q4 2018 was the first quarter with Slacker included in our operations. Ending fiscal 2019, paid subscribers grew to 680,000 or by a net 233,000 from any paid subscribers in fiscal 2018. We ended fiscal 2019 with 90% of our revenue from subscription and 10% from advertising and licensing.

Fiscal 2019 contribution margin was $2.5 million as compared to $0.5 million in fiscal 2018. The year-over-year improvement of $2 million was driven by improved margins from our subscription services of approximately 32.5% in fiscal 2019 as compared to approximately 25.8% in fiscal 2018. The year-over-year improvement in subscription margins was largely driven by the growth and shift in our customer base towards our core subscription offering, which is our most profitable. Offsetting this was spending of approximately $8.3 million to livestream and produce 24 events in fiscal 2019 at an average of $345,000 per event. By comparison, we spent a total of $1.3 million in fiscal 2018 to produce 5 events at an average cost of $260,000 per event. The year-over-year increase in our average cost per event was largely driven by 2 of our more elaborate festival stream in fiscal 2019, EDC Vegas and Rolling Loud Los Angeles. Excluding the costs of producing these events in fiscal 2019, the average cost per festival in fiscal 2019 would've been closer to fiscal 2018.

Fiscal 2019 adjusted operating loss was $12.6 million versus $6.1 million in fiscal 2018. The increase year-over-year was driven in part from the growth in our Music Operations, which produced 19 more live events in fiscal 2019 versus 2018, coupled with the expansion of our team and growth initiatives expended during the year. Offsetting these were year-over-year improved contribution margins and higher capitalized and truly development software costs.

Now I would like to discuss the financial performance in Q4 of fiscal 2019 versus Q4 of fiscal 2018 in more detail. Q4 2019 revenue was $9.2 million, up 30% year-over-year from $7.1 million in Q4 2018 due to year-over-year growth in our paid subscribers. I will get deeper into revenue drivers later in my prepared remarks. Q4 2019 contribution margin was $2.2 million as compared to $1.6 million in Q4 2018. The year-over-year improvement of $0.6 million or 38% was driven by improved margins across our subscription business offset with higher overall livestream events produced in Q4 of 2019 versus Q4 of 2018.

Q4 adjusted operating loss was $1.9 million versus $2.4 million in Q4 2018. The $0.5 million improvement was driven by the previously discussed margin improvement from our Music Operations, which was slightly offset by increased operating expenses largely driven by the expansion of our team and growth initiatives expended during the quarter. During Q4 2019, we also capitalized approximately $0.9 million of internally developed software costs.

Now I would like to discuss the Q4 financial performance across our Music Operations and corporate divisions. Turning to Music Operations. Our Music Operations consists of our audio and internet radio services along with our livestream operations including sales, marketing and product development and to a lesser extent certain general and administrative costs. As previously discussed, our Q4 revenue of $9.2 million was up 30% year-over-year from Q4 of 2018, largely due to growth across our paid subscribers year-over-year.

During Q4, our Music Operations generated $8.4 million in subscription revenue as compared to $6.5 million in Q4 2018. Driving this improvement was a 52% increase in ending net paid subscribers across our music platform. We ended Q4 with 680,000 paid subscribers, up 233,000 from ending Q4 2018 of approximately 447,000 paid subscribers.

The annual net increase in paid subscribers was driven in part by the strength of our B2B consumer-driven business, which includes Tesla and major North American telecom providers. And also from increased additions across our consumer paid subscription services.

To further grow our paid subscriber base, we continue to invest in online marketing campaigns, and more recently launched our unified music application, which now combines our live and audio music services under one application.

With over 100 million livestreams projected for fiscal 2020, we now have the ability to engage our livestream viewers and convert them into paid subscribers. Through today, any paid subscribers have increased to 720,000.

Our Q4 contribution margin was $2.2 million versus $1.6 million in Q4 2018. The improvement of $0.6 million year-over-year was driven by improved margins from the growth and mix of our paid subscription business partially offset by 5 livestream events produced in Q4 2019 versus 0 in Q4 of 2018.

As a percentage of revenue, contribution margin across our subscription services was 37% in Q4 2019, a significant improvement over 26.5% in Q4 2018. This was driven by a shift in customer mix with the larger percentage of net new paid subscribers coming from B2B and Radio Plus offerings, which are generally more profitable versus other subscription services, coupled with a onetime benefit in an accounting adjustment recorded in the period.

Excluding the accounting adjustment, Q4 subscription margins would've been closer to 33% or an increase of 6.5 whole percentage points from Q4 2018. Offsetting this was $1.3 million of production cost in Q4 to produce 5 live events versus 0 in Q4 2018.

During Q4, our average cost to produce a live event was approximately $268,000 per event. Q4 Music Operations adjusted operating loss was $1.5 million as compared to $1.2 million in Q4 2018.

The year-over-year increase of $0.3 million was largely driven by higher operating expenses to support the various growth initiatives and new initiatives and events in Q4 2019 versus Q4 2018 offset by the previously discussed improvements in Music Operations' contribution margin in Q4 versus Q4 2018.

Turning to corporate. Our corporate division principally consists of general administrative functions such as executive, finance, legal and other areas that support the entire company, including any public company initiatives and supporting functions. Q4 corporate adjusted operating loss was $0.4 million as compared to $1.2 million in Q4 2018. The decrease was largely due to a higher number of professional fees and consultants paid through stock-based compensation arrangements versus cash.

Now I would like to discuss the trends in our operating expenses. Excluding noncash stock-based compensation, amortization expense, depreciation and certain nonrecurring operating expenses of $6.6 million in Q4 2019 and $4.8 million in Q4 2018, Q4 of 2019 and Q4 2018 operating expenses were flat at $4 million. Note that our noncash stock-based compensation, amortization expense, depreciation and certain nonrecurring operating expenses increased $1.8 million year-over-year. This was largely driven by higher stock-based compensation, largely associated with stock issued to our growing employee base.

Turning to our balance sheet, we ended Q4 2019 with cash of $13.7 million, up from ending cash of $10.3 million at Q4 2018. The year-over-year increase was largely driven by net cash proceeds from financing of $8.3 million offset by net cash outflows from operations of $5.8 million and investing activities of $2.5 million year-over-year.

The year-to-date net cash usage from operations was largely driven by our adjusted operating loss offset by net cash savings in our working capital driven principally by active management of our payables over fiscal 2019.

Now I would like to update you on a few additional items. As of March 31, 2019, we had approximately 167,000 warrants outstanding and approximately $2.9 million of potential common stock underlying our secured debentures and unsecured convertible notes. We ended the quarter with approximately 52.3 million common shares outstanding.

In March 2019, we extended the maturity of approximately $4.8 million in non-secured convertible notes to May 2021. As of today, we have a total of $12.5 million approximately in secured convertible debentures outstanding.

Turning to guidance. For full year 2020, we are guiding as follows. Revenue of $50 million to $65 million, adjusted operating loss of $10 million to $15 million, CapEx range from $3 million to $5 million. We expect to livestream over 50 live music festivals and events in fiscal 2020.

Lastly, I would like to point out that fiscal 2019 was the first year LiveXLive was subject to full internal control Sarbanes-Oxley implementation and compliance, including external auditor attestation on our controls. Moreover, we are reporting our annual results 15 days earlier than prior year. These factors when combined with a limited finance team and a new external audit firm will result in a delay in filing our March 31, 2019 10-K, which is due this Friday. We fully expect to file our 10-K within the prescribed 15-day extension period, if not sooner, and do not expect any material differences from our Q4 2019 financial results furnished today.

That concludes my prepared remarks. We will now like to open the line for Q&A.

(Operator Instructions) The first question comes from Ron Josey of JMP Securities.

So I wanted to ask a few if possible. One on subscribers. And we look at the additions this quarter and the current run rate and where you are in the center, 20,000 subs as of today. Can you just talk about whether that's the right run rate going forward in terms of subscribers? Just looking for just additional sort of color on the subscriber run rate. And then as it relates to part to subscribers on the partnerships, Rob, you talked about the partnership with Tesla, the 85 auto OEMs, mobile providers, and Mike, I think you talked about the distribution across those. But can you just help us look for, perhaps, the contribution? I'm looking for just a breakout of contribution between your partners and then also just your own and operated or primary. I think that'd be helpful just to give some color on subscribers. And then, maybe Mike on guidance. This is the last question. Just talk about maybe where you're most surprised in the fourth quarter given where numbers came out, understanding the subscription issues? And then also on 2020. With the revenue, $50 million to $65 million is a relatively wide range. Can you just talk about maybe some of the assumptions to get you to the higher end and also to the lower end of guidance? That'd be helpful. Much appreciated. Hopefully you caught all that.

Sure. Thanks, Ron. Let me take your first question. So subs in terms of run rate. I mean listen, we're at the early stages. We just launched our brand-new application. The application now combines live over the legacy audio services. So now we have the ability to engage customers and try to convert them. Whereas historically, we were pushing impressions from one application over to the other. So as far as run rate, our expectation is you're going to see that paid subscriber base start to accelerate more so in probably the latter part of Q2 and in the back half of the year. But during the early part, we're still in the early phases, right, of getting branding and, et cetera, out on that. As far as the breakdown in terms of subscribers, B2B versus consumer. We don't provide a whole lot of detail in terms of the base. But one thing that I have mentioned is where we're growing is in the most profitable area of subscription, which is our Plus offering. So today we offer freemium, we offer Radio Plus, and we offer a premium subscription. And the most profitable of which for us is the one right in the middle. And that's what we're continuing to focus on and continuing to grow. And our expectation is, over the course of the next 12 to 24 months, we're going to announce more strategic partnerships with third parties to continue to grow right in that sweet spot.

On the guidance side, and you had mentioned the low and the high end and then maybe any surprises with respect to Q4. I mean I think we've been pretty transparent in terms of -- we're very excited about the platform we're building and we're still in nascent phases in terms of monetizing that platform, including building our own sales team. As of today, we've got a handful. At the beginning of or at the end of Q3, we had 2 salespeople. So again, expectations are, the advertising and the licensing is going to grow. When is that going to happen? Rob will tell you. He knows it's going to happen hopefully soon. But I wouldn't call that a surprise. I think it's just taking a little bit longer than what we had anticipated.

As far as the delta from the low end to the high end, it's really on -- I mean we have a couple of unknowns. One is, how well are we going to be able to monetize the live users, right, in terms of converting them to paid subscribers. As Rob mentioned, if we can convert 1% of these, of the 100-million plus to come over to our platform, then it's a home run, we're going to be on the high-end side. If the percentage is somewhat smaller, we're going to be on the lower end. On top of that, the timing of when the flywheel takes off as far as subscribers or as far as advertising, I think you'll see the early part being somewhat consistent with the back half of our year. And then that really starting to take off as we get into the second half of this year.

Ron, let me just jump in for a second on that, again, just so you understand. As the new app has now been launched, right, all of this traffic is now going into the funnel, which is why you're seeing our MAUs climb so fast, right. They're climbing almost 70,000 a month, right. And as you know, we took Slacker from losing over $20 million a year now to being very profitable, right. As we now put Slacker and LiveXLive together into one platform, that entire 100-million-plus listeners, right, and watchers that come through it now have the opportunity to become subscribers of LiveXLive. Whereas previously, you would have had to convince them by putting an advertisement on LiveXLive to go to Slacker. So it's really exciting. And again, you don't need a very big percentage. At 1%, these numbers could be easily at the high end of that. But we wanted to be conservative and prudent coming out of it as we see the beginning stages of the new launch.

That's great. And I think that's super helpful. And then Rob, I've got to ask just on the music rights. You talk about the 400 hours of live content. Clearly 50-plus events, large festival this year. And any update on adding the -- being able to watch these events maybe after they're completed? And obviously, LiveZone is adding to the content. But I just wanted to ask about the content. And I'll get back in the queue.

Sure, sure. I mean the first part of that, if you're on our platform you'll see a tremendous amount of VOD more and more of it coming on, right. But the overall, not universal music but universal deal, as you know, Jerry and Mike are deep in the trenches of negotiating that now, and we hope to have that completed as we said before by the end of the second quarter.

The next question comes from Brian Kinstlinger of Alliance Global Partners.

Can you talk about the strategy in signing up non-Tesla plus offering customers? How are you communicating with live viewers? You mentioned that. And when someone is streaming an event, how does the viewer know about the Slacker product? For example, are there ever Slacker ads on the stage or will there be LiveZone discussing that product?

Yes. So Brian, just to take a step back. There is no Slacker anymore, right. It's all LiveXLive. We've aggregated and taken the best of Slacker to combine it with LiveXLive. So that for the first time ever, you have a next-generation subscription that offers you all the audio you can eat plus the best pop culture events in the world live, right. So we do -- our strategy is across the entire platform. Everyone, from our host, to our anchors, to our partners. As an example, iHeart is marketing to -- through their billboards as well as their 250-million plus listeners to come watch on LiveXLive. So we've got that great opportunity to leverage and arbitrage our partners to help us to really build that mass audience, right. And then number one, most important is the artists themselves, right. We've talked a little bit about Taylor Swift. Taylor Swift across Facebook. First time done. We cross-promoted and put the livestream across our Facebook page. Over 250 million -- over 250,000 listeners in under 30 minutes as well as 24,000 consecutive viewers. Everybody across the board is super excited to see that. And you can only imagine what those numbers could be if Facebook opens up the API on Instagram, right, and allows these artists with 50 million and 100 million followers to livestream across them. And then the artist themselves just hitting their social media, is the biggest way we drive traffic. They are hitting their social media and telling their fans and their super fans to come watch on our network.

Right. But on the audio side, are they pitching the audio side? And is LiveZone talking about the audio side?

Sure, sure, all of it. There is no audio versus video anymore. It's now one app, right. The combined app and platform gives you the ability to have both audio and video. So we utilize our hosts and our anchors, right, and our correspondents across both audio and video to do that. We integrate, right, because we own all digital rights to these events, right. That we have both audio and video driving that audience, right, and driving them to subscription. And you're starting to see those numbers. As I just said to -- as I was just articulating, you are starting to see the MAUs really climb, so our free subscribers are now just about equal to our paid subscribers. And that's going to start to surpass that number dramatically shortly as we're growing those about 70,000, 75,000 a month, right. And that's because this traffic is now all that's being driven into the funnel to the overall platform.

Okay. On the advertising side, do you guys have any information that's been discussed with you on why some of the RFPs didn't materialize into revenue? Why were brands reluctant? And what do you think the trigger is in converting these advertisers? Is it just simply more viewers, more eyeballs? What's being communicated, if anything?

I mean I think this is the -- candidly, this is the beginning of the beginning of a revolution. You got to think of this like ESPN 30 years ago, right. It's a dominos effect. As more and more sponsors come in, you're watching from a live perspective, the number is going through the roof, right. Live Nation stock is up to $15 billion, right. It's not happening by accident, it's because ticket sales are climbing, right, as well as sponsorships climbing. Think of it like ESPN. Think of it as Sports 30 years ago. First, the sponsors are going to into the live events, and as they continue to grow their numbers, right -- we're already driving 35x the audience. The enhancement of that to offer the consumer, right, and offer the brands rather than having 100,000 people watch, to have 3.5 million people watch is very compelling. So we're seeing great signs there. Our RFPs are up over 500%. I can't tell you that any one of them was a shocker turning -- agreeing or not agreeing. It was exciting to land here at Samsung and have 2 Fortune 100 companies as partners. It's great to see Dos Equis. So we're crossing over multiple different genres of sponsors. And the mix of the RFPs really cross over just about everything. And it's very similar to sports it was 30 years ago.

Great. Last question I have. In non-Tesla vehicles, can you quantify the impact on subscribers? For example, more so on the paid subscribers and is it a model where you get 3 free months and then it turns into a potential opportunity to be a paid subscriber? Or can they have a free service on the audio side with another vehicle as well?

Yes. I am going to hand this to Mike to give you the response on it. But it's -- there is nothing like Tesla, right. It's a very, very unique partnership to have a partnership that you're literally paid directly from Tesla, and it's for the life of the car, right. But Mike, why don't you take over and give Ron what you can on that.

Yes. I mean Brian, when you think about Tesla, our relationship is with Tesla, right. And so Tesla has a white-label solution that they're passing off to their drivers. Whereas with most of the other automakers, we may be on Apple CarPlay or as an option, but the consumer has to opt in versus the actual auto manufacturer. So for us we're agnostic in terms of where that consumer is coming from. We just know it's a consumer that's engaging across our platform. Does that make sense?

The exciting part of that, Brian, is really the fact that when Tesla chose us, right, it really just gives you the opportunity that many other car companies are going to give you an opportunity to be one of the options, right. And hopefully, in the very near future, we have a real initiative around B2B and opportunities that are like Tesla looking at the retail market from Costcos to Walmarts, to Targets, to loyalty programs. We think there are some really unique spots that is -- as from an audio standpoint, right, our audio let alone now adding the best live music events, right, we have a huge advantage that we're one of the only independents that are left out there. So we have an opportunity that we could really be able to pick up some other partnerships similar to Tesla in other industries as well. And then as most of you know from my background, all of my businesses are mobile centric. The cycle is changing, right. And as that cycle changes, we're seeing more and more carriers looking for either a white-label solution or other partners that they want to be very careful not to continue to allow Apple and Android to collect all of their data and not have their data on their own. And you're seeing just about every carrier around the globe starting to go back in and own their own content. So it could be a perfect storm for us with the carriers as well globally.

The next question comes from Jon Hickman of Ladenburg.

So just a couple of questions. Mike, could you help us for modeling purposes with what you think the stock-based compensation might look like for 2020? Is that going to mitigate the expense growth like it did last year?

I mean yes. I would expect something similar in terms of stock-based compensation year-over-year. Most of our options or RSUs are employee driven. They typically have between 2 to 4 years of vesting. Really the past fiscal year was the first year of that vest. So my expectation is you'd see something pretty consistent year-over-year.

The growth or the -- just could we just model that...

Are you talking about the growth in this year versus last year? Or are you talking about the guidance for next year versus this fiscal year?

Yes. I am talking about guidance for this year. Like if we model -- if we kind took Q4 and ended that in...

Yes. So again, when you're modeling this coming fiscal year, it's going to look something consistent as the prior year.

You mean growth year-over-year?

Correct. Well, no, no, no not growth. If you take the Q4 exit of stock-based compensation and just look at the quarterly trends, it'll be somewhat consistent. Yes.

Okay, okay. Got that. Then could you go into a little bit like one of your expense items that's growing probably the quickest is your product development. Is that like LiveZone? What's going into that? The conversion of the app or...

Exactly. So it was a number of things. So over the past 12 months, our product development team has launched new applications across Android and Apple as well as Roku, Amazon TV and Apple TV. On top of that we've done the whole migration from launching our live platform, right, at sort of the beginning of fiscal 2019, and migrating that into the legacy Slacker product. So a lot of that development and time effort has been expended on that.

Okay. And then I just have kind of 2 questions about some of the metrics that Rob mentioned. One is, he said traffic on LiveZone is going up 75% per day?

Yes. So...

Did I get that right?

Yes. So John, what I mean by that is, we've -- during the time that we've had LiveZone, right, instead of having 1 million viewers, we have 1.75 million viewers. So just to clarify that. So as we roll this out more, there's a real confidence level that, that will increase the traffic numbers overall dramatically.

Okay. And then talk a little bit more about this -- you say your RFPs for advertising opportunities, I guess, are up 500% from like when -- what's the starting point of that I guess?

Yes. So that really is toward ending Q3 to -- or beginning of Q3 versus ending Q4.

Okay. So those 6 months kind of. Okay. And then one last question. When you stream Taylor Swift on her Facebook page and got those 275,000 views, was there a bug or anything that said, brought to you by LiveXLive or visit our app? Or -- how were you able to promote yourself there?

It's all about our LiveXLive branding.

So people saw that when they were watching Taylor?

Correct.

The next question comes from Allen Klee of Maxim Group.

This -- it might be a little early to comment on this but since you launched your live app, LiveXLive app, what you saw in terms of conversion rates? Does it support rates in the 0.5% to 1% type of from free to paid? Or is there anything you can say to that? And then secondly, what's your thoughts of the churn that you see on your subscriber base outside of Tesla, which doesn't have it?

So I'll let Mike take the second half. The first half of it, it's too early to judge. We haven't spent any money marketing yet to really get the marketing campaign out. It's just starting literally this week. But what I could tell you as an example is when BTS did their iHeart performance on our network, we picked up 15,000 downloads of the app. That could've never happened, right, when they had to go over from LiveXLive to Slacker to make that decision. So it's pretty exciting and pretty compelling what these numbers could look like. Mike, you want to answer the second part?

Yes. As far as churn, I mean, listen, we historically haven't talked about our churn for a variety of reasons. The largest reason is a healthy portion of our revenue, 41% in the first -- in the 12 months of fiscal 2019 of our revenue came from Tesla. Now that churn really skews on the overall subscriber base. We're sub 5% in terms of churn overall. I mean, look across our products, across sort of non-B2B, our churn is actually very competitive. We haven't given a whole lot of guidance but hopefully that may help you.

Sure. And Tesla was what percent of sales in the fourth quarter?

In the fourth quarter -- we don't give that, but for year-to-date, it was 41%.

Okay. And then when you provided guidance on CapEx of $3 million to $5 million, does that include capitalized software or is that just CapEx?

Yes. That includes capitalized software.

Okay. And how many festivals or events do you plan to stream in the next quarter?

We haven't broken it down, Allen. We haven't broken it down by quarter. What we said is we're going to do 50. Really exciting that we've done already 7 in the first 2 months, right. So it's pretty indicative we're going to hit that 50 plus. And then the beauty of what's happened now with the partnerships with Live Nation, Insomniac, AEG, and now adding SGE and iHeart is, we really -- we have the ability to do up to 1,000 events, right. So we're going to very cautiously, right, move this just like the NFL Networks did. Yes, we're going to move from last year 24, we expect to do 50 plus this year. But the future is so bright as to how many we can do. And that all of our partners are growing and it's just a great time to have them as exclusive partners.

How do you think about your -- this is my last question, your marketing spend in fiscal '20 compared to '19? And maybe talk about how some of your partners can kind of subsidize that for you?

Sure, sure. So -- and I don't want to use the word subsidize, it's just -- it's a great partnership. So last year we spent about $1.5 million total in marketing, right, which is nothing for a subscription business. The exciting parts of this business is, a, we're getting closer and closer with the artists. We have a bigger artist relationship team, right. Those partnerships with Nas and you're going to see more of those ambassadors in each genre of music coming to -- coming as part of the LiveXLive platform. More and more artists are streaming, the fans and the artists are demanding it. So it gets exciting. It used to be about 50% streamed, it's now probably 80%. So the more they hit their social media, they can drive a lot of traffic. Then iHeart is kind of perfect storm, having them as a partner in that they have access to their 250-million-plus listeners that they are driving to -- driving those consumers to watch on LiveXLive. And that's a fabulous -- there's been a couple of analysts put some numbers on it. It's millions of millions of millions of dollars in marketing to drive those audio listeners to LiveXLive. So really exciting partnership on that. I also think there are better opportunities coming to be able to integrate with the ticket sales, right, and be able to potentially add subscription to those ticket sales. So there's a lot of stuff that we can do with our partners as our relationships get stronger and stronger and the more traffic we drive, the more excited the promoters as well as the artists are about what our platform can do for them as well.

The next question comes from Kevin Dede of H.C. Wainwright.

Mike, you left me with the impression that you're not going to be spending too much more on development. I was just wondering if you could tie that to other features and functionality that you intend to add to the app through the course of the year and next. You talked a little bit about it, but I was just wondering if you could give us a little bit more on what you think you'll do?

Kevin, let me jump on the features and then I'll hand it to Mike in terms of the capital side of it. For the feature side, this is really in an MVP app, right. It's beautiful. It was just chosen as top 10 on android. I expect the same kind of accolades from Apple. So really exciting and the reaction has been pretty spectacular. The next level of this that will be added into this will be our social features, right. And you're starting to see some of those as you watch our events, you'll be able to see message boards and chats, right. But you're soon going to be able to buy merchandise and buy ticketing -- buy tickets to these events and really integrating giving the consumer the opportunity to really participate as close to a live event as possible. And then if -- for any of you that watch what happened with Fortnite, just think of Fortnite, putting in that -- putting the livestream of Marshmello, right, into Fortnite. We have -- with the content we have, we're going to stream 800 plus of the biggest artists in the world, right. You're going to have an opportunity to be able to really look at monetization from that angle as well. Mike, you want to talk about the CapEx?

Yes. I think it's more on product development, correct.

Correct.

Kevin. Yes. So we're going to be spending a little bit more year-over-year in terms of product development. Rob mentioned some features. But this is going to continue to roll out with more great features on like ticketing, merchandising, social applications. This is a constantly evolving process. So yes, we're going to continue to spend. As we grow and offer more rich feature sets, we're going to continue to expend dollars on product development.

So is it -- what's the takeaway then, Mike? Is that -- what was it, roughly $8 million GAAP? Is that something that you'd expect to see next year?

I expect to see it a little bit higher. On a net basis. But remember it's a little bit circular to the extent that I'm creating more functionality across my platform. There's obviously an expectation that I'll be capitalizing more. So it's not going to grow like, yes, crazy. It's a little bit circular, but from a cash perspective, yes, my expectation is that's going to continue to grow. And remember we're going to be producing more and more events. So as we do that and we get better with that in terms of the technical stuff we'll be doing around the events in LiveZone, et cetera, yes, we're going to be spending a little bit more.

All right. That was my next question. So it seems like you rolled through the fourth quarter spending roughly $270,000 per event. But that seemed to be a little bit higher than the average for the full year. So could you just talk to -- I guess how those expenses have increased in partnerships and adding LiveZone?

Yes. So let's just -- so the average for the year was about $350,000. Q4 was a little under $270,000. So our average in Q4 was much less than -- and as I explained in my prepared remarks, that was driven by -- we've got 2 festivals in fiscal 2019 that are just more elaborate, which is EDC Vegas, which is our largest festival that we produce. And then Rolling Loud in Los Angeles, which we did in Q3 of fiscal 2019, where we launched LiveZone and a bunch of other things and we expended a few more dollars versus the average. Going forward, though, we expect that average to continue to decline. Today, we're spending roughly about $20,000 per hour. Maybe that's the best way to think about it. We expect that to go somewhere in the neighborhood of about $15,000 per hour across those events. So maybe a 25% reduction here.

Just to give you an idea on EDC so you understand because that's really where the cost goes up. EDC has 240 artists, right. It's more than double, in most cases, triple or quadruple any other festival, right. They also have 9 stages. So just a massive event with 156,000 people. So the cost of that one is really where that cost goes up dramatically. Our overall cost structure is going down. As Mike just articulated, you're going to see this go from $20,000 an hour for AAA content down to somewhere between $14,000 and $15,000 this year.

But could you offer a little background on that though, Rob? I mean why the dramatic drop?

It's a lot of reasons. Number one is the more events that we're doing, we have economies of scale to being able to negotiate with the truck companies, the camera companies. We bring the host in-house versus paying them on one-off events where you're going to pay them way more, right. We bring team -- the team onto staff as opposed to being freelance, right. And we were just more efficient. And then because of the structure in the partnerships included in the number that Mike's giving you, right, includes everything from sponsorship, okay, from advertising -- I'm sorry, our marketing dollars to production, right. So all those are included in it. Whereas, again, with iHeart and with the artist doing more of it, we're getting a lot of that advertising is going to come from our partners as well.

Okay. Last question is just sort of conceptual. We're seeing -- I mean you like to make comparisons to sports and to video. In the video world there are so many more brands delivering over the top, right. On top of Hulu, Netflix, Amazon, et cetera, right, you see new ones coming out all the time, right. HBO, Paramount. So I'd just like to understand where your confidence comes from given this huge surge in over-the-top video providers that you'll be the singular exclusive music video provider?

Well, I think right off the top is that we're live, right. This is original programming, right. So the fact that we're live, live and live separates us from everyone, and there really isn't another music platform that exists. So my humble opinion to this is and you're starting to see it with our partnership with Sinclair and you saw with Tencent and our partnerships with MTV International previously, right is, that any -- what happened is that the world debundled and now you're watching rebundle again, right. As it rebundles, our humble opinion of our team is that all of these platforms are going to need a music channel. 38% of every video that's watched on the Internet is music. It's hard to imagine that they're not going to need a music channel as part of it. So we don't think we are going to be a lone ranger here. We're big fans of what's happening in over-the-top space. But I do believe that this is going to be similar to cable and satellite, right. When they first came along, they were 2 avenues you could spread your tentacles with your content. Today, there's 100. Soon they're going to be squeezed back down to somewhere between 10 and 20 of them, right. You're going to see them all aggregated and consolidated together. And just -- we believe that all those platforms are going to have a music channel on them. And there probably won't be just one, there'll be multiple music channels. But there'll be no one that has the authenticity that we have that is the authentic voice in live music and is able to deliver like sports, live events. And live is critical right now to where the world is going in terms of traffic and audience.

This concludes our question-and-answer session. I would like to turn the conference back over to Robert Ellin, Chief Executive Officer, for any closing remarks.

Excellent. So I just want to thank everyone for great questions. Again just to highlight the excitement of where we're going. We now have the ability to stream up to 1,000 music events, right. We're going to be cautious and smart about it, right, and continue to grow at a steady pace but not get over our ski tips here. But it's really exciting that if we can just take a small percentage, right, of the number of artists that are performing on our platform, right, the flywheel starts with (inaudible), the number of pieces of real estate, those pop culture events, the number of artists that perform on our stage, that traffic that goes into the funnel, some small percentage is going to convert to subscribers, some small percentage is going to buy merchandise, it's going to buy tickets, right. And sponsors are going to pay some fair price between $25 and $100 CPMs or higher down the line is coming, right. You feel the momentum building. And then the finality of this is, is that in the very near future this library of content we'll be the only ones in the world that has it. So I think there's going to be enormous value in having the best pop culture events, both the pictures and getting images of this as well as the live video of it as well as all the original programming that we're curating. And as you could see by the team that's joining, it's a very sophisticated team that has built some of the biggest cable networks, some of the biggest media companies, some of the biggest music companies. And there's just a real passion around what we're building. And hopefully that's going to start to spread in The Street. As most of you know, last quarter I bought a lot of stock at the end of the quarter at much higher prices. So this is an exciting time to be looking at where our company is at, where the growth is. It's not for the faint of heart, but there is an absolute opportunity to moonshot here. And you get a world-class management team really digging in to make this work. Thank you, everyone. I appreciate it, and we look forward to the individual calls.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.