PodcastOne, Inc. Form 10-Q Summary
Business Context and Reporting Period
PodcastOne is a podcast platform and publisher providing advertising-supported audio, video, branded podcast, merchandise and live-event offerings. The company operates as a majority-owned subsidiary of LiveOne, Inc. and completed its direct listing on Nasdaq on September 8, 2023, becoming a standalone publicly traded company. This report covers the three and nine months ended December 31, 2023, within fiscal 2024. The interim financial statements are unaudited.
- Reported approximately 4.8 million monthly unique listeners, 20 million IAB monthly downloads and more than 300 exclusive podcast shows.
- Podcast downloads increased 18% year over year to 652.5 million for the nine months ended December 31, 2023.
Financial Performance and Liquidity
| Metric | Three Months Ended December 31, 2023 | Year-over-Year Change | Nine Months Ended December 31, 2023 | Year-over-Year Change |
|---|---|---|---|---|
| Revenue | $10.4 million | 22% | $31.6 million | 22% |
| Cost of sales | $9.4 million | 33% | $26.7 million | 34% |
| Gross profit | $1.1 million | Down from $1.5 million | $4.8 million | Down from $5.7 million |
| Gross margin | 10.1% | Down from 18.0% | 15.6% | Down from 22.1% |
| Operating loss | $2.6 million | Up from $0.7 million | $3.8 million | Up from $1.0 million |
| Net loss | $2.6 million | Up from $2.1 million | $13.7 million | Up from $3.0 million |
| Adjusted EBITDA | $(0.4) million | Down from $0.1 million | $0.4 million | Up from $(0.02) million |
Revenue growth was attributed primarily to higher barter revenue and increased advertising inventory. Barter revenue was $3.1 million in the quarter and $10.7 million for the nine-month period, compared with $2.0 million and $5.1 million, respectively, in the prior-year periods.
Cost of sales increased faster than revenue because of revenue-sharing expenses and commissions paid to content creators. Sales and marketing expense declined, but general and administrative expense increased substantially due to stock-based compensation, costs related to the Spin-Out and the Finder’s Fee Agreement. Amortization expense also increased because of newly capitalized content-related intangible assets.
The nine-month net loss included $7.6 million of expense from changes in the fair value of bridge-loan derivatives, $2.7 million of stock-based compensation, $0.7 million of depreciation and amortization, and $1.9 million of debt-discount amortization. These items were substantially non-cash.
- Cash and cash equivalents: $1.4 million at December 31, 2023, down from $3.6 million at March 31, 2023.
- Current assets: $9.6 million; current liabilities: $10.9 million; working capital deficit: approximately $1.3 million.
- Accounts receivable, net: $7.8 million; accounts payable and accrued liabilities: $7.8 million.
- Total liabilities: $11.2 million; accumulated deficit: $28.6 million.
- Net cash provided by operating activities: $1.8 million for the nine months, compared with $4.3 million used in the prior-year period.
- Net cash used in investing activities: $0.9 million, including software costs and acquired podcast-related intangibles.
- Net cash used in financing activities: $3.0 million, primarily for repayment of bridge-loan principal.
Material Changes Versus the Prior Comparable Period
- Revenue increased 22% for both the quarter and nine-month period, but gross margin declined because cost of sales grew faster than revenue.
- Operating losses widened to $2.6 million for the quarter and $3.8 million year to date, driven by higher general and administrative costs and amortization.
- General and administrative expense increased 134% in the quarter and 74% year to date, primarily from stock-based compensation, Spin-Out costs and Finder’s Fee-related costs.
- The bridge loan was partially repaid by $3.0 million and the remaining approximately $7.02 million, including interest, converted into approximately 2.341 million common shares upon the September 2023 direct listing.
- Bridge-loan warrant liabilities of $9.1 million were reclassified to equity after the warrant terms became fixed, and the related embedded derivative liability was eliminated.
- Shares outstanding increased from 20.0 million at March 31, 2023 to 23.1 million at December 31, 2023, excluding potential dilution from approximately 3.114 million outstanding warrants and equity awards.
- Finite-lived intangible assets increased to $3.1 million from $0.7 million at March 31, 2023, primarily from content creator relationships and brand-related assets.
Guidance, Outlook, Risks and Unusual Items
Management did not provide formal revenue or earnings guidance. Management expects operating expenses to remain elevated as the company invests in content, sales growth, technology and public-company compliance. Management is pursuing additional financing and states that existing cash resources are not expected to meet current operating and liquidity needs beyond November 2024 without additional funding.
The financial statements include a going-concern disclosure. Management states that substantial doubt exists regarding the company’s ability to continue as a going concern within one year from the filing date because of recurring losses, a $28.6 million accumulated deficit, a $1.3 million working capital deficit and limited cash. Additional financing may be unavailable, may be on unfavorable terms or may materially dilute existing stockholders.
- LiveOne remains a majority owner and provides or allocates certain services and funding. Related-party payable was $3.1 million and related-party receivable was $2.7 million at December 31, 2023.
- LiveOne reported $8.6 million of consolidated debt, consisting of its asset-backed loan facility and Capchase loan. LiveOne was in compliance with applicable covenants at December 31, 2023, but defaults or acceleration could adversely affect PodcastOne.
- The company has guaranteed content-provider and other contractual obligations of approximately $0.6 million for the fiscal year ending March 31, 2024.
- A California employment-related lawsuit remains pending. Management believes the claims lack merit and that a loss is not probable, but states that the potential loss range could materially affect results if an adverse outcome occurs.
- Disclosure controls and procedures were not effective at December 31, 2023 because of a continuing material weakness involving the identification and accounting for significant and unusual transactions, including business combinations and push-down accounting.
- Advertising measurement standards, programmatic advertising platforms, podcast audience trends, content acquisition costs and dependence on third-party distribution platforms remain significant operating risks.
Most Important Facts for Investors to Verify
- Whether the company can obtain additional financing before its projected liquidity shortfall and on terms that do not cause substantial dilution.
- Whether revenue growth, particularly barter revenue, translates into sustainable cash generation and improved gross margins.
- The composition and collectability of the $7.8 million accounts receivable balance and the nature of the related-party receivable and payable balances.
- The economic impact of the approximately 3.114 million warrants, equity incentive awards and future equity issuances.
- Whether management remediates the material weakness in internal controls and whether future filings require accounting revisions.
- Potential effects on PodcastOne of LiveOne’s debt covenants, liquidity, SoundExchange settlement obligations and any lender acceleration rights.
- The potential financial exposure from the pending employment litigation and the company’s contractual minimum guarantees to content providers.