LiveXLive Media, Inc.
Q2 2020 Earnings Call Transcript

Published: 12 Nov 2019

[Operator:]

Good day, and welcome to LiveXLive Media Q2 2020 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there'll be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.I would now like to turn the conference over to Emily Greenstein with Investor Relations. Please go ahead.

[Emily Greenstein:]

Thank you. Good morning, and welcome to LiveXLive Media's financial results and business update conference call for the second quarter of fiscal year 2020 ended September 30, 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 are not guarantees of future performance or involve and are based on current expectations, forecasts and assumptions that involve risks and uncertainties. These statements include but are not limited to statements regarding the future performance of LiveXLive Media including expected financial results for the full fiscal year 2020 and the future growth and plans in the business. There can be no assurance of the company's attempts or any or all of these endeavours will be successful.Actual results may differ materially from those discussed in this call for a variety of reasons. Please refer to our filings with 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, 2019 filed with the SEC on June 24, 2019, the company's quarterly report on form 10-Q for the quarter ended June 30, 2019 filed with SEC on August 8, 2019 , the company's quarterly report on form 10-Q for the quarter ended September 30, 2019 filed which the company may expect to file with the SEC on or about November 8, 2019 with subsequent SEC filings.Importantly, this conference call contains time sensitive information that is accurate only as of the date of this call, November 7, 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, November 7, 2019 only and except as required by law, we do not undertake any obligation to update or revise this information after the date of this call. I'd also like to highlight investors that the call is being recorded. We are making it available to investors and the media via webcast and a replay will be available on our website in the investor relations section shortly following the conclusion of the call. Additionally it is a property of the company and any redistribution, retransmission or rebroadcast of the call in any form without the company's express written consent is strictly prohibited.Now, let me turn the call over to Rob. Rob?

[Rob Ellin:]

Excellent. Thank you, Emily. Thank you for joining today's call. LiveXLive has come a long way since the beginning of the year. We delivered record performance in Q2 generating 9.6 million in revenues up 20% year-over-year, contribution margin increased to 1.1 million up 1.3 million year-over-year. Paid subscribers have reached 775,000 representing over 40% increase year-over-year. Additionally in Q2 2020 we live stream 10 events versus eight last year, driving over 27 million views. To date the fiscal year we have live streamed 21 music events and reached over 16 million live streams as compared to a total of 24 events and 51 million live streams in support the entirety of fiscal 2019. Our live streams have generated over 265 hours of live content. It features more than 225 of the biggest artists in the world, including performances by music icons across all genres, such as Taylor Swift, Madonna, BTS, Pink, Post Malone, Bon Jovi, Billy Eilish, and Zed. We also developed and made more than 300 original pieces of content available to our users. We continue to grow in Q2 expanding our marketing and distribution partnerships in offering unique and selected original contents and the most important pop culture events around the globe. By live streams, Rock in Rio for the fifth time generating a record settings 12.5 million live streams, as well as a record breaking social engagement. We also launched LiveCause our philanthropic initiative that gives artists a platform to support the charities they are most passionate about. LiveCause, also supporting Amazonia live, Rock in Rio's projects to rebuild the Amazon rain forest.This quarter was entered into strategic partnership with Zoom Media to feature our content more than 3500 interactive screens in health clubs and gyms across the US. Not only did our audience expand by 34.5 million people, but we are once again bringing fans together with fans and brands in a unique setting. We're becoming a defining force in the industry, a global 24/7 365 social music destination through innovative technology and unique content.In July, we launched the 2.0 version of RF the LiveXLive platform now provides consumers the most immersive live music experience while watching fans can engage with the artists community, buy merchandise. We're continually adding to that social functionality and will be shortly introducing pay per view, micro payments, and ticket sales. As an artist centric platform we recently signed rock legend, Perry Farrell, the founder of Lollapalooza to join the hip hop icon Nas as a brand ambassador. We've expect to add more superstars across each genre to our team. These partnerships are win-win as the artists themselves, contribute content and drive subscribers.Along with artist partnerships, our relationships with the largest music programmers in the world continue to flourish. In September, we announced that we expanded our agreement with Life is Beautiful giving us giving our viewers access to this iconic event that has transform downtown Las Vegas for several years. Dominating live music has allowed us to expand from multiple verticals of pop culture.In Q2, we expanded our content footprint at Esports with our partnership with Allied Sports to collaborate on mixing music, news, commentary, festival updates and artists interviews, Allied Esports' fleet of mobile venues will serve as a content generation hub and providing new revenue streams through the connection of live music and Esports. Live Zone was the hyper x sports trucks premiered in Las Vegas during our streams and the two biggest music festival was I Heart Music Festival and Life is Beautiful, effectively taking over music in Las Vegas. Bringing music and gaming fans together we filmed Rising Stars, Juice World and 070 Shake competing during an Esports tournament. Audience experienced crowd facing LED displays, player stations and the VIP lounge providing a unique experience for both consumers and brands. What does the future hold for LiveXLive. We spent the last few years building the flywheel and can now set our focus on capturing the value we created and focusing on return on investment. Over 100 million people have watched our live streams since IPO.We've effectively knocked out the competition and become the global thought leader in Live music. Our instinct has always been that the tremendous value of live music real estate was core to our success. This is proven to be true and now more than ever, the right to these cultural super bowls are only gaining value. So, it’s time for the next phase of our strategy. It's is time for LiveXLive 2.0, we are moving forward towards ROI in every part of our business. The first step was bringing additional world-class talent to our team. In the last few months, we've added Dermot McCormack fromViaComm and AOL as President. Dermot has already made a huge contribution to evolving our content and distribution strategies as well as attracting great new talent to the company. This week we announced Jason Miller from Fuses Global Head of Sales, Carl Auty from MTV Internationals, VP of Marketing.We've also added Bridget Baker one of the founders of CNBC came at Comcast NBC on to our Board. Bridget will be a great asset as we continue to expand our distribution efforts. We will be announcing more key hires in the next few weeks. We will double down on live and taking the insights we have captured while working hand in hand with our partners to hyper target our content with strong focus on ROI. A key part of our strategy LiveXLive will be adding more original content, collaborating with our partners to drive tickets, merchant subscription, showcasing deeper story storylines and artists with artists and combining data and sponsorship in new ways. Distribution and game changing partnerships are key tenets of our strategy. I'm now going to in hand it off to our new president, Dermot McCormack. Dermot, please take over.

[Dermot McCormack:]

Thank you, Rob. So LiveXLive has already reached in 179 countries. We have partnerships with three of the major wireless carriers Verizon, Sprint and T-Mobile and we are already in 85 automobiles. Our app is available across Roku, Apple-TV, RTV, ILX and Android devices as well as Samsung TVs and social platforms including Facebook, Instagram, YouTube, Twitter and Twitch. We are now diversifying our content stack with more original and acquired content and more frequent 365 live programming but now the release parties to club shows to secret pop up events. This live social and original content programming diversification will be key as we seek a strong position in the exploding OTT and re-bundled cable rebundled phase. We will be the sole live music and lifestyle linear network in this new wave of channels being distributed across the ever expanding pay and AVOD video landscapes.We're just having many of our conversations with carriers, satellite and cable and the big social players. Every platform needs live and every platform needs users and LiveXLive has both.We are set up for dominant position and the massive re-bundling of content across major platforms. Following the success of livestreams of Rock in Rio and Electronic Baby Carnival Las Vegas across Sinclair's platform STIRR. We have expanded our partnership to include the first branded linear 24x7 channel. We expect to announce many similar partnerships in the near future. Artists' partnerships are becoming more and more central to our strategy. We are hyper engaged with the artist and manager community as we develop deeper partnerships for unique content and co-marketing opportunities and figure out new ways to reach and monetize social audiences together.Artists are already actively using their content across their social. Everyone from Taylor Swift to J. Lo to Iron Maiden has cross posted their entire LiveXLive stream performance on Facebook this year. Staggering 1.8 million people watched J. Lo and I Heart Latino live festival last Saturday night. We saw the biggest organic traffic weekend ever at Rock in Rio. The momentum is building and that momentum, coupled with our new global sales team led by Jason Miller will directly drive games and advertising and sponsorship sales. We are seeing sponsors from all different verticals including Kia, Samsung, Dos Equis and Roche coming on board. We will leverage this new evolution in content and marketing partnerships to drive margins, product development and increases in subscription growth. And as we have in the past, as with the acquisition of Slacker Radio we are aggressively pursuing several accretive M&A opportunities that will bolster our leadership position. We expect to stream over 40 events this year. Our traffic was 50 million last year, and we have already achieved over 60 million year-to-date, putting on a on a run rate of well over 100 million for the current year and we will shortly pass 800,000 paid subscribers. Stay tuned to LiveXLive.We are at the very early stages of our growth and we have put a world class team together but experienced scaling multibillion dollar businesses. Our sights are set high and we are ready to execute on a massive global opportunity, driving significant growth and shareholder value over the long term. We've accomplished a ton and we have covered a lot of ground in phase one and now it's time to capture all of that value we have created.I'm now going to hand it off to Michael Zemetra our CFO, thank you.

[Mike Zemetra:]

Great, thank you Dermot. We closed Q2 2020 with strong results with 9.6 million in revenue, adjusted operating loss of 3.7 million, contribution margin of 1.1 million and record KPIs through Q2 fiscal 2020, including live streaming 10 events to our 27 million viewers during the quarter and ending Q2 2020 with paid subscribers of 775,000.The first portion of my prepared remarks will provide commentary on our Q2 2020 performance with a latter part on Q2 2020 financial results as compared to Q2 2019. More specifically on Q2 fiscal 2020.Q2 2020 consolidated revenue was 9.6 million, up 20% year-over-year from 8 million in Q2 2019 due to over 40% growth in our paid prescribers year-over-year. Ending fiscal 2020 paid subscribers grew to 775,000 or by a net 226,000 from ending paid subscribers in Q2 2019 or 549,000.Q2 2020 contribution margin was 1.1 million as compared to a contribution loss of 0.2 million in Q2 2019 the year-over-year improvement of 1.3 million was driven by growth and paid subscribers coupled with improved margins from our subscription services of approximately 34% in Q2 2020, as compared to approximately 28% in Q2 2019.In Q2 2020, we said 2.1 million for 10 live stream events versus 2.4 million for eight live stream events in Q2 2019. Q2 2020 adjusted operating loss was relatively flat year-over-year at 3.7 million in Q2 2020 versus 3.6 million in Q2 2019, partly driven by $1.3 million increase in contribution margin offset by a net $1.3 million increase in operating expenses, excluding non-cash depreciation, amortization, stock-based compensation and nonrecurring expenses. As Rob discussed in his prepared remarks, our recent growth has enabled us gain economies of scale and made us more efficient going forward. As a result, we expect our adjusted operating loss to be reduced by 50% in the second half 2020 as compared to the first half of 2020.Now, I would like to discuss the Q2 financial performance across our music operations and corporate divisions. Turning to music operations. As a reminder, our music operations consist of our audio and Internet radio services along with our Livestream operations, including sales, marketing and product development as well as to a lesser extent, certain general and administrative costs. As previously discussed, our Q2 revenue of $9.6 million was up 20% year-over-year from Q2 2019, largely due to growth across our paid subscribers year-over-year.During Q2, our music operations generated $9 million in subscription revenue as compared to $7.2 million in Q2 2019 an increase of 24% year-over-year. Driving this improvement was over a 40% increase in pending net paid subscribers across our music platform. The annual net increase in paid subscribers was driven by the strength of our B2B customer driven business, which includes Tesla and net additions across our consumer paid subscriptions services.Q2 contribution margin was $1.1 million versus a contribution loss of $0.2 million in Q2 2019. The improvement of $1.3 million year-over-year was driven by the growth and mix of our paid subscription business coupled with a lower overall production expenses year-over-year. As a percentage of revenue, contribution margins across our subscription services was 34% in Q2 2019 in 2020 a significant improvement over the 28% in Q2 2019. This was driven by continued growth across our radio plus subscription-base which is generally higher in margins versus other paid subscription plan. In Q2 2020, we also spent approximately $2.1 million in 10 Livestream events in Q2 2020 at an average of $209,000 per event by comparison we spent a total of $2.4 million in Q2 2019 for Livestream and produced eight events at an average of $300,000 per event. The greater than 30% year-over-year improvement in our average cost per event was largely driven by our ability to achieve economies of scale with the increased number of live events in fiscal year 2020 versus fiscal year 2019.Q2 Music operations adjusted operating loss was $2.1 million as compared to $2.4 million in Q2 2019, a year-over-year improvement of $0.3 million that was largely due to improved contribution margins of $1.3 million offset by increases in our operating expenses of $1 million, largely due to higher sales and marketing expenses and product development costs to support the growth of the company during the period.Turning to corporate. As a reminder, our corporate division principally consist of general and administrative functions such as executive, finance, legal and other areas that support the entire company including any public company driven initiatives and supporting functions. Q2 corporate adjusted operating loss increased year-over-year to $1.6 million compared to $1.2 million Q2 2019, a $0.4 million increase was largely driven by higher personnel related cost in corporate, including the appointment of our new President during fiscal 2020, coupled with a $1.3 million increase in nonrecurring legal fees pertaining to higher definitive costs incurred from a matter pertaining to our prior acquisition, offset by a $1.3 million decrease in non-cash stock-based compensation.Now, I'd like to discuss the trends in our operating expenses year-over-year. Excluding non-cash stock based compensation, amortization expense, depreciation, and certain non-recurring operating expenses of 6.2 million in Q2 2020 and 5.9 million in Q2 2019. In Q2 2020 and Q2 2019 operating expenses were 4.8 million versus 3.5 million respectively or a net increase of 1.3 million year-over-year. The 1.3 million increase was driven by increases in sales and marketing expenses from product development driven by a higher number of events and new product development initiatives in Q2 2020 coupled with increases in personnel expenses such as the addition of our new President, as we continue to upgrade our team.Turning to our balance sheet. We ended Q2 2020 with cash of 16.1 million, up from ending cash of 13.7 million at March 31, 2019 and 10.0 million at June 30, 2019. The year-to-date increase was largely driven by 9.6 million in net proceeds raised from the sale of 5 million shares of our common stock in July 2018 offset by net cash outflows from operations of 4.8 million investing activities of 1 million and repayments of our debentures of 1.3 million.The net cash usage from operations was largely driven by our adjusted operating loss offset by net cash savings in our working capital during principally by active management of our payables, which included the extension of approximately $10 million in current payables with certain music partners to be paid over two years and the settlement of approximately 0.4 million in our stock at approximately $4.50 cents per share.Now, I would like to update you on a few additional items. As of September 30, 2019 we had approximately 167,000 warrants outstanding and approximately 2.8 million of potential common stock underlying our security debentures and unsecured convertible notes. We entered the quarter with approximately 57.8 million common shares outstanding. At September 30th, we have a total of approximately 16.2 million in debt outstanding, inclusive of net 1.3 million in deferred debt issuance costs and 0.7 million fair value embedded derivatives.Turning to guidance. For full-year 2020, we are updating our previous guidance to revenue of 38 million to 40 million, adjusted operating loss of 12 million to 14 million, CapEx range from 2 to 3 million. We expect to live stream up to 40 live music festivals and events in fiscal 2020.That concludes my prepared remarks. We would now like to open the line for Q&A.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Ron Josey with JMP Securities. Please go ahead.

[Unidentified Analyst:]

This is David on for Ron. Your guidance assumes flattish sequential revenue for the remaining of the fiscal year. Can you talk about the drivers of this guidance and any additional insight and the assumptions around sub and advertising?

[Rob Ellin:]

So it's combination David. How are you? Thank you. So combination of a little bit slower sponsorship. We've just hired our Chief Head of Sales, Jason Miller has joined us as well as a drop-off from China and that we had substantial revenues coming through from Tencent and other partners who were distributing content that based on the macro issues we're seeing as well as probably been disclosed that the U.S. sales for Tesla have been off. So, we're really excited about the second half of the year, and as Mike has articulated right, we're going to stream close to double the amount of events last year at a much lower cost. So, we've taken our cost structure down dramatically. Our losses will be substantially less than the first half of the year, and we wanted to be come out conservatively and confident where the second half of the year will be.

[Unidentified Analyst:]

That's helpful. Thank you.

[Operator:]

The next question will come from David Bain with Roth Capital. Please go ahead.

[David Bain:]

Great. Thanks. I just have three questions if I could. First I want to follow up with something Dermot touched on. Obviously linear TV ratings remain in decline but the core cutting OTTV, the Netflix, the Primes that's moving and they'll now be seeking I think differentiated content. So given that, could you give a little bit deeper update on STIRR, the Sinclair Go Live, any data points you can share on viewership or what have you, how revenue could evolve from the channel model such as you continue to expand that offering?

[Dermot McCormack:]

Sure. I think it's too early to release viewership data. Just that we, with the tests we've done on the platform, are really making a difference in the traffic and we're trying to integrate with not just the OTT platform, but the broadcast channels and their network. For example, we do a show in a particular region, the local broadcast channels for Sinclair support the show, so we're seeing some great early results and then in Q1 we hope to continue the partnership with previously said at launch of a linear channel.

[Rob Ellin:]

Yeah. Great. And I think just to add to that David. We moved this from very similar to our iHeart partnership. We're originally was attached to now and we're streaming all the live music events. The same thing has happened with Sinclair as we get attached on three of we can't give the metric yet, but they were so exciting that Sinclair has now moved out to a full channel going into 2020 and they're are aggressively pushing for us to do it as early as possible.

[David Bain:]

Okay. Great. And then second one as part as spotify Apple the other, they continue to look for content. Have you heard anything new in terms of real push into the live category, particularly festival. I know they've acknowledged the value, but seems like you guys continue to grab the real estate. Anything on the competitive landscape at this point and then to that end I don't want to go too far with this, but any potential change of control, is that real estate transferable?

[Dermot McCormack:]

Yeah. So, all of our contracts obviously a little different terms in them, but the opportunity of transferring the right partnership is pretty, pretty smooth and easy way to do it. So on the first part of it on the competition side as Erik articulated, earlier in our presentation is that, we really knocked out all of competitors. So, RedBull and Yahoo! We're competing with a lot of money. Those things are over. We've really there is a White Paper again and we really control and dominate this space and continue to grow. We don't see any signs of anyone else entering like and really competing with us, we actually see tell tale signs that like iHeart, there could be additional partners that we really are an added value to the audio side like an enhancement to the audio side. And really, for those audio partners live is really not in their DNA today. It's really more it is it's part of it's a loss leader for their business like iHeart is, so we think this a big opportunity for us to continue partnerships like that and actually enhance our relationship with other audio partners.

[David Bain:]

I mean, obviously your guidance doesn't take into consideration a potential acquisition at least of any significance. To that end can you discuss what some of the major check marks are for an acquisition from maybe a financial standpoint, EBITDA neutral or positive from a strategic standpoint, just giving you requires so much content real estate at this point what makes sense?

[Rob Ellin:]

Sure. So the metrics is going to make sense are our subscribers, content, traffic right all the metrics that we discussed on this call right. So we are full speed ahead, it's been 20 months since the acquisition of Slacker we fully expect that by year end we will be completing our next acquisition and it will be streaming and creative on a revenue side and a consolidated basis will be pushing towards more and more towards better bottom line results in that ROI that we discussed throughout the call.

[Operator:]

Our next question will be from Brian Kinstlinger with Alliance Global Partners. Please go ahead.

[Unidentified Analyst:]

Hey guys this is Jake stepping in for Brian, thanks for taking my questions. I believe in April you've branded Slacker to LiveXLive and launched your integrated platform in addition to increasing your advertising and marketing spending, with that said, do you expect to see -- to begin seeing a stronger conversion from premium to paid subscribers as it looks like we haven't quite seen that yet?

[Rob Ellin:]

Yes, I mean, we've just launched as of at the end of May, the NVP app which consolidates the two. There is a time period that it takes to building out that brand extending that brand. We're seeing some exciting metrics as to free subscribers starting to convert to paid subscribers and as we've launched the social aspects those immersive aspects of our app, right, messaging, chat, by a hat, buy a T-shirt and really given the consumer experience as we add micro payments and pay per view, we think more and more that will lead to consumer spending more and more time on our platform and more and more converting to subscribers.Just to finish, Brian it's still in the very early stages of this. We're just launching 2.0 LiveXLive and really see some telltale signs that these metrics should really start to kick in and as you can see by the additional management team that we added is a real focus now on revenues and driving both subscription as well as sponsorship.

[Unidentified Analyst:]

And then based on the RFP pipeline conversations you're having with brands, do you expect a ramp in advertising revenue during the second half of fiscal year 2020?

[Rob Ellin:]

I think the answer to that is you can see by the estimates that we put out the guidance and we put out. Sponsorship sponsors are little bit slower than we had hoped, but at the same time, as I've articulated for last six quarters, we really have not hired our sales team until we just hired Jason as of this month. We really see the telltale signs like sports. Where we're no longer trying to sell a one-off property on its own, right, trying to sell EDC or Rock in Rio. We're really packaging these like sports, like the ACC or like the NBA we're starting to look at sponsorships that are way bigger, right, that really price these things that they deserve and as you can see by Live Nation and what's happening on the live-side of sponsorship, that's a massively growing industry. If you just look, you look at the tail on that as more and more sponsored dollars pulling for live music, we're already driving 35 times to 40 times the audience digitally.Those sponsors are going to come. And I think Jason joining and with a spectacular career in delivering sponsors like all genres of sponsors I think it's a telltale sign of what's to come. I can't promise you whether it's this quarter, next quarter, but certainly in the very near future, you're going to see a big pickup in sponsorship and RFPs are up over 600%. So, the conference is building, but you never know the day that that really kicks in but we're confident and hopeful now.

[Unidentified Analyst:]

Okay. Great. And then one last one, when subscriber streams live event, what was the average they're they're streaming for?

[Rob Ellin:]

So, each platform is a little bit different but the average is over 10 minutes. So, very much like sports, these are pretty spectacular numbers that in terms of minutes watching and the engagement is getting longer, the artists are getting more and more engaged, as Dermot articulated J. Lo and Taylor Swift all cross promoted across their Facebook and streamed across their own Facebook pages. This is pretty magical to have you know these giant social media stars promoting LiveXLive and helping to build our brand. And this is, again, if we move from the first inning, we're now in the second inning of this. We really have done a pretty amazing job of infiltrating and bringing artist relations. We now over seven people in artist relationships up from three that's not including senior management and you can just see more and more telltale signs that the artist themselves are getting more and more engaged in our platform and driving more more and more of our traffic. And I think in the very near future we are going to see those artists drive a substantial amount of our subscription as well.

[Unidentified Analyst:]

Okay. Great. Thanks again.

[Operator:]

The next question comes from Jack Vander Aarde with Maxim Group. Please go ahead.

[Jack Vander Aarde:]

So, I just wanted to touch on the guidance reduction quickly again and just get a sense as to how much of this is driven by the advertising and license segment. It seems like paid subscribers and subscription revenue were in line with at least my expectation. So, how much of this is related that segment, the other segment?

[Rob Ellin:]

I mean, it's mostly related to both sponsorship and we've articulated sponsorship and distribution which is a combination of those distributors including China, which was an excellent partner for us.We're hoping that you know that macro issue is resolved shortly and those numbers can come back in. We'd have to rethink guidance at some point if it does. But that was certainly a hit this year as well as with Jason just joining we have to give him an opportunity right, to really go for the jugular. You know, as I've always said in these calls, we have set the tone that we have the biggest pop culture events in the world. We didn't want to mis-price these and sell subscription at peak discounts and set a price that would three or four years to recover from. So, we really with Jason now joining us and Dermot joining live, we're really confident that we're looking for big ticket items and making sure that the sponsorship dollars are reflective of the product and the original programming that we deliver.

[Jack Vander Aarde:]

Got it, that makes sense. And then as for gross margin, which that there is upside in gross margin this quarter both as expectations. How much of this was related to just the revenue mix that was the result of this quarter. And then how should we think about gross margin directionally trending on a quarterly basis for the remainder of this year?

[Mike Zemetra:]

Yes, so if you unbundle the components here the subscription side of the business was 34% from a contribution margin perspective, as opposed to 28% so that drove a substantial amount virtually all of the benefits the $1.3 million benefit year-over-year. And then going forward, as we mentioned we're going to be getting some giant economies of scale, our average cost per event it was about $200,000 dollars this quarter and we fully expect that to continue to decrease in the second half of the year. So I think you're going to see an uplift in, I know you will see an uplift in contribution margin going forward.

[Jack Vander Aarde:]

Got it. So would it would it be correct to assume a sequential increase for the next two quarters?

[Mike Zemetra:]

That would be correct.

[Rob Ellin:]

I think the last. Thanks Mike and just to add to that, I just did an interview where I was asked about the pricing of music, so just if you just put the audio component of this there has been a price war out there, between Apple and Amazon and YouTube and Spotify. Now that we have over 1500 live music events locked up for multiyear deals, we now have enough content that we can start thinking about raising those prices right for subscriptions, we're carefully looking at the right time, but it certainly make sense that our subscription model should be looking at a higher pricing in the very near future and Dermot and I are carefully going through that and will make a decision in the very near future as to pricing, but we see opportunities that the price war can't go on forever, the opportunity to raise prices and the fact that we're delivering so much exclusive original programming, really puts us in a position that we can separate ourselves from the pricing standpoint as more and more of our content is original programming.

[Operator:]

Next question comes from Barry Sign with Spartan Capital. Please go ahead.

[Unidentified Analyst:]

First question, Rob. You mentioned Tesla in your remarks and there has been a lot of chatter as you know round that relationship. Could you characterize where that relationship is today and then on a related note what would you if require and what would it take for you to follow them globally with that relationship?

[Rob Ellin:]

Yes, so as you know, Barry we can't talk about it a lot. We're under our agreements. What I can say is, is that we have continued to grow with them. And we need to continue to grow in other places. Because no matter how fast they grow, we're going to need to if this is really going to work and the size we're looking at and really deliver this original programming around the globe. We're going to have expansion you're starting to see our monthly users grow, we're averaging 1.3 million monthly users so more and more free subscribers are coming into our platform.So, we're really excited about the overall growth and Tesla's been a fantastic partner, but it's is very important for us to outgrow and as everybody knows spotify has been added to the car, right. There are a lot of alternatives right within cars including just the ability to airplay right on to your phone. So, we've expanding now, we're across 85 other cars as well as the course carries around the globe and all of these initiatives right from iHeart and the 260 million listeners like being offered the opportunity to watch LiveXLive to artists right when you have artists like J. Lo with $75 million followers coming their audience, their fans, their super fans like their social media to come watch LiveXLive. We got to continue to expand our opportunities around the globe and again Tesla's a fantastic partner. We got to keep growing outside of Tesla and keep expanding outside of Tesla in order to achieve the goals of this company.

[Barry Sign:]

Okay. That's helpful. Switching gears, the hire of Jason Miller. You've long talked about a key goal for the company has been the hiring of the new Head of Sales, so you've now achieved that. One, could you talk about organization underneath him, how large is it? What are they doing and then also when you hired him, give us a rough sense of what we should expect to see externally from his efforts?I think you said probably not a quarter, two quarters but when might we see a. some press releases and b. something in the advertising and sponsorship revenue line as a result of his hire?

[Rob Ellin:]

Sure. So again, this being capital where we're setting the guidance, right. Jason is a seasoned veteran, so he has done a substantial amount of sponsorship, right both Live as well as across cable channels delivered a very meaningful numbers that would change the course of history for LiveXLive right. Cause we already have a few dollars right in sponsorship revenues. So, this is seasoned veteran. I couldn't be happier to have him join the team, with Dermot and Jason leading this charge, we're really excited about it. On top of that, we have some expertise now in Chicago who came at a Live Nation. We have some expertise in Los Angeles that came out of iHeart.So, we continue to expand the team. And then, may be the most exciting part of it is, because of Jason's relationships and Dermot and I's relationships we now have a partnership with iHeart that their entire sales team is upselling sponsorships to all the iHeart events. The same thing with Live Nation, and so at a really high level we get to work together with our partners to deliver those sponsors, as you guys know they are participating in the back end, and that's really the uniqueness to the partnerships with the Insomniac and Live Nation and AG and iHeart.

[Barry Sign:]

All right. Next question I guess for Mike. Mike, kind of hidden in the release that didn't get a lot of focus was this $1.3 million legal cost in the quarter. In my mind that's pretty significant, that's about 35% of your reported adjusted operating loss. And I think you said that was nonrecurring. Can you talk about what was that related to? I know you said it was prior acquisition and is that truly a nonrecurring? I wonder look at the recurring results of the business would it be fair to strip that out of what you just reported?

[Mike Zemetra:]

Yeah. Thanks. It's a 100% nonrecurring. It's a defense cost, you can read our disclosures of legacy acquisition and we've added it back. And with that we have a deductible right and covered by insurance in that Barry. So this is fully covered going forward by the insurance companies. It's an ongoing we acquired a acquired the assets of a company called One Tickets, we can't go into a lot of detail. We acquired it for a tiny amount and you can read it in the disclosures, but as you know litigation can be expensive. So you have no choice but to engage and make sure that it goes away smoothly and as you can read in the disclosures there's very little exposure to this based on the fact we didn't buy the company all we bought was some assets of it.

[Barry Sign:]

Okay, my last question could you give us a sneak preview of what we can expect in terms of festival events for the next quarter or two?

[Rob Ellin:]

Yes, I mean, we're going to come out with that shortly, Barry will put out an updated list of events. But it's going to be extremely exciting again as you saw this quarter was way more exciting than we expected, like we added Life is Beautiful at the last second and we streamed, we stream with Juice World and 070 right from Alex sports trucks, we added multiple additional iHeart events and you're going to see more and more original programming, you're going to see more and more LiveXLive present events. So we will be shortly putting out a programming line-up and as we said, we're going to be around 40 events for this year. So I think we did 11 the second half of last year in that range 10 or 11. So we're going to more than double it and our costs have gone down dramatically and they're going to continue to go down. The economies of scale slide are really kicking into place, our partnerships are getting better and so our cost per acquisition of the content, our cost per production, like a cost for marketing is all going down and the exciting part is we're driving a bigger and bigger audience.

[Dermot McCormack:]

And Barry, I'll just add. This is Dermot. We are looking at specifically 2.0, where we just have deeper, deeper relationships with the festivals where we partner on driving ticket sales, bundling subscriptions and I'm sharing an upside in revenue. So really pay attention to the next wave of festival announcements where we have much deeper partnerships.

[Rob Ellin:]

And Barry, we never talked about it but think of that bundling of subscription is starting to convert ticket buyers into subscribers.

[Barry Sign:]

Okay. I'll look forward to that too. Thank you very much gentlemen.

[Operator:]

Thank you. The next question will come from Jon Hickman with Ladenburg. Please go ahead. It appears Mr. Hickman inadvertently disconnected his line. At this time, I'm assuming no further questions. So I'd like to turn the conference back over to you Mr. Ellin, for any closing remarks.

[Rob Ellin:]

Terrific, and thank you everyone for joining. It's been a really exciting quarter and we look forward to the next six months of the year, like really to some amazing talent, performing on our stages and really focusing the business right and 2.0 but 2.0 is going to be that more and more content, stronger and stronger support from the artists, more and more traffic driven by more and more ROI, conversion through subscription sponsorship and a real focus on that and we're couldn't be more excited that again, we've become the authentic thought leader in this space and then wide open space and we continue to do this, like we continue to deliver. We're going to deliver that next generation MTV we talked about two years ago when we took the company public. Thank you very much and I'm happy everyone joined.

[Operator:]

Thank you, Sir. The conference has now concluded. Thank you attending today’s presentation. You may now disconnect your lines.