rtside (PODC) - 2025 Q4 - Annual Report

Business Overview PodcastOne operates an ad-supported podcast platform, achieving $52.1 million revenue in FY2025, while managing download declines and leveraging proprietary technology and strategic partnerships Company and Business Model PodcastOne, a LiveOne subsidiary, operates an ad-supported podcast platform, offering comprehensive creator services and a self-publishing incubator, with $52.1 million revenue in fiscal 2025 - PodcastOne is a leading podcast publisher and a majority-owned subsidiary of LiveOne, Inc., having completed its direct listing on Nasdaq in September 2023[19][20] - The business model is ad-supported, generating revenue from host-read ads, dynamic ad insertion (DAI), and sponsorships, with revenue shared with talent[22][27][29] - The company operates LaunchpadOne, a free self-publishing platform for independent podcasters, serving as a talent pool for the main network[23][39] Fiscal Year Financial Performance | Metric | FY 2025 | FY 2024 | Growth | | :--- | :--- | :--- | :--- | | Revenue | $52.1 million | $43.3 million | 20% | Key Business Metrics Podcast downloads, the primary business metric, decreased 44% to 204.7 million in fiscal 2025, primarily due to Apple iOS 17 changes and partner network departures - The decrease in podcast downloads is primarily due to modified download behavior by Apple iOS 17 and the departure of non-revenue generating partner networks[41][58] Podcast Downloads (YoY) | Metric | Year Ended March 31, 2025 | Year Ended March 31, 2024 | YoY Growth | | :--- | :--- | :--- | :--- | | Number of podcast downloads | 204,709,000 | 368,812,413 | (44)% | Growth Strategies Growth strategies include launching and acquiring podcasts, investing in advertising, and partnering with new distribution platforms, with recent revenue growth significantly driven by a single large customer - Key growth strategies include launching new podcasts with relevant creators, acquiring existing podcasts, investing in advertising, and partnering with new distribution platforms[43][45][46][47] - Ad-supported service revenue grew 20% from $43.3 million in FY2024 to $52.1 million in FY2025, with 94% ($8.2 million) of this increase from a single largest customer[49] - In April 2025, the company entered a three-year agreement with Amazon's ART19 for hosting, expecting to drive additional monetization[46] Competition and Market Position The company competes for listener attention and advertising revenue with a broad range of digital and traditional media, including major streaming platforms and internet companies - The company competes for listeners with other on-demand audio services, radio providers, and various entertainment forms[76] - Competition for advertising spend comes from internet companies, social media sites, and traditional channels like radio and television[77][129] Intellectual Property and Technology The company protects its business through intellectual property and proprietary technology, including a Content Management System (CMS) and the LaunchpadOne self-publishing platform - The company utilizes a proprietary Content Management System (CMS) providing creators with download numbers and analytics, noted as a competitive differentiator[69][70] - LaunchpadOne is a key asset, offering a free, end-to-end podcasting solution for independent creators and serving as a monetization channel through ad insertion[81] - Since 2019, the company includes passive participation rights in agreements, allowing payment from derivative works without creative control[80] Risk Factors The company faces significant risks including ongoing losses, going concern doubts, intense competition, reliance on advertising, key personnel dependency, and financial exposure through its parent company's debt Business and Industry Risks The company faces business and industry risks including recurring losses, going concern doubts, high dependence on volatile advertising demand, intense competition, and reliance on talent with significant minimum guarantee payments - The company has a history of significant operating and net losses, reporting a net loss of $6.5 million for fiscal 2025 and $14.7 million for fiscal 2024[109] - The independent auditor's report expresses substantial doubt about the company's ability to continue as a going concern due to recurring losses from operations[123][432] - The business faces intense competition from other podcast providers, internet radio, and large digital media companies with greater resources and brand recognition[126][127] - Revenue is highly dependent on advertising demand, which is subject to economic downturns and shifts in marketing budgets[135] - Significant minimum guarantee (MG) payments to talent pose a financial risk if revenue forecasts are not met, potentially impacting margins and operating flexibility[132] Company-Specific Risks Company-specific risks include previously identified material weaknesses in internal controls, heavy dependence on key management, increased public company compliance costs, and potential impacts from rising inflation - For fiscal 2024, management concluded disclosure and internal controls were ineffective due to material weaknesses, though remediated by fiscal 2025 year-end[214][215][216] - The company's success is highly dependent on key members of management, including President Kit Gray, Executive Chairman Robert Ellin, and CFO Ryan Carhart[225] - Operating as a public company results in significant and increasing legal, accounting, and other compliance-related expenses[227] - Rising inflation poses a risk by increasing costs for labor, technology, and equipment, which may not be fully recoverable through price increases[234] Risks Related to LiveOne Relationship and Debt As a majority-owned subsidiary, PodcastOne faces risks from LiveOne's substantial debt, which is secured by PodcastOne's assets and includes restrictive covenants, alongside potential conflicts of interest as a controlled company - LiveOne's debt agreements contain restrictive covenants and are secured by substantially all assets of both LiveOne and PodcastOne, potentially limiting operating flexibility[244][527][558] - PodcastOne is a "controlled company" under Nasdaq rules due to LiveOne's majority voting stock ownership, though it does not currently intend to use governance exemptions[247][248] - Potential conflicts of interest exist with LiveOne concerning business opportunities, strategic decisions, and competitor relationships[250][251][252] Management's Discussion and Analysis (MD&A) This section discusses the company's financial performance, liquidity, and critical accounting policies, highlighting revenue growth, reduced net loss, ongoing going concern doubts, and reliance on external financing Results of Operations Revenue increased 20% to $52.1 million in fiscal 2025, primarily from a single customer, leading to a reduced net loss of $6.5 million due to lower other expenses, while Adjusted EBITDA turned negative - Revenue increased by $8.8 million (20%), with $8.2 million (94% of the increase) attributed to a single largest customer[369] - The significant reduction in net loss from $14.7 million to $6.5 million was primarily due to a $9.7 million decrease in 'Other income (expense), net', including a $7.6 million loss on derivative fair value changes and $2.2 million in interest expense in fiscal 2024[378] Consolidated Statement of Operations (in thousands) | | Year Ended March 31, 2025 | Year Ended March 31, 2024 | | :--- | :--- | :--- | | Revenue | $52,119 | $43,302 | | Cost of sales | $47,394 | $37,326 | | Total operating expenses | $58,553 | $48,313 | | Loss from operations | $(6,434) | $(5,011) | | Total other expense, net | $0 | $(9,666) | | Net loss | $(6,458) | $(14,732) | | Net loss per share | $(0.26) | $(0.68) | Non-GAAP Adjusted EBITDA Reconciliation (in thousands) | | Year Ended March 31, 2025 | Year Ended March 31, 2024 | | :--- | :--- | :--- | | Net Loss | $(6,458) | $(14,732) | | Adjustments (Depreciation, Stock Comp, etc.) | $5,957 | $15,233 | | Adjusted EBITDA | $(501) | $501 | Liquidity and Capital Resources The company's liquidity is constrained by $1.1 million cash and an accumulated deficit of $36.1 million, raising going concern doubts and necessitating additional financing, with LiveOne's new debt facility secured by PodcastOne's assets - The company has a history of losses and an accumulated deficit of $36.1 million as of March 31, 2025, raising substantial doubt about its ability to continue as a going concern[416][453] - Management anticipates existing cash resources of $1.1 million will not be sufficient beyond June 2026, requiring additional financing[413][454] - In May 2025, parent company LiveOne secured new senior secured convertible debentures, raising an initial $15.25 million, guaranteed by PodcastOne and secured by its assets[409][553] Cash Flow Summary (in thousands) | | Year Ended March 31, 2025 | Year Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(212) | $2,211 | | Net cash used in investing activities | $(154) | $(1,328) | | Net cash used in financing activities | $0 | $(3,000) | | Net change in cash | $(366) | $(2,117) | Critical Accounting Policies and Estimates Critical accounting policies involve significant management estimates, including revenue recognition for advertising and barter, stock-based compensation, business combinations, and complex debt instrument valuation - Advertising revenue, including barter transactions, is a key estimation area, with barter revenue at $25.0 million (48% of total revenue) in fiscal 2025, up from $16.7 million (39%) in fiscal 2024, attributed to a single customer[388][389][462] - Stock-based compensation is valued using the Black-Scholes-Merton model, requiring subjective estimates for variables like expected volatility and term[390] - Business combinations require management to estimate the fair value of acquired assets and liabilities, with goodwill tested for impairment annually[392][401] - Complex debt instruments with conversion features are assessed for derivative treatment, requiring fair value measurement at each reporting period[394][395] Financial Statements and Notes This section presents the audited financial statements, including balance sheets and statements of operations, along with key notes detailing auditor's going concern opinion, bridge loan conversion, commitments, and subsequent financing events Independent Auditor's Report The independent auditor's report expresses a fair opinion on financial statements but highlights substantial doubt about the company's going concern ability due to recurring losses - The auditor's report includes a "Going Concern Uncertainty" paragraph, citing recurring losses, negative cash flows, and a net capital deficiency that raise substantial doubt about the company's ability to continue as a going concern[432] Consolidated Financial Statements The consolidated balance sheet shows $21.2 million in total assets and $15.1 million in equity as of March 31, 2025, while the statement of operations reports a $6.5 million net loss for fiscal 2025 Consolidated Balance Sheet Highlights (in thousands) | | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,079 | $1,445 | | Total Assets | $21,195 | $24,125 | | Total Liabilities | $6,053 | $7,784 | | Total Stockholders' Equity | $15,142 | $16,341 | Consolidated Statement of Operations Highlights (in thousands) | | Year Ended March 31, 2025 | Year Ended March 31, 2024 | | :--- | :--- | :--- | | Revenue | $52,119 | $43,302 | | Loss from operations | $(6,434) | $(5,011) | | Net loss | $(6,458) | $(14,732) | Note 6: Bridge Loan and Warrants The $8.8 million PC1 Bridge Loan was converted into common stock upon direct listing in September 2023, and associated $9.1 million warrants were reclassified from liability to equity - The PC1 Bridge Loan, taken out in July 2022, was fully converted into common stock upon the direct listing in September 2023[505][509] - Upon the direct listing, the PC1 Warrants became fixed and were reclassified from a $9.1 million liability to additional paid-in capital[510] Note 8: Commitments and Contingencies The company has $1.5 million in content provider commitments and a $15.0 million minimum guarantee agreement with Amazon's ART19, while also being exposed to LiveOne's debt secured by its assets - As of March 31, 2025, the company has guaranteed payment obligations to content providers of $1.3 million for FY2026, $0.1 million for FY2027, and $0.1 million for FY2028[522] - A three-year agreement with Amazon's ART19 requires a minimum guarantee of $15.0 million to PodcastOne over the term, subject to impression targets, with $0.8 million revenue recognized in fiscal 2025[524] - LiveOne's debt facilities are collateralized by a first lien on all assets of LiveOne and its subsidiaries, including PodcastOne, exposing the company to risks related to its parent's financial health and debt compliance[527][528] Note 12: Subsequent Events Subsequent events include LiveOne securing new $15.25 million secured convertible debentures guaranteed by PodcastOne, and new employment agreements for key executives with significant RSU grants - In May 2025, LiveOne sold $16.775 million in principal amount of senior secured convertible debentures for $15.25 million, guaranteed by PodcastOne and secured by its assets[553][558] - In June 2025, new two-year employment agreements were signed with President Kit Gray (annual salary $375,000) and CRO Sue McNamara (annual salary $325,000), including substantial RSU grants[559][560] Controls and Procedures This section details management's evaluation of disclosure controls and procedures, confirming their effectiveness and remediation of prior material weaknesses Evaluation of Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, remediating prior material weaknesses, and no auditor attestation report is required for this smaller reporting company - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[562][567] - This assessment indicates a remediation of the material weaknesses present in the prior fiscal year (ended March 31, 2024)[215][570] - As a smaller reporting company, an attestation report from the independent registered public accounting firm on internal controls is not included[569] Other Information (Part III & IV) This section incorporates by reference information on governance, compensation, and ownership from the forthcoming proxy statement, and lists financial statements and exhibits Incorporation by Reference and Exhibits Information for Items 10-14, including Directors, Executive Compensation, and Security Ownership, is incorporated by reference from the 2025 Proxy Statement, with Item 15 listing financial statements and exhibits - Items 10-14, covering Directors, Executive Officers, Executive Compensation, Security Ownership, Certain Relationships and Related Transactions, and Principal Accounting Fees, are incorporated by reference from the forthcoming 2025 Proxy Statement[577][578][579][580][581]