LiveXLive Media, Inc. (NASDAQ: LIVX) — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended September 30, 2020; filed November 16, 2020. Unaudited. Unless stated otherwise, amounts are U.S. dollars in millions. The filing issuer is LiveXLive Media, Inc.
Business context
LiveXLive operates a livestream and on-demand audio, video, and podcast platform, alongside live-event and ticketing activities. The quarter included PodcastOne, acquired July 1, 2020, and reflected React Presents, acquired in February 2020. COVID-19 halted or postponed in-person events; the company shifted toward digital events and launched pay-per-view in May 2020.
Key financial results
| Metric | Three months ended Sep. 30, 2020 | Three months ended Sep. 30, 2019 | Six months ended Sep. 30, 2020 | Six months ended Sep. 30, 2019 |
|---|---|---|---|---|
| Revenue | $14.6 | $9.6 | $25.1 | $19.1 |
| Gross profit (revenue less cost of sales) | $4.3 | $1.1 | $7.1 | $1.6 |
| Gross margin | 29.3% | 11.8% | 28.3% | 8.5% |
| Operating loss | $(7.1) | $(9.9) | $(12.9) | $(20.2) |
| Net loss | $(10.2) | $(10.6) | $(17.7) | $(21.6) |
| Basic and diluted loss per share | $(0.15) | $(0.19) | $(0.28) | $(0.40) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(4.9) | $(4.8) |
Quarterly revenue rose 52%; six-month revenue rose 31%. Advertising revenue increased sharply following PodcastOne’s acquisition, while subscription revenue declined. Six-month adjusted operating income (a non-GAAP measure) was $1.0 million versus an adjusted operating loss of $5.7 million a year earlier; quarterly adjusted operating loss narrowed to $0.1 million from $2.1 million. These company-defined measures exclude specified items and are not GAAP results.
Revenue mix and operating changes
- Quarterly revenue: subscriptions $7.7 million (down 14%); advertising $5.5 million (up from $0.6 million); sponsorship and licensing $0.2 million; ticket/event $1.1 million, including PPV.
- For the six months, subscriptions were $16.6 million (down 5%), advertising $5.7 million, sponsorship and licensing $1.4 million, and ticket/event $1.3 million.
- Management attributed subscription declines partly to a contractual dispute involving certain subscribers; the company said it was not recognizing revenue for those subscribers. It reported approximately 936,000 paid music subscribers at quarter-end, up from 775,000 a year earlier, and approximately 0.8 million monthly active users.
- PodcastOne contributed $5.3 million of revenue after acquisition and $0.1 million of net income in the reported period. Acquisition accounting was provisional; the purchase included 5.36 million shares, contingent consideration, and goodwill.
- Management reported 29 livestreamed events during the quarter, more than 7.5 million live views, 274 artists, and 215 hours of programming. It cited lower production costs and improved digital-event monetization.
Balance sheet, debt, and liquidity
- At September 30, cash and cash equivalents were $20.7 million, plus $0.2 million restricted cash. Total assets were $81.0 million; total liabilities were $67.8 million; stockholders’ equity was $13.2 million. Working capital deficiency was $11.8 million.
- Reported debt carrying amounts included $2.97 million of notes payable, $7.12 million of unsecured convertible notes, and $12.87 million of senior secured convertible notes, approximately $23.0 million combined. The company also disclosed $15.0 million principal on the new senior secured notes and $7.4 million principal on unsecured convertible notes.
- In September, the company issued $15.0 million of 8.5% senior secured convertible notes due September 2022, convertible at $4.50 per share. The notes are secured by substantially all company and subsidiary assets, restrict certain activities, and require at least $10.0 million of aggregate cash deposits to be maintained. The company reported covenant compliance at quarter-end.
- The prior senior secured convertible debentures were repaid in August; repayment included a 0.7 million prepayment penalty and contributed to a $1.5 million debt-extinguishment loss.
- Six-month financing cash flow was $13.7 million, principally from the new secured notes and equity proceeds, partly offset by repayment of the former debentures. Investing cash outflow was $0.2 million. Cash, cash equivalents, and restricted cash increased by $8.5 million to $21.0 million.
- Management and the financial statement notes state that recurring losses, the working-capital deficit, and financing needs raise substantial doubt about the company’s ability to continue as a going concern within one year of filing. The company is seeking additional equity and/or debt financing; availability and terms are not assured.
Outlook, risks, contingencies, and unusual items
- Management expected the revenue mix to shift toward advertising, sponsorship, digital events, and PPV during fiscal 2021. It anticipated increased sales and marketing, product development, and general and administrative spending as it expands. No quantified earnings or revenue guidance was provided.
- COVID-19 continued to prevent or delay in-person events and weakened portions of programmatic advertising. Management noted growth in digital events and monetization, but emphasized uncertainty about the pandemic’s duration and financial impact.
- Tesla accounted for 66% of revenue in the six months ended September 30, 2020, versus 56% a year earlier. The company warned that loss or reduction of this customer relationship could materially harm results.
- Minimum guaranteed content and promotional payments included $3.9 million for the remainder of fiscal 2021, $6.8 million for fiscal 2022, $5.9 million for fiscal 2023, and $4.1 million for fiscal 2024. Separately disclosed content-provider contractual guarantees were $0.7 million for fiscal 2021, $0.7 million for fiscal 2022, and $0.1 million for fiscal 2023.
- A New York lawsuit seeks approximately $26.7 million plus other relief. The company said a loss was not probable at September 30, 2020, but the outcome was uncertain and the potential loss could materially affect the business. A separate music-licensor claim for approximately $7.7 million was withdrawn without prejudice after a share payment; a $3.1 million additional payment liability was recorded under the share agreement.
- After quarter-end, the company signed a binding letter of intent to acquire CPS, with $4.5 million of restricted shares contemplated at closing and another $1.5 million subject to performance and working-capital conditions. Closing was conditional and not assured. The company also extended payment terms on $5.9 million owed to a music licensor over 12–24 months.
- Shares outstanding increased to 71.7 million at September 30 from 59.0 million at March 31. A further 5.0 million shares were approved for addition to the equity plan, creating potential dilution. The new convertible notes are also convertible into common stock.
- Management concluded disclosure controls and procedures were not effective at quarter-end because of material weaknesses previously identified in the 2020 Form 10-K; remediation was ongoing, including integration of PodcastOne controls.
Most important facts for investors to verify
- Funding runway, access to additional capital, and the company’s ability to meet the senior-note cash-deposit requirement and debt maturities.
- The status and revenue treatment of disputed subscribers, and the sustainability of the subscriber base and Tesla relationship.
- Whether PodcastOne and digital-event advertising and sponsorship growth can offset subscription weakness and COVID-19-related event disruption.
- Final PodcastOne purchase accounting and earn-out exposure; CPS closing conditions, consideration, and expected economics.
- Developments in the $26.7 million lawsuit, music-licensor obligations, and other contingencies.
- Progress remediating material weaknesses and the potential dilution from equity awards, acquisitions, and convertible securities.