Business context and reporting period
LiveXLive Media, Inc. filed this Form 10-K for the fiscal year ended March 31, 2020 (FY2020), compared with FY2019. It operates a single music-services segment combining Slacker-powered audio subscriptions, live-music streaming and, from February 2020, React Presents’ event-promotion business. The filing is annual, not a standalone 2019 fourth-quarter report; React Presents is included for only 56 days.
Financial and operating metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $38.7 million | $33.7 million |
| Subscription revenue | $35.9 million | $30.4 million |
| Advertising and licensing revenue | $2.5 million | $3.3 million |
| Ticket/event revenue | $0.3 million | None reported |
| Cost of sales | $32.8 million | $31.2 million |
| Contribution margin (revenue less cost of sales) | $5.9 million; 15.2% of revenue | $2.5 million; 7.5% of revenue |
| Operating loss | $36.0 million | $33.9 million |
| Net loss | $38.9 million | $37.8 million |
| Cash used in operating activities | $4.9 million | $5.8 million |
At March 31, 2020, cash and cash equivalents were $5.7 million and restricted cash was $6.7 million. Current assets were $17.7 million versus current liabilities of $47.8 million, a $30.0 million working-capital deficiency. Total liabilities were $61.2 million. The filing describes approximately $16.6 million of indebtedness, excluding interest and unamortized discounts and issuance costs; debt carries restrictive covenants, and the secured debentures bear 12.75% interest. The company reported $12.4 million of cash and restricted cash combined, but $6.5 million minimum cash was required under its debt arrangements.
FY2020 ended with approximately 850,000 paid subscribers, up from 680,000, and approximately 1.0 million monthly active users. The company streamed 42 festivals and events, reporting over 69 million views.
Material changes versus the prior comparable period
- Revenue grew 15%, led by an 18% increase in subscriptions. The largest customer, Tesla, generated $23.1 million, or 60% of revenue, up from 41% in FY2019.
- Advertising and licensing revenue fell 25%, attributed largely to lower listening hours among free users. Cost of sales rose 5%, improving contribution margin, but operating expenses increased 15%.
- Operating loss widened by $2.1 million and net loss by $1.2 million. Adjusted operating loss, a non-GAAP measure, was essentially unchanged at $12.6 million.
- Operating cash use improved by $0.9 million, while cash and restricted cash combined declined by $1.5 million. FY2020 financing included $9.5 million net proceeds from a common-stock offering and $3.0 million of debenture repayments.
- React Presents was acquired in February 2020, financed with a $2.0 million convertible note; the acquisition contributed $0.3 million revenue and $0.3 million net loss in the reported period.
Outlook, management commentary, risks and unusual items
- Going concern: The auditor’s report and management disclosures state that recurring losses, negative operating cash flow and the working-capital deficiency raise substantial doubt about the company’s ability to continue as a going concern. Management cited the need to grow revenue, reduce costs and obtain financing; success is not assured.
- COVID-19: The pandemic halted or postponed in-person events, including React Presents’ forecast 2021 events, and reduced programmatic advertising demand and rates. Management pivoted to digital-only programming. It reported more than 20 digital events streamed by May 31, 2020, and described sponsorship growth and a new pay-per-view offering; these are post-year-end developments, not FY2020 results. The duration and financial effect of the pandemic remain uncertain.
- Management outlook: No specific consolidated revenue or earnings guidance is provided. Management expected higher product-development, sales and marketing, general and administrative, and amortization expenses in FY2021. It anticipated a greater advertising mix, continued digital-event and pay-per-view development, and further investment in the platform. PodcastOne’s proposed acquisition, for 5,454,545 shares, was expected to close in July 2020, subject to conditions; it was not completed as of the filing.
- Customer and financing risks: Tesla’s agreement may be terminated for convenience, and the filing warns that Tesla concentration and a temporary production halt could impair subscriber growth. Debentures include monthly redemption rights, minimum-cash and financial covenants, and potential repayment or dilution risks. The company reported covenant waivers after missing revenue tests for two quarters, and the Manatt note was past due with judgments and a lien.
- Contingencies: A music licensor sued Slacker after year-end for approximately $7.7 million in unpaid license payments; the amount was accrued, and the company was negotiating payment terms. In Wantickets-related litigation, plaintiffs sought approximately $26.7 million; management said loss was not probable, but the possible outcome could materially affect the company. The filing also reports a past-due $0.3 million professional-services note and other legal matters.
- Controls and dilution: Management found internal control over financial reporting ineffective at March 31, 2020 due to a material weakness in classification of current and noncurrent liabilities; prior-year weaknesses were reported as remediated. The company also issued substantial equity compensation and may need further equity or debt financing. The PPP loan was less than $2.0 million, with forgiveness uncertain.
Most important facts for investors to verify
- Whether the company obtained financing sufficient to address the going-concern uncertainty, near-term obligations and $30.0 million working-capital deficiency.
- Current Tesla contract status, revenue concentration, subscriber economics and the effect of Tesla’s production and service decisions.
- Actual post-year-end revenue, sponsorship, pay-per-view sales and margins from digital events, and whether in-person events resumed.
- Debenture redemptions, covenant compliance, restricted-cash availability, maturity payments and potential share dilution.
- Resolution and payment status of the $7.7 million music-licensor claim, the Wantickets litigation and the past-due Manatt judgment.
- Whether the financial-reporting material weakness was remediated and whether PodcastOne closed on the announced terms.