LiveOne, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended June 30, 2022; filed August 15, 2022. Comparisons are with the three months ended June 30, 2021. LiveOne operates a music, entertainment and technology platform spanning memberships, advertising, live events, podcasts and merchandising.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Revenue | $23.2 million | $38.8 million | Down 40% |
| Operating income (loss) | $0.2 million | $(10.0) million | Improved |
| Net income (loss) | $1.3 million | $(8.1) million | Improved |
| Adjusted EBITDA (non-GAAP) | $2.0 million | $(1.8) million | Improved |
| Operating cash flow | $(0.03) million | $0.8 million | Declined |
| Cash, cash equivalents and restricted cash | $11.3 million | $24.7 million | Down year over year |
Cost of sales was $15.4 million, or 66% of revenue, versus $30.9 million, or 80%. Contribution margin, a non-GAAP measure, was $7.8 million (34% of revenue), compared with $7.8 million (20%). Interest expense was approximately $1.0 million. Q1 FY2023 other income included a $2.2 million gain from settling PodcastOne acquisition contingent consideration; the prior-year period included $2.5 million of PPP loan-forgiveness income. The company reported basic and diluted earnings per share of $0.02, versus a loss of $0.10.
At June 30, 2022, total assets were $72.4 million and total liabilities were $82.2 million, leaving a stockholders’ deficit of $9.8 million. Working capital deficiency was $25.7 million. The balance sheet included $15.0 million principal on secured convertible notes, a $7.0 million revolving credit balance and approximately $6.0 million of related-party unsecured convertible notes; the company reported total indebtedness of $27.1 million net of fees and discounts. Accrued royalties were $16.9 million.
Changes versus the prior period
- Revenue fell primarily because the prior-year quarter included the Social Gloves event: ticket/event revenue declined $12.7 million and sponsorship/licensing fell $5.0 million, with no comparable event in 2022.
- Membership revenue rose 33% to $12.1 million, and advertising revenue rose 13% to $8.9 million. Paid music members were approximately 1.594 million, up 37% from approximately 1.162 million a year earlier.
- Merchandising revenue declined 49% to $1.8 million, attributed to lower retail-partner marketing, a partner being offline and reduced customer demand.
- Operating results benefited from lower expenses, including reduced stock-based compensation and vendor credits. Net income and Adjusted EBITDA improved, but operating cash flow was slightly negative.
Liquidity, outlook and significant matters
- Going concern: Management states that the accumulated deficit, working capital deficiency and other factors raise substantial doubt about the company’s ability to continue as a going concern within one year of filing. Management expects to rely on improved operating results, cost reductions and access to financing; it gives no assurance that financing will be available or on acceptable terms. An effective shelf registration allows up to $150 million of securities to be offered.
- Outlook: No quantified revenue or earnings guidance is provided. Management expects modest adverse COVID-19 effects to continue during fiscal 2023, while anticipating more in-person events as conditions ease. It plans ongoing product and engineering investment over the next 12–24 months and sees member growth, content, advertising and event monetization as key drivers.
- Customer concentration: Tesla accounted for 43% of quarterly revenue, compared with 18% a year earlier; the OEM customer generated $10.0 million. The filing warns that termination, renegotiation or reduced business from this customer could materially affect results.
- Debt amendments after quarter-end: In July 2022, Harvest Notes maturity was extended to June 2024, with revised cash requirements and repayment terms. The amendment provides for additional shares and lower conversion prices if specified repayment thresholds are not met. Trinad related-party notes were also extended to July 2024, with 500,000 shares issued for the extension. The revolving credit facility maturity was extended to June 2024 in August.
- PodcastOne financing and proposed spin-out: In July, PodcastOne raised $8.0 million gross proceeds through convertible notes with warrants; LiveOne purchased $3.0 million of the notes. LiveOne said it intends to spin out PodcastOne as a separate public company and distribute a portion of its equity to LiveOne stockholders, subject to approvals, consents, listing requirements and other conditions. Completion and timing are uncertain.
- Legal and contractual exposures: A pending New York lawsuit seeks approximately $10 million; management says loss is not probable but acknowledges an uncertain outcome and potentially material impact. SoundExchange sued over alleged unpaid royalties; the company says it believes amounts are reserved and is negotiating. Content-provider guaranteed payments include $3.7 million due in fiscal 2023, plus later-year commitments.
- Controls and capital allocation: Management concluded disclosure controls were not effective at quarter-end because of material weaknesses identified in the fiscal 2022 annual report. The company repurchased 1.19 million shares for $1.0 million during the quarter and repurchased an additional 813,779 shares after quarter-end through August 9.
Important facts for investors to verify
- Whether LiveOne can address the $25.7 million working capital deficiency, maintain required cash levels and obtain adequate financing despite the going-concern warning.
- The durability of the Tesla relationship and the resulting concentration of revenue and paid memberships.
- Whether recurring revenue and margins can offset the absence of large one-off events, and whether operating cash flow turns consistently positive.
- The full terms, dilution, repayment triggers and cash constraints associated with the Harvest, Trinad and revolving-credit amendments.
- Whether PodcastOne’s financing, proposed spin-out, required consents and exchange listing can be completed, and what value or dilution results for LiveOne shareholders.
- The status and potential cost of the SoundExchange matter, the New York litigation and royalty obligations; also monitor remediation of the disclosed control weaknesses.