LiveOne, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended December 31, 2021 (fiscal 2022); filed February 14, 2022. The filing describes LiveOne as a music, entertainment and technology platform spanning subscriptions, advertising, live and virtual events, podcasting and merchandising. Comparisons below are to the corresponding 2020 periods unless noted. Amounts are in U.S. dollars.
Financial performance and liquidity
| Metric | Three months ended Dec. 31 | Nine months ended Dec. 31 |
|---|---|---|
| Revenue | $32.9 million, up 72% from $19.1 million | $93.6 million, up 112% from $44.2 million |
| Cost of sales | $27.7 million, up 90% | $74.7 million, up 130% |
| Contribution margin (revenue less cost of sales; non-GAAP) | $5.2 million vs. $4.6 million; about 15.9% vs. 23.8% of revenue | $18.9 million vs. $11.7 million; about 20.2% vs. 26.4% |
| Operating loss | $10.0 million vs. $7.6 million | $29.6 million vs. $20.5 million |
| Net loss | $11.8 million, or $0.15 per share, vs. $8.7 million, or $0.12 per share | $35.1 million, or $0.45 per share, vs. $26.5 million, or $0.40 per share |
| Adjusted EBITDA (non-GAAP) | Loss of $4.8 million vs. loss of $1.9 million | Loss of $8.7 million vs. loss of $3.4 million |
| Operating cash flow | Nine-month cash use was $10.2 million vs. $9.1 million |
At December 31, cash and cash equivalents were $12.4 million, plus $0.3 million restricted cash. Current assets of $35.5 million were below current liabilities of $57.9 million; the reported working-capital deficiency was $22.3 million. Total assets were $82.6 million and stockholders’ deficit was $2.8 million.
Debt carrying amounts included $13.4 million of secured convertible notes, $5.8 million of related-party unsecured convertible notes, $7.0 million drawn on a revolving facility, and $0.8 million of other notes payable. Management reported total consolidated indebtedness of $26.9 million, net of fees and discounts. The $15.0 million secured Harvest notes bear 8.5% interest, mature June 3, 2023, and are secured by substantially all assets; the company must maintain specified cash levels. The $7.0 million revolving facility matures June 2, 2023. The filing says the company was in compliance with debt covenants at December 31.
Material changes and business developments
- Nine-month revenue growth reflected increases in advertising, merchandising, ticket/event, sponsorship/licensing and subscription revenue. Merchandising growth largely followed the CPS acquisition; advertising growth was attributed primarily to PodcastOne; event revenue benefited from Social Gloves and Spring Awakening. These comparisons are affected by acquisitions and different event activity in the periods.
- Quarterly revenue mix was approximately 33% subscriptions, 26% advertising, 20% merchandising, 18% ticket/event and 3% sponsorship/licensing. Ticket/event revenue rose to $6.0 million from $0.2 million, while sponsorship/licensing declined to $1.2 million from $2.1 million.
- Cost of sales grew faster than revenue in both comparison periods, reducing contribution margin as a percentage of sales. Management attributed event-cost increases to Social Gloves and Spring Awakening and merchandising growth/costs to CPS.
- Paid music-platform subscribers were approximately 1.369 million at quarter-end, up 37% from approximately 1.006 million a year earlier. The filing notes that some counted subscribers are subject to a contractual dispute and generate no recognized revenue.
- LiveOne livestreamed 42 events, featuring 231 artists and more than 400 hours of programming during the quarter. It acquired Gramophone Media in October 2021 for reported net consideration of approximately $0.4 million, including cash, shares and contingent consideration.
- Cash declined by $6.1 million over the nine months. Financing provided $7.2 million, primarily from the $7.0 million revolving-credit draw; investing used $3.1 million, primarily for internally developed software and equipment.
Outlook, risks and unusual items
- Going concern: Management stated that recurring losses, $10.2 million of operating cash use for the nine months and the working-capital deficiency raise substantial doubt about the company’s ability to continue as a going concern within one year. Continued operations depend on executing its strategy, improving results, managing costs and obtaining additional financing; there is no assurance financing will be available on acceptable terms.
- Financing and dilution: A replacement $150 million shelf registration statement was filed February 4, 2022, subject to SEC effectiveness. The prior shelf had $121.5 million of stated remaining availability for a limited period. Additional equity or convertible financing could dilute shareholders; debt financing could add restrictions.
- Customer concentration: Tesla accounted for 25% of nine-month revenue, down from 38% a year earlier, and 26% of quarterly revenue in both periods. Tesla may terminate its agreement for convenience; loss or reduced business could materially affect results.
- COVID-19 and execution: Management cited continuing uncertainty for in-person events, advertising demand, sponsorship, ticketing and access to capital. It expected to resume and expand live events as conditions allowed, but gave no quantified revenue, earnings or cash-flow guidance. It also planned substantial product and engineering investment over the following 12–24 months.
- Debt and content obligations: The company faces significant debt maturities, secured-debt covenants and minimum content commitments. Future royalty rates, license renewals and minimum guarantees may pressure margins and cash flow.
- Unusual items: Nine-month results included a $2.5 million PPP-loan forgiveness gain and a $4.3 million loss on extinguishment of debt. A $0.8 million debt-exchange expense was recorded in the quarter. The Social Gloves-related claims were settled during the quarter; the filing reports approximately $3.0 million of payments from event proceeds and dismissal of the claims.
- Litigation and controls: A remaining fraudulent-inducement claim in the Wantickets-related lawsuit sought approximately $10 million; management assessed loss as not probable but said an adverse outcome could be material. Management concluded disclosure controls were ineffective due to previously identified material weaknesses; remediation was ongoing and not yet complete.
Most important facts for investors to verify
- Whether LiveOne can fund operations and meet obligations without raising capital, and the terms, timing and availability of any financing.
- The status and economics of the Tesla agreement, including the disputed subscriber count and revenue recognition.
- Whether subscriber and acquired-business growth can translate into improved contribution margins, lower cash burn and sustainable profitability.
- Debt maturities, cash-maintenance requirements, covenant compliance and the company’s ability to refinance or repay obligations.
- The outcome of the remaining litigation, content-license obligations and other contractual commitments.
- Progress in remediating material weaknesses and the effectiveness of disclosure controls after sufficient operation and testing.