LiveXLive Media, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended September 30, 2019; filed November 8, 2019. Financial statements are unaudited. Amounts below are in U.S. dollars unless noted.
Business context
LiveXLive is a digital media company focused on live entertainment, music streaming, subscriptions, advertising and content licensing. It reports one operating segment. The company streamed 10 major festivals and events in the quarter and reported approximately 775,000 paid subscribers, up 41% from approximately 549,000 a year earlier.
Financial results and liquidity
| Metric | Three months ended Sept. 30, 2019 | Prior-year quarter | Six months ended Sept. 30, 2019 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $9.6 million | $8.0 million | $19.1 million | $15.6 million |
| Operating loss | $9.9 million | $9.5 million | $20.2 million | $19.6 million |
| Net loss | $10.6 million | $10.3 million | $21.6 million | $21.1 million |
| Net loss per share | $0.19 | $0.20 | $0.40 | $0.41 |
- Quarterly subscription revenue rose 24% to $9.0 million; advertising and licensing revenue was $0.6 million. For the six-month period, subscriptions increased 27% to $17.6 million, while advertising and licensing declined 10% to $1.5 million.
- Cost of sales was $8.5 million for the quarter, equal to 88% of revenue; reported gross profit was $1.1 million, approximately 12% of revenue. Operating expenses totaled $19.5 million.
- Six-month operating cash use was $4.8 million; investing cash use was $1.0 million; financing provided $8.1 million. Cash and cash equivalents were $16.1 million at September 30, up from $13.7 million at March 31.
- Current assets were $21.9 million and current liabilities $45.4 million, a $23.5 million working-capital deficit. Total liabilities were $54.5 million; stockholders’ equity was $4.3 million.
- Debt carrying amounts included $10.9 million of current secured convertible debentures, $4.9 million of unsecured convertible notes and a $0.3 million note payable. The debentures bear 12.75% interest, are secured by substantially all company assets and permit monthly redemptions of up to $0.2 million of principal.
Material changes and management outlook
- Revenue growth reflected subscriber expansion, while cost of sales increased more slowly than revenue. However, sales and marketing, product development and general and administrative expenses rose substantially; reported operating and net losses remained large.
- The July 2019 registered offering raised $10.5 million gross and approximately $9.6 million net from 5 million shares, increasing dilution. Shares outstanding were approximately 57.8 million at quarter-end.
- The company extended payment terms on $10.0 million owed to music licensors: $6.1 million remained current and $3.9 million was classified as long-term. It also issued a music partner $0.4 million of restricted shares in settlement of certain amounts due.
- Management expects to continue investing in product development and engineering over the next 12–24 months and anticipates higher sales and marketing and product development spending in fiscal 2020. It expects advertising’s share of revenue to rise, but the filing describes timing both as starting in the second half of 2020 and potentially as early as mid-fiscal 2020.
- Management stated it believes available liquidity can fund operations for at least 12 months, but the filing says recurring losses, operating cash use and the working-capital deficit raise substantial doubt about the company’s ability to continue as a going concern. Additional financing may be needed; availability and terms are uncertain.
Key risks, contingencies and unusual items
- Customer concentration: Tesla accounted for 56% of revenue in the six months ended September 30, 2019. The agreement may be terminated for convenience, and Tesla-subsidized service is not guaranteed to continue.
- Debt and covenants: The company was compliant with debenture financial covenants at quarter-end but considered a future breach tied to near-term revenue targets probable; it therefore classified the debentures as current. Monthly redemptions and potential dilution or cash demands add liquidity risk.
- Past-due obligation: A $0.3 million note payable was past due, and the holder obtained judgments in Delaware and California.
- Litigation: A New York lawsuit related to a prior acquisition seeks approximately $26.7 million. The company disputes the claims; the outcome is uncertain and a loss could materially affect the business. The Wynn matter’s disclosed potential loss was not material.
- Content costs: Accrued royalties were $11.4 million. The company has $5.2 million of future minimum guarantees and disclosed that licensing terms, royalty rates and rights-holder audits could affect costs.
- Controls: Management concluded disclosure controls and procedures were not effective at quarter-end because of previously identified material weaknesses; remediation was ongoing.
- Amortization of intangible assets fell year over year following changes related to the Slacker purchase price allocation and prior amortization of customer relationships. The filing reported no impairment losses for the period.
Important facts for investors to verify
- Whether revenue growth and subscriber gains continue, particularly if Tesla changes, ends or reduces its arrangement or subsidy.
- Actual cash burn, financing needs, and progress toward addressing the going-concern uncertainty and working-capital deficit.
- Debenture revenue-covenant performance, redemption requirements, debt classification and any resulting cash payments or share dilution.
- Developments in the $26.7 million acquisition-related lawsuit and the past-due note judgments.
- Whether higher investment in marketing and product development improves margins, and the timing and economics of advertising growth.
- Remediation of the material weaknesses in disclosure controls and any changes to financial reporting controls.